U.S. Justice Department & Boeing Reach $2.5 Billion Settlement In Criminal Probe Of 737 MAX Crashes

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The Boeing Company has reached a $2.5 Billion settlement with the U.S. Justice Department to draw a line under an ongoing criminal investigation, admitting company employees deceived aviation regulators about safety issues surrounding the Boeing 737 MAX which contributed to two deadly plane crashes.

The settlement includes a nearly $244 million fine in addition to roughly $2.3 billion in compensation payments to airline customers and the bereaved of the 346 people who died in two plane crashes.

According to media reports this settlement likely means Boeing executives and employees won’t be facing criminal charges and the victims families can still file individual lawsuits if desired. The FAA could also levy additional fines against company.

The criminal probe has loomed over the company ever since the two planes crashed and it became evident that Boeing employees engaged in deceptive practices when dealing with aviation regulators of the FAA.

The Wall Street Journal reported today that the settlement has been filed in Dallas, TX.

Boeing 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. …

Boeing top management ultimately took responsibility after some changes in their top echelons, most notably the CEO position:

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.

No Boeing Executive has been charged with criminal misconduct by the Justice Department and the settlement means it will stay this way. It’s debatable how much much executives knew about the processes down the line including the two pilots whose actions ultimately culminated in this investigation.

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 two pilots were also not charged at this point.

… 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. …

That a company “buys it’s way out” of criminal prosecutions isn’t new and in fact very common practice.

It’s hard to believe that some low level figures in the organization took it upon themselves to launch a deception campaign against the regulators without any direct knowledge, motivation or even clear instructions from managers and executive management.

That being said a similar line of argument has been laid out in the Volkswagen emissions scandal that ultimately resulted in a US federal judge ordering Volkswagen to pay a $2.8 billion criminal fine for rigging diesel engine vehicles to cheat on government mandated emissions tests.

Together with the Boeing settlement these two cases are among the largest that the Trump Justice Department went after in the last four years. Others included Wall Street firms such as Deutsche Bank.

A claims administrator will now 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.

The families might now receive checks in the immediate future as the compensation details are being worked out. The Ethiopian Airlines victims were a vast mix of nationalities while the Lion Air crash caused 180 Indonesian citizens and one Italian national to die. I’d be interested in if the victims are all treated fairly with the same amounts or if there are different “values” assigned based on origin and nationality which quite frankly would be perverse to say the least.

Conclusion

This settlement will for one solve the companies legal troubles with the U.S. Government in the last days of the current administration. In fact it might have a part in it why this settlement comes now as a new administration is traditionally much harder to deal with as it’s trying to appear tough on crime. Had Boeing left this matter unresolved the price tag might have been much higher. Civil litigation is unpredictable and there might indeed be another wave rolling towards the company.

The total fine is actually rather small with $244 million (the rest being restitution for victims and customers) but Boeing is in an important company for the U.S. especially in matters of defense but also jobs. Nobody in Washington wants to see this vital contractor fold under the pressure of even higher fines.

At the same time the victims families might finally see some significant compensation for the deaths of their loved ones. It remains to be seen how the funds will be distributed among the bereaved of the 346 people who perished in the two crashed. The Ethiopian Airlines crash included eight American citizens whose families could (and probably will) still sue individually. Such rights also fall on the remaining victims families.

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