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 deceived 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 it will avoid prosecution on that charge --
allowing it to stay eligible for federal contracts -- 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
settlement agreement.
Documents in the case reveal that for the first six months of
the investigation, Boeing failed to cooperate with the grand jury
probe and frustrated efforts by prosecutors delving into the
matter. The filings also indicate that following the first MAX
crash, one of the Boeing employees at the time misled FAA training
experts, as well as some of the company's own officials, about why
certain safety details were withheld from the FAA and MAX pilots
prior to the agency's approval to carry passengers.
The FAA, which is conducting a civil investigation of Boeing's
activities related to the MAX, could levy additional fines and
penalties. The agency didn't have an 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.
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 settlements 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, reflecting the
fine and payments to victims' families.
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. Those funds are in
addition to $100 million Boeing pledged in 2019 for families and
their communities. 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 settlement agreement offers 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 documents, among other
things, indicate actions of the employees financially benefited the
company.
The criminal probe focused on the actions of two now-former
Boeing pilots who were key liaisons with the Federal Aviation
Administration on technical questions related to pilot-training
requirements.
The settlement agreement and other 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 fast turns at high
altitudes. But Boeing later expanded its scope, making it possible
for MCAS to activate across "nearly the entire speed range for the
737 MAX, including low-speed flight," the documents said.
According to a statement of facts filed with the court, 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. Many
of the emails prosecutors relied on originally were released by
Congressional investigators.
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. Part of the
reason, according to the agreement, is that prosecutors said they
failed to find pervasive misconduct involving higher-level
officials.
The MAX, which U.S. regulators had 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 20:43 ET (01:43 GMT)
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