Explainer-How Boeing's plea deal could affect the planemaker

FILE PHOTO: A Boeing 737 Max aircraft during a display at the Farnborough International Airshow, in Farnborough

By Chris Prentice, Mike Spector and David Shepardson

(Reuters) - Boeing will plead guilty to criminal fraud conspiracy to resolve a U.S. Justice Department (DOJ) investigation linked to two 737 MAX fatal crashes, the government said in a court filing late on Sunday.

The agreement in principle between the DOJ and Boeing allows the company to escape a courtroom battle with federal prosecutors but could complicate its efforts to overcome an ongoing crisis sparked by the Jan. 5 mid-air panel blowout on an Alaska Airlines-operated flight.

The deal follows a DOJ finding in May that Boeing breached a 2021 agreement that had shielded it from prosecution over the crashes in Indonesia and Ethiopia in 2018 and 2019 that killed 346 people.

WHAT WAS BOEING'S ORIGINAL AGREEMENT?

The DOJ in 2021 agreed to hold off prosecuting Boeing and asked a judge to dismiss a charge of conspiring to defraud the U.S. Federal Aviation Administration so long as the company abided by the deal's terms over a three-year period.

Boeing agreed to overhaul compliance practices to prevent violation of U.S. fraud laws and submit regular reports. But the January mid-air emergency occurred two days before the agreement expired.

The planemaker had told prosecutors it disagrees with their finding and said it "honored the terms" of the settlement.

WHAT HAPPENS NEXT TO BOEING?

A judge will need to sign off on the agreement, which DOJ and Boeing hammered out in advance of a July 7 deadline for the government to decide whether to prosecute the company. The DOJ and Boeing are working to finalize it and file it to the court by July 19, the filing said.

WHAT DOES A GUILTY PLEA MEAN FOR BOEING?

A felony conviction could disrupt Boeing's ability to secure government contracts such as those with the U.S. military. Boeing's government contracts in 2023 accounted for 37% of its annual revenue including foreign military sales through the U.S. government. Boeing had $14.8 billion in Defense Department contracts in 2022, per a government report.

"In the world of government contracting, an indictment or finding of criminal liability can have a significant impact on a company," said Franklin Turner, a government contracts lawyer at McCarter & English.

Boeing could seek waivers from government departments and agencies to continue contracting with them. Some previous DOJ settlements have provided details on how officials should address the issue. It remains unclear to what extent the proposed Boeing plea deal does.

Government officials at each department or agency would have to decide whether Boeing, as a convicted felon, is entitled to a waiver, said Vikramaditya Khanna, a law professor at University of Michigan.

WHAT ARE THE FINANCIAL PENALTIES FOR BOEING?

The agreement includes a $487.2 million financial penalty, about half of which Boeing would need to pay as the government would credit it for previous penalties.

Boeing would likely be forced to pay restitution, an amount to be decided by a judge. The company already paid $2.5 billion in penalties and restitution in 2021 in connection with the original conspiracy charge, which included a criminal penalty and compensation for customers and relatives of crash victims.

The plea offer includes putting Boeing on probation for three years.

WHAT OTHER COSTS ARE THERE?

A federal judge can still decide on whether the company should pay any additional restitution for the victims' families. Boeing has also agreed to spend at least $455 million over the next three years to strengthen and integrate its compliance and safety programs, the filing said.

WHO WILL BE BOEING'S THIRD-PARTY MONITOR?

The plea deal includes the appointment of an independent monitor to audit Boeing's safety and compliance practices for three years.

The Justice Department under President Joe Biden has renewed the use of corporate monitors in its deals with companies to resolve charges of misconduct. The practice had fallen out of favor under the previous administration.

Companies typically fight against these terms. The outside firms, which are selected by the DOJ, act as the government’s eyes and ears. The company foots the bill.

WHAT ABOUT THE FAMILIES OF THE CRASH VICTIMS?

Boeing's board of directors will meet with the families of victims of the fatal crashes as part of the plea agreement.

(Reporting by Chris Prentice, Mike Spector and David Shepardson; Editing by Lisa Shumaker, Joe Brock and Jamie Freed)