Boeing agrees to plead guilty to defrauding US regulators but escapes punishment sought by victims’ families

New York (CNN) — Boeing has agreed to plead guilty to one charge of conspiracy to defraud the United States and potentially pay up to $487 million in fines to avoid prosecution, the Justice Department said in a court filing Sunday evening.

But that fine is a fraction of the $24.8 billion that families of crash victims wanted the aircraft maker to pay. The families of victims of two fatal crashes of the 737 Max oppose the deal, the department said.

The agreement stipulates that Boeing will have to operate under the oversight of an independent monitor, to be chosen by the government, for a period of three years. But that oversight and the fine did not satisfy the families of victims, according to their attorney.

“This sweetheart deal fails to recognize that because of Boeing’s conspiracy, 346 people died,” said a statement from Paul Cassell, a law professor of University of Utah who represents many family members of the 2018 Lion Air crash and 2019 Ethiopian Air crash victims.

“This deceptive and generous deal is clearly not in the public interest,” he added. The families are seeking a public trial on the charges.

Boeing issued a brief statement saying only that it can “confirm that we have reached an agreement in principle on terms of a resolution with the Justice Department, subject to … approval of specific terms.”

The guilty plea is a severe blow to the reputation of Boeing, a company once known for the quality and safety of its commercial jets. Beyond the fatal crashes of the 737 Max jets, the company has faced a series of questions about the safety and quality of its planes. In January, a door plug on a 737 Max flown by Alaska Air blew out early in a flight, leaving a gaping hole in the side of the jet, and further damaging Boeing’s reputation.

A design flaw hidden from regulators

According to the charges, the company defrauded the Federal Aviation Administration during the process of certifying the 737 Max to carry its first passengers. The plane started service in 2017, but the two fatal crashes led to a 20-month grounding of the jets. Investigations revealed a design flaw in its autopilot system. Boeing has admitted responsibility for the fatal crashes, and that its employees withheld information about the design flaw from the FAA during certification.

In January 2021, the Justice Department and Boeing had reached an agreement to settle criminal charges, and defer any prosecution on the matter. During a three-year probationary period that followed, Boeing agreed to improve its quality issues and transparency with the government. But days before that probationary period was due to end came the Alaska Air incident, which opened the door to further Justice Department action.

In May, the Justice Department said it was looking into bringing criminal charges against Boeing once again due to a potential violation of that January 2021 agreement. Boeing had argued in its own court filings that it did not violate the agreement and that it should be spared prosecution. Sunday night’s guilty plea, which came just before a midnight deadline set by the Justice Department, settled that issue.

Cost of the guilty plea

Under the original 2021 agreement, Boeing had agreed to pay $2.5 billion. But about 70% of that amount represented payments Boeing had already agreed to make to its airline customers as compensation for the 20-month grounding of the planes. Another $500 million was a fund to compensate crash victims. Only $243.6 million represented a criminal fine to the government, which would be doubled after the new guilty plea.

Boeing has also agreed to spend $455 million on its compliance and safety programs, over the next three years, which the government said will represent a 75% increase over what the company was spending annually on those programs.

The company’s various problems have caused deep financial losses since the second fatal 737 Max crash. It has posted core operating losses of $31.9 billion since the start of the 20-month grounding. It is also at risk of losing its investment grade credit rating for the first time in its history.

The company now has nearly $47 billion in long-term debt, and if its debt rating is downgraded to junk bond status, its cost of borrowing money will soar.

But an additional fine in the hundreds of millions, rather than the billions, is still affordable for the company, despite its financial woes.

No executives to face charges

The agreement does not call for prosecution of any current or former Boeing executives or other employees for their role in the certification process. The company also avoided another serious penalty – the loss of the right to conduct business with the government.

Such a penalty would have been a near death sentence for the planemaker. About 37% of its revenue in 2023 came from federal contracts.

According to Richard Aboulafia, managing director at AeroDynamic Advisory, an aerospace and defense management consultant, the possibility of such a penalty was minimal as both Boeing and the federal government are heavily reliant on each other.

Despite its troubles over the last five years, Boeing is still a key component of the US economy. It remains the nation’s largest exporter, and has nearly 150,000 US employees. The company estimates its economic impact at $79 billion, supporting 1.6 million direct and indirect jobs at more than 9,900 suppliers spread across all 50 states.

Its only significant rival for commercial aircraft, European manufacturer Airbus, has a backlog of more than 8,000 jet orders, meaning any Boeing customer placing an order for an Airbus plane today would have to wait nearly a decade for it to be delivered.

This story has been updated with additional reporting and context.

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