Boeing to pay $3.3b to settle probe into 737 Max crashes

Deal with US authorities allows company to avoid prosecution over plane's flawed design

WASHINGTON • Boeing will pay more than US$2.5 billion (S$3.3 billion) in fines and compensation after reaching a settlement with the US Department of Justice over two plane crashes that killed a total of 346 people and led to the grounding of its 737 Max jetliner.

The settlement, which allows Boeing to avoid prosecution, includes a fine of US$243.6 million, compensation to airlines of US$1.77 billion and a US$500 million crash victim fund over fraud conspiracy charges related to the plane's flawed design.

Boeing said it would take a US$743.6 million charge against its fourth-quarter 2020 earnings to reflect the deferred prosecution agreement (DPA), a form of corporate plea bargain. It had put aside reserves of US$1.77 billion in prior quarters to provide for compensation to airlines.

The Justice Department deal, announced after the markets closed on Thursday, caps a 21-month investigation into the design and development of the 737 Max following the two crashes, in Indonesia and Ethiopia in 2018 and 2019, respectively.

The crashes "exposed fraudulent and deceptive conduct by employees of one of the world's leading commercial airplane manufacturers", Acting Assistant Attorney-General David Burns said in a statement accompanying the deal.

"Boeing's employees chose the path of profit over candour by concealing material information from the FAA concerning the operation of its 737 Max airplane and engaging in an effort to cover up their deception," Mr Burns added, referring to the Federal Aviation Administration.

The fatal crashes triggered a hailstorm of investigations, saw US leadership in global aviation take a hit and have cost Boeing some US$20 billion.

Lawyers representing families of victims of the Ethiopian Airlines crash said the settlement strengthens civil litigation against Boeing in Chicago, where the company has its headquarters.

Boeing has already settled most lawsuits related to the Lion Air disaster in Indonesia.

Because of the crashes, the US Congress in December passed legislation reforming the way the FAA certifies new airplanes.

The 737 Max was grounded in March 2019, and the measure was not lifted until November last year, after Boeing had made significant safety upgrades and improvements in pilot training.

Boeing, the largest US airplane manufacturer, was charged with one count of conspiracy to defraud the United States. It faces a three-year deferred prosecution agreement, with the charge dismissed if it complies.

DPAs are corporate plea bargains that typically allow a company to avoid criminal charges that could disrupt business activities such as access to public contracts, in return for a fine and admission of wrongdoing, as well as internal reforms.

Boeing admitted in court documents that two of its 737 Max technical pilots had deceived the FAA about a safety system called MCAS, which was tied to both fatal crashes. The documents also say Boeing belatedly cooperated with the probe but only after it initially "frustrated" the investigation.

In a note to employees, Boeing's CEO David Calhoun said the agreement "appropriately acknowledges how we fell short of our values and expectations".

Reuters has reported that Boeing managers told engineers working on the Max, including the MCAS, that their designs could not trigger more comprehensive training designations from the FAA.

  • US$243.6m

    The fine on Boeing, which the Justice Department said was at "low end" of the sentencing guidelines.

    US$1.77b

    Amount of compensation to be made to airlines, which had to cancel flights due to a shortage of aircraft.

    US$500m

    The fund for crash victims .

The deferred prosecution agreement says one employee wrote in a note to another in 2014 that if the FAA required higher-level training it would "cost Boeing tens of millions of dollars".

The US$243.6 million fine, which the Justice Department said was at "low end" of the sentencing guidelines, represents the amount of money Boeing saved by not implementing full-flight simulator training for the 737 Max, the agreement states.

The airline payment fund will include payments already made by Boeing to carriers which had to cancel flights due to a shortage of aircraft.

REUTERS

Join ST's Telegram channel and get the latest breaking news delivered to you.

A version of this article appeared in the print edition of The Straits Times on January 09, 2021, with the headline Boeing to pay $3.3b to settle probe into 737 Max crashes. Subscribe