Aerospace & Defense

Boeing to pay more than $2.5 billion to settle criminal conspiracy charge over 737 Max

Key Points
  • Boeing agreed to pay a $2.5 billion fine to settle a criminal conspiracy charge, ending a roughly two-year investigation.
  • The Justice Department said Boeing employees concealed information about the aircraft's onboard software from regulators who had originally approved the planes.
  • Two 737 Max planes crashed within five months of one another in 2018 and 2019, killing all 346 people on board.
An employee works near a Boeing 737 Max aircraft at Boeing's 737 Max production facility in Renton, Washington, U.S. December 16, 2019.
Lindsey Wasson | Reuters

Boeing agreed to pay more than $2.5 billion to settle a criminal probe with the U.S. Justice Department, which accused the company of concealing information about its 737 Max airplane that was involved in two crashes that claimed 346 lives, federal prosecutors announced Thursday.

The deferred prosecution agreement closes the DOJ's roughly two-year probe and drops all charges after three years if there aren't additional violations.

Prosecutors said Boeing "knowingly and willfully" conspired to defraud the United States by undermining the Federal Aviation Administration's ability to evaluate the safety of the plane.

Boeing admitted that two of its 737 Max flight technical pilots "deceived" the FAA about the capabilities of a flight-control system on the planes, software that was later implicated in the two crashes, the Justice Department said.

The investigation team inspecting debris from the crashed aircraft of the Lion Air JT 610 at the Jakarta International Container Terminal Port's evacuation post, Priok, Jakarta, on Nov. 1, 2018. The Boeing 737 MAX 8 crashed into the Java Sea after takeoff from Jakarta on Oct. 29, 2018, killing 189.
Dasril Roszandi | NurPhoto | Getty Images

The $2.51 billion fine consists of a $243.6 million criminal penalty, a $500 million fund for crash victims family members and $1.77 billion for its airline customers. The company said it already accounted for a bulk of those costs in prior quarters and expects to take a $743.6 million charge in its 2020 fourth-quarter earnings to cover the rest.

"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," Acting Assistant Attorney General David P. Burns of the Justice Department's Criminal Division, wrote in a release. "Boeing's employees chose the path of profit over candor by concealing material information from the FAA concerning the operation of its 737 Max airplane and engaging in an effort to cover up their deception."

The company admitted to the wrongdoing and waived its rights to a trial as part of its deal with the DOJ to settle the charges. The agreement also didn't implicate top executives there, saying the misconduct wasn't pervasive nor were senior managers involved.

"This is a substantial settlement of a very serious matter, and I firmly believe that entering into this resolution is the right thing for us to do — a step that appropriately acknowledges how we fell short of our values and expectations," CEO Dave Calhoun said in a note to Boeing employees.

The crashes plunged Boeing into its worst-ever crisis that has cost Boeing about $20 billion. They sparked a worldwide grounding of its bestselling plane that lasted nearly two years, numerous investigations and damaged the reputation of one what was the world's biggest aircraft manufacturer.

Two damning congressional investigations after the crashes found management, design and regulatory lapses in the 737 Max's development and certification. This led to new legislation passed last year to reform aircraft certification, giving more control over the process to the FAA.

House Transportation and Infrastructure Committee Chairman Peter DeFazio, an Oregon Democrat whose committee led one of the reports and introduced the new certification law, slammed the settlement with the Justice Department.

"This settlement amounts to a slap on the wrist and is an insult to the 346 victims who died as a result of corporate greed," he said in a statement. "Not only is the dollar amount of the settlement a mere fraction of Boeing's annual revenue, the settlement sidesteps any real accountability in terms of criminal charges."

Boeing's 737 Max flies U.S. passengers for first time since worldwide grounding
Boeing's 737 Max flies U.S. passengers for first time since worldwide grounding

Last month, the FAA approved software and other safety changes Boeing made to the planes, clearing airlines to start flying them again. American Airlines last month became the first U.S. carrier to return the planes to commercial service. United Airlines expects to start flying them again next month and Southwest Airlines is set to follow suit in March.

Lawyers representing the family members of victims in Ethiopian Airlines Flight 302 said they intend to continue with their lawsuit against Boeing.

"This agreement, including the 'crash-victim beneficiaries fund', has no bearing on the pending civil litigation against Boeing, which we plan to prosecute fully to ensure the families receive the justice they deserve," they said.

Boeing's 737 Max jet is flying passengers again two years after fatal crashes: CNBC After Hours
Boeing's 737 Max jet is flying passengers again two years after fatal crashes