By Dave Michaels,, Andrew Tangel and Andy Pasztor
Boeing Co. will pay $2.5 billion to resolve a Justice Department
criminal investigation and admit employees misled aviation
regulators about safety issues that led to two deadly crashes of
the 737 MAX, authorities said.
The settlement, which was filed Thursday in Dallas federal
court, would lift a legal cloud that has hung over the aerospace
company for about two years since the fatal crashes. Federal
prosecutors had been investigating the role of two Boeing employees
who interacted with the Federal Aviation Administration about the
design of the 737 MAX and how much pilot training would be required
for the new model.
The settlement includes a $243 million fine as well as $2.2
billion in compensation to airline customers and families of the
346 people who perished in two MAX crashes.
The plane maker was charged with one count of conspiracy to
defraud the U.S., but will avoid prosecution on that charge as long
as it avoids legal trouble for a period of three years. The deal
also calls for Boeing to comply with any ongoing investigations,
including probes by foreign law-enforcement and regulatory
authorities, and to beef up compliance programs, according to its
agreement with prosecutors. .
The FAA -- which is conducting its own civil investigation of
Boeing's activities surrounding the MAX and could levy additional
fines and penalties -- didn't have any immediate comment
The MAX debacle has dogged Boeing ever since one of the aircraft
crashed in Indonesia in late 2018 and another in Ethiopia in early
2019. After the second accident, regulators around the globe
grounded the aircraft, preventing Boeing from delivering a
bestselling moneymaker. The plane maker came under investigation by
the Justice Department, as well as the Federal Bureau of
Investigation, the Transportation Department's inspector general
and the Securities and Exchange Commission.
Planes piled up, the manufacturer halted production and its
frustrated board ousted senior executives including then-CEO Dennis
Muilenburg. Last year the company estimated the MAX crisis had cost
it around $20 billion for airline compensation and the factory
pause.
Boeing Chief Executive David Calhoun said the Justice Department
deal appropriately acknowledges how the company fell short of its
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, " Mr. Calhoun said in an internal memo.
Boeing's total monetary sanctions qualify as one of the biggest
corporate criminal resolutions of the Trump administration.
The company previously set aside $1.8 billion to compensate
airlines and aircraft leasing companies, according to a securities
filing. The company said Thursday it would book an additional $744
million in charges in its fourth-quarter results.
About 20% of the money Boeing was ordered to pay will go to the
families of the crash victims. The company must contribute $500
million to a fund for their relatives and heirs. A claims
administrator will decide who should receive the money, and the
payments don't affect or limit any legal claims the victims might
make against Boeing.
Boeing shares fell about 1% in after-hours trading Thursday
after closing at $212.71.
The court documents provide the most detailed narrative yet of
what Boeing did -- and failed to do -- before and after
certification of the MAX fleet, including its initial refusal to
cooperate with federal investigators.
The criminal probe focused on the actions of two former Boeing
pilots who were key liaisons with the Federal Aviation
Administration on technical questions required to certify the MAX
for commercial flying.
Court documents filed Thursday don't identify the two
individuals, but The Wall Street Journal has previously reported
they are Mark Forkner and Patrik Gustavsson.
Neither Mr. Forkner nor Mr. Gustavsson was charged Thursday. An
attorney for Mr. Forkner declined to comment.
"Patrik Gustavsson never hid anything from the FAA or any
pilot," his attorney, James F. Bennett, said. "He did the exact
opposite throughout his time at Boeing and has been completely
committed to the safety of passengers and crew. Any claim to the
contrary is false."
Boeing acknowledged that the pilots deceived the FAA to get
approval for MAX training requirements. Prosecutors determined that
the two employees illegally interfered with an FAA group's
responsibilities by providing "incomplete and inaccurate"
information about an new flight-control system, known as the
Maneuvering Characteristics Augmentation System or MCAS, which
resulted in important data being withheld from FAA training experts
and ultimately pilots.
Accident investigators in part blamed MCAS for pushing the
aircraft into fatal nosedives. The system was only supposed to
affect the plane's aerodynamics during certain high-speed turns.
But Boeing later expanded its scope, making it possible that MCAS
could activate across "nearly the entire speed range for the 737
MAX, including low-speed flight," according to the resolution.
According to a statement of facts included with Boeing's
settlement agreement, the former Boeing pilots were eager to avoid
a mandate for more expensive, simulator training for MAX pilots. In
one email cited in the agreement, a pilot wrote that "nothing can
jeopardize [sic] level b, " referring to a less costly type of
training that could be done on a laptop or tablet. The other pilot
wrote: "if we lose Level B [it] will be thrown squarely on my
shoulders."
One of the pilots persuaded the FAA to remove mention of the new
automated system from the pilot manuals as the company sought to
avoid federal requirements that MAX pilots undergo simulator
training. After the pilot seemed surprised how the system behaved
in a flight simulator, he told his counterpart in a 2016 chat
message: "So I basically lied to the regulators (unknowingly),"
according to previously disclosed internal company messages.
Emails that emerged showed the pilot told his FAA counterpart
that pilots would only encounter the system in extreme
circumstances.
In determining the amount of the penalty, the Justice Department
said it gave Boeing credit for ultimately cooperating with the
investigation, as well as for voluntarily adopting enhanced
internal safety controls, management changes and additional
oversight of management pilots.
But the documents also say that Boeing's cooperation was delayed
and only began after the first six months of the DOJ's Fraud
Section's criminal inquiry. During the early stages, Boeing's
response "frustrated the Fraud Section's investigation."
The agreement doesn't require the appointment of an outside
compliance or ethics monitor, a move sometimes imposed by
prosecutors in major cases of corporate wrongdoing. But Boeing does
have to provide the DOJ with periodic reports on its internal
compliance program and efforts to improve it.
The MAX, which was grounded from March 2019 until November 2020,
recently returned to commercial service after aviation authorities
in the U.S. and Brazil approved a slate of fixes to the jet.
Air-safety agencies in Canada, Europe and elsewhere are expected to
take similar steps in coming weeks.
Write to Andrew Tangel at Andrew.Tangel@wsj.com and Andy Pasztor
at andy.pasztor@wsj.com
(END) Dow Jones Newswires
January 07, 2021 19:04 ET (00:04 GMT)
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