Boeing at risk of US prosecution for breaching deal over crashes

Company violated $2.5 billion settlement 'by failing to design, implement and enforce a compliance and ethics programme', Justice Department says

A Boeing 737 Max. Scrutiny of the plane maker has intensified in the months since an incident on an Alaska Airlines flight in January. Reuters

Boeing faces possible criminal prosecution after the US Justice Department found the company breached a deferred-prosecution agreement tied to two fatal crashes half a decade ago, intensifying the crisis engulfing the embattled plane maker.

The company breached the $2.5 billion settlement “by failing to design, implement, and enforce a compliance and ethics programme to prevent and detect violations of the US fraud laws throughout its operations”, according to the filing late on Tuesday.

Boeing, whose shares were down more than 1 per cent shortly after trading began on Wednesday, now has four weeks to respond with its analysis and comments, which will be taken into consideration with regard to any next steps.

The US Justice Department said it was still determining how to proceed, including whether and how to punish the company.

The decision escalates the legal risks facing the plane maker in the wake of a near-catastrophe in early January, when a fuselage panel blew off an Alaska Airlines 737 Max 9 mid-flight after workers failed to install critical bolts.

The accident took place two days before the expiration of the deferred-prosecution agreement, in which Boeing agreed to comply with the settlement and co-operate with the government for a period of three years, after which the charge would be dismissed.

“We believe that we have honoured the terms of that agreement, and look forward to the opportunity to respond to the department on this issue,” Boeing said in a statement after the Justice Department filing.

Under the terms of the accord, the company adopted a compliance programme designed to prevent it from deceiving regulators, including the Federal Aviation Administration.

The deferred-prosecution agreement, reached in the waning days of the Trump administration, appeared to give Boeing the equivalent of a “get out of jail free” card despite the two crashes that took the lives of 346 people.

Boeing shares were down 1.1 per cent to $178.85 at 9.38am on Wednesday in New York. The shares fell less than 1 per cent following the department’s decision in after-hours trading Tuesday.

The stock has tumbled about 31 per cent so far this year, the second-worst performance on the Dow Jones Industrial Average.

Boeing also faces another ultimatum, that one from the Federal Aviation Administration, to devise a plan to fix what the regulator called “systemic” quality-control issues. Those 90 days, issued in late February, are set to run out at the end of this month.

US prosecutors in Seattle, Washington, have already sent subpoenas seeking documents and communications from Boeing and supplier Spirit AeroSystems Holdings, which made the door plug that blew out.

The US Securities and Exchange Commission is also scrutinising Boeing’s comments about its safety practices after the Alaska Air accident.

The 2021 agreement not to prosecute Boeing over the two 737 Max jetliner crashes sparked intense criticism, including from victims’ families.

Members of the victims' families were outraged that prosecutors had not reached out to them before cutting the deal with Boeing, which agreed to pay a criminal fine of $243 million, but was allowed to dodge a fraud charge for withholding important information about the 737 Max from the FAA.

Scrutiny of Boeing has intensified in the months since the Alaska Airlines accident, the February FAA report, and amid a wave of new whistleblower allegations pertaining to the plane maker’s manufacturing processes.

Congressional panels, including the Senate Commerce Committee, have already held hearings on some of these issues with plans to have both the FAA and Boeing executives testify in the near future.

Lawyers for families of crash victims hailed the Justice Department’s findings, calling it “a positive first step”.

Boeing took steps to improve safety following the two 737 Max crashes in 2018 and 2019, including creating a chief aerospace safety officer and changing the management structure so its engineers reported to chief engineer Howard McKenzie rather than business leaders.

But the measures didn’t go nearly far enough, according to scathing report issued by the FAA in February.