By Andrew Tangel and Andy Pasztor
Boeing Co.'s $2.5 billion agreement to end a criminal
investigation by the Justice Department into the 737 MAX debacle
resolves one of its highest-profile problems, but the plane maker
still faces other legal and business challenges.
Federal Aviation Administration officials have said Boeing faces
potential civil penalties stemming from its alleged lack of candor
in its dealings with regulators before and after two MAX crashes
that claimed 346 lives.
The Securities and Exchange Commission, which is also
investigating the MAX saga, has proceeded more slowly than the
Justice Department, people familiar with the matter said. An SEC
spokesman didn't respond to a request for comment.
While the company's criminal settlement covered Boeing's
responsibility for the actions of two Boeing pilots involved in
government approval of pilot training for the MAX, those former
employees are still under criminal investigation.
The documents filed in the settlement Thursday provide the most
authoritative picture yet of what the pilots did and how Boeing
benefited from their actions. If they are prosecuted, there could
be more embarrassing revelations about the plane's development.
According to the Justice Department, the two aviators conspired to
deceive the FAA for their benefit and Boeing's.
Lawyers for the aviators have said their clients did nothing
wrong. Boeing declined to comment further Friday. The Justice
Department deal limits what Boeing can say publicly about the
settlement.
Families of victims are pursuing lawsuits against the plane
maker. Chicago attorney Robert Clifford, who has conducted
depositions of current and former Boeing employees in a lawsuit
filed by families of victims of the March 2019 MAX crash in
Ethiopia, called the settlement an insult.
Boeing Chief Executive Officer David Calhoun said Thursday in a
memo to employees that wrongdoing detailed in the Justice
Department's settlement didn't reflect Boeing's broader culture.
Boeing has pledged to revamp internal compliance systems as
well.
Boeing has other challenges ahead. The coronavirus pandemic
imploded Boeing's business outlook by sapping travel demand and
making it tough for airlines to pay for planes awaiting delivery.
The downturn has resulted in a wave of deferred or canceled
aircraft orders.
Production rates and delivery delays with the MAX and 787
Dreamliner remain major challenges for Boeing's commercial jet
business. The FAA is reviewing the Dreamliner manufacturing lapses,
including debris from the assembly line left inside planes and
fuselage sections that don't fit together precisely as
required.
Boeing has widened inspections and fixes to undelivered
Dreamliners. The slowdown in production and deliveries prevents
Boeing from getting much-needed cash because customers pay much of
a plane's purchase price when they take delivery.
Boeing delivered an estimated 157 passenger jets in 2020,
according to figures provided by the aviation-data firm Ascend by
Cirium, a fifth of the commercial aircraft it delivered in 2018.
The MAX, which regulators grounded in March 2019, was cleared again
for delivery and passenger flights in November.
Boeing is expected to report fourth-quarter earnings later this
month. The company said it booked nearly $744 million in additional
charges in the quarter related to the settlement.
The settlement requires Boeing to pay a nearly $244 million
fine, at the lower end of potential penalties under government
guidelines. Prosecutors gave Boeing credit for its eventual
cooperation in the probe and internal changes it made to avoid
future wrongdoing.
The deal also requires Boeing to pay $500 million to crash
victims' families and $1.8 billion to airlines that lost money when
regulators grounded the aircraft for nearly two years. Boeing said
it had previously set aside the money to compensate customers.
Some lawmakers criticized the deal. House Transportation
Committee Chairman Peter DeFazio, an Oregon Democrat whose panel
conducted its own investigation into the MAX crashes, said "senior
management and the Boeing board were not held to account." Sen.
Richard Blumenthal, a Connecticut Democrat, said the settlement
"does nothing to change the rotten corporate culture that allowed
Boeing to mislead and deceive regulators."
A Justice Department spokesman declined Friday to comment on the
lawmakers' criticism. David Burns, acting assistant attorney
general for the Justice Department's criminal division, said
Thursday that the resolution was a strong punishment for
Boeing.
"Boeing's employees chose the path of profit over candor," Mr.
Burns said.
The FAA declined to comment on the settlement.
Boeing has reached a series of criminal and civil settlements
stemming from illegal business activities and safety violations
over the past three decades. In each of those cases, Boeing's top
management pledged to improve internal ethics rules and compliance
with federal contracting and safety mandates.
In 2015, the FAA imposed a $12 million civil settlement on
Boeing, in which the company acknowledged regulatory lapses and
promised strong action to prevent a repeat. The missteps ranged
from delays in fuel-tank safety upgrades to failures to police
defective parts.
Nine years earlier, prosecutors determined that the company
illegally acquired Lockheed Martin Corp. rocket documents and used
them to help win a competition for launching military satellites.
Boeing paid $615 million as part of a settlement with the Justice
Department but didn't receive criminal charges.
The settlement also covered Boeing's illegal recruitment of a
senior Air Force procurement official while she had authority over
billions of dollars in other Boeing contracts. The official also
championed Boeing efforts to skirt normal procurement procedures in
offering to provide refueling tankers to the Air Force. The uproar
resulted in the firing of Boeing's chief financial officer and the
resignation of the company's chairman at the time. Prosecutors
didn't charge any senior leaders, and Boeing promised to overhaul
its internal ethics programs and set up outside oversight of
compliance activities.
In 1989, Boeing was one of the companies convicted in a string
of criminal cases for illegally obtaining confidential Pentagon
planning and budget documents that were off-limits to contractors.
Prosecutors determined Boeing, which agreed to pay $5.2 million,
had maintained a secret cache of such documents at a facility in
Washington state.
--Dave Michaels contributed to this article.
Write to Andrew Tangel at Andrew.Tangel@wsj.com and Andy Pasztor
at andy.pasztor@wsj.com
(END) Dow Jones Newswires
January 09, 2021 05:44 ET (10:44 GMT)
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