Boeing agrees to pay $2.5B to resolve criminal fraud case in 737 MAX crisis

Alan Boyle
·4-min read
Ethiopian Airlines accident scene
Ethiopian Airlines Group CEO, Tewolde GebreMariam, visits the site of a catastrophic 737 MAX airplane crash Ethiopia just after the March 2019 incident. (Ethiopian Airlines Photo via Twitter)

Boeing says it’s entered into a $2.51 billion agreement with the U.S. Justice Department to resolve a criminal charge related to the Federal Aviation Administration’s evaluation of Boeing’s 737 MAX airplanes.

The deferred-prosecution agreement addresses a single charge of conspiracy to defraud FAA inspectors about the safety of the 737 MAX’s automated flight control system. Investigators say changes to a component known as the Maneuvering Characteristics Augmentation System, or MCAS, were to blame in a pair of catastrophically fatal 737 MAX crashes that occurred in Indonesia in October 2018 and in Ethiopia in March 2019.

Those crashes led the FAA and other regulators to ground hundreds of 737 MAX planes operated by airlines around the world. After more than a year of investigations, software fixes and revisions to pilot training requirements, the FAA cleared the planes to return to service last November.

The agreement calls for Boeing to pay a penalty of $243.6 million, provide $1.77 billion in compensation to the airlines that purchased 737 MAX jets, and establish a $500 million fund to compensate the families of the 346 people who were killed in the two crashes. Boeing also agreed to cooperate with investigators and strengthen its anti-fraud compliance program.

If Boeing complies with the requirements of the agreement, filed today with a federal court in Texas, the criminal charge will be dismissed after three years.

“The tragic crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302 exposed fraudulent and deceptive conduct by employees of one of the world’s leading commercial airplane manufacturers,” David Burns, acting assistant attorney general in the Justice Department’s criminal division, said in a news release. “Boeing’s employees chose the path of profit over candor by concealing material information from the FAA concerning the operation of the 737 MAX airplane, and engaging in an effort to cover up their deception.”

The charge alleges that two of Boeing’s 737 MAX flight technical pilots failed to tell FAA evaluators about significant changes made in the MCAS in late 2016. Because of that failure to communicate, the FAA couldn’t take those changes into account when the pilot training requirements for the 737 MAX were drawn up in 2017.

FAA evaluators didn’t find out about the changes until after the Lion Air crash. Even then, the pilots “continued misleading others — including at Boeing and the FAA — about their prior knowledge of the change to MCAS,” the Justice Department said.

“The misleading statements, half-truths and omissions communicated by Boeing employees to the FAA impeded the government’s ability to ensure the safety of the flying public,” Erin Nealy Cox, U.S. attorney for the Northern District of Texas, said in today’s news release.

The agreement recognizes that other Boeing employees provided information about the MCAS to the FAA.

In a note to employees, Boeing CEO David Calhoun said that resolving the criminal charge was “the right thing to do,” calling it a step that “appropriately acknowledges how we fell short of our values and expectations.”

“This resolution is a serious reminder to all of us of how critical our obligation of transparency to regulators is, and the consequences that our company can face if any one of us falls short of those expectations,” Calhoun said.

In a filing with the Securities and Exchange Commission, Boeing said the company is taking a $743.6 million charge to 2020’s fourth-quarter earnings in connection with its commitments under the agreement. The $1.77 billion for customer compensation had already been reserved during prior quarters.

Today’s agreement doesn’t preclude further legal action against individuals involved in the 737 MAX crisis — potentially including the two pilots, who have previously been identified as Mark Forkner and Patrik Gustavsson.

Boeing is also facing civil lawsuits from attorneys representing the families of the crash victims. In a statement, Clifford Law Offices said that the allegations laid out by the Justice Department were “just the tip of the iceberg of Boeing’s wrongdoing,” and that the agreement would have no bearing on its pending civil litigation.

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