Boeing at Risk of Prosecution for Breaking Deal Over Crashes (1)

Boeing Co. faces possible criminal prosecution after the US Justice Department found the company violated a deferred-prosecution agreement tied to two fatal crashes half a decade ago, intensifying the crisis engulfing the embattled US planemaker.

The company breached the $2.5 billion settlement “by failing to design, implement, and enforce a compliance and ethics program to prevent and detect violations of the US fraud laws throughout its operations,” according to the filing late on Tuesday.

Boeing, whose shares were down more than 1% shortly after trading began on Wednesday, now has four weeks to respond with its analysis and comments, which will be taken into consideration with regard to any next steps. The Justice Department said it’s still determining how to proceed, including whether and how to punish the company.

The decision escalates the legal risks facing the planemaker in the wake of a near-catastrophe in early January, when a fuselage panel blew off an Alaska Airlines 737 Max 9 mid-flight after workers failed to install critical bolts. The accident took place two days before the expiration of the deferred-prosecution agreement, in which Boeing agreed to comply with the settlement and cooperate with the government for a period of three years, after which the charge would be dismissed.

“We believe that we have honored the terms of that agreement, and look forward to the opportunity to respond to the Department on this issue,” Boeing said in a statement after the Justice Department filing.

Under the terms of the accord, the company adopted a compliance program designed to prevent it from deceiving regulators, including the Federal Aviation Administration. The deferred-prosecution agreement, reached in the waning days of the Trump administration, appeared to give Boeing the equivalent of a “get out of jail free” card despite the two crashes that took the lives of 346 people.

Public Outrage

Boeing shares were down 1.1% to $178.85 at 9:38 a.m. Wednesday in New York. The shares fell less than 1% following the department’s decision in after-hours trading Tuesday. The stock has tumbled about 31% so far this year, the second-worst performance on the Dow Jones Industrial Average.

Boeing also faces another ultimatum, that one from the FAA, to devise a plan to fix what the regulator called “systemic” quality-control issues. Those 90 days, issued in late February, are set to run out at the end of this month.

Read More: Boeing Gets 90-Day FAA Ultimatum to Fix Its Quality Woes (2)

US prosecutors in Seattle have already sent subpoenas seeking documents and communications from Boeing and supplier Spirit AeroSystems Holdings Inc., which made the door plug that blew out. The US Securities and Exchange Commission is also scrutinizing Boeing’s comments about its safety practices after the Alaska Air accident.

The 2021 agreement not to prosecute Boeing over the two 737 Max jetliner crashes sparked intense criticism, including from victims’ families. Members of the victims families were outraged that prosecutors had not reached out to them before cutting the deal with Boeing, which agreed to pay a criminal fine of $243 million, but was allowed to dodge a fraud charge for withholding important information about the 737 Max from the FAA.

Presiding Judge

In 2022, the families were able to convince the presiding judge in the case that the Justice Department had improperly excluded them, in violation of the Crime Victims’ Rights Act. Even so, the judge declined to alter the terms of the Boeing agreement.

Scrutiny of Boeing has ramped up in the months since the Alaska Airlines accident, the February FAA report, and amid a wave of new whistleblower allegations pertaining to the planemaker’s manufacturing processes. Congressional panels, including the Senate Commerce Committee, have already held hearings on some of these issues with plans to have both the FAA and Boeing executives testify in the near future.

Lawyers for families of crash victims hailed the Justice Department’s findings.

“This is a positive first step, and for the families, a long time coming,” said Paul Cassell, a lawyer representing the crash victims’ families. “But we need to see further action from DOJ to hold Boeing accountable, and plan to use our meeting on May 31 to explain in more details what we believe would be a satisfactory remedy to Boeing’s ongoing criminal conduct.”

‘Egregious’ Acts

Erin Applebaum, a partner at Kreindler & Kreindler LLP who also represents families, said her clients “hope that DOJ will continue to pursue justice for Boeing’s victims and move forward with a prosecution against Boeing for its egregious criminal acts that resulted in the deaths of 346 innocent people.”

The Justice Department said it plans to confer with the families and their lawyers on May 31 and inform the court of its decision for any punishment against Boeing no later than July 7.

Boeing took steps to improve safety following the two 737 Max crashes in 2018 and 2019, including creating a chief aerospace safety officer and changing the management structure so its engineers reported to chief engineer Howard McKenzie rather than business leaders. But the measures didn’t go nearly far enough, according to scathing report issued by the Federal Aviation Administration in February.

The yearlong study found that many Boeing employees didn’t know how to flag potential safety issues and didn’t trust the “Speak Up” program the company put in place to flag wrongdoing. The planemaker was also faulted for ineffective procedures and training.

The case USA v. The Boeing Company, 21-cr-00005, US District Court, Northern District of Texas (Fort Worth).

(Updates with share price Wednesday morning.)

--With assistance from Allyson Versprille.

To contact the reporters on this story:
Chris Strohm in Washington at cstrohm1@bloomberg.net;
Julie Johnsson in Chicago at jjohnsson@bloomberg.net;
Greg Farrell in New York at gregfarrell@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Peter Blumberg, Peter Jeffrey

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