BA Boeing Co

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 nearly $244 million fine as well as almost $2.3 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 before 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. Boeing previously set aside $1.8 billion of the total amount and said Thursday it would book an additional $744 million in charges in its fourth-quarter results to reflect the fine and payments to victims' families.

A claims administrator will decide who should receive the $500 million and the payments don't affect or limit any legal claims the victims might make against Boeing. Those funds are in addition to $100 million Boeing pledged in 2019 for families and their communities.

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 21:31 ET (02:31 GMT)

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