Boeing said today it will pay $2.5 billion to settle a Justice Department investigation and admitted that employees defrauded the Federal Aviation Administration (FAA) when it first won approval for the flawed 737 MAX jet.
“The misleading statements, half-truths, and omissions communicated by Boeing employees to the FAA impeded the government’s ability to ensure the safety of the flying public,” said US Attorney Erin Nealy Cox for the Northern District of Texas. “This case sends a clear message: The Department of Justice will hold manufacturers like Boeing accountable for defrauding regulators — especially in industries where the stakes are this high.”
A recent Senate report claimed that FAA and Boeing manipulated 737 MAX recertification tests following two fatal crashes that led to the worldwide grounding of these jets. Investigations began in April of 2019, weeks after the second of two tragic crashes of Boeing 737 MAX aircraft. The two accidents took place within a span of five months and left 346 people killed.
The U.S. Department of Justice (DOJ) on Thursday said it has agreed to defer prosecution of the company, provided that Boeing abides by the obligations set forth in a three-year deferred prosecution agreement, after which time the charge will be dismissed.
The settlement includes money for the crash victims’ families, airline customers and a fine. Under the agreement, Boeing will pay a penalty of $243.6 million and provide $500 million in additional compensation to the families of those lost in the Lion Air and Ethiopian Airlines accidents. The agreement also includes a commitment to provide $1.77 billion to Boeing’s airline customers as part of the Company’s ongoing efforts to compensate those customers for financial losses resulting from the grounding of the 737 MAX, Boeing said in a statement.
Boeing had previously already set aside money to pay airlines and $100 million for victims’ families. It said it will take an additional charge of $743.6 million against earnings as a result of the settlement.
The agreement is based on the conduct of two former Boeing employees and their intentional failure to inform the FAA Aircraft Evaluation Group (AEG), the group within the FAA responsible for making pilot training determinations, about changes to the Maneuvering Characteristics Augmentation System (MCAS). As a result of this conduct, the agreement states that the FAA AEG was not fully informed about MCAS’s expanded operating range when it made its training determinations for the MAX. While focusing on the conduct of these two former employees, the agreement recognizes that other Boeing employees did inform other officials and organizations within the FAA about MCAS’s expanded operating range in connection with the certification of the 737 MAX.
David L. Calhoun, Boeing President and Chief Executive Officer, said in a note to employees: “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. 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.”
Boeing’s announcement of the agreement was accompanied by an 8-K filing with the Securities and Exchange Commission, which reflected that the Company had taken a $743.6 million charge to earnings in connection with its commitments under the agreement.