US$2.5B price to settle 737 Max fraud charge

Boeing Co. agreed to pay US$2.5 billion to settle criminal charges that it defrauded the U.S. government by concealing information about the 737 Max that was involved in two fatal crashes.

The U.S. planemaker entered into a deferred prosecution agreement in the Northern District of Texas on Thursday, the Justice Department said in a press release.

“The tragic crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302 exposed fraudulent and deceptive conduct by employees of one of the world’s leading commercial airplane manufacturers,” Acting Assistant Attorney General David P. Burns of the Justice Department’s Criminal Division said in a statement.

Boeing shares fell less than 1 per cent to US$211.26 after the close of regular trading in New York.

A design flaw in the Max helped lead to the two crashes within about five months in 2018 and 2019, killing 346 people. Several investigative reports have found that the company altered a flight control system, but didn't fully explain the changes to Federal Aviation Administration inspectors.

“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,” Boeing chief executive Dave Calhoun said in a message to employees. “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.”

The action is the latest to hit the planemaker's bottom line. The company's inability to deliver planes during the grounding and cancellations of previous orders have cost it billions of dollars.

Of the US$2.5 billion, Boeing has already set aside US$1.77 billion to reimburse airlines and other Max customers. The company said it expected to incur an additional US$743.6-million charge for the fourth quarter of 2020, as it pays a US$243.6-million penalty and US$500 million in additional compensation for the families of the crash victims. Boeing is scheduled to report earnings for the quarter on Jan. 27.

The plane, Boeing's best-selling model, was grounded for 20 months while the FAA and regulators in other nations oversaw design changes to address problems revealed in investigations. The FAA lifted its grounding on Nov. 18, provided airlines completed a list of repairs and revamped pilot training.

A criminal investigation into how the plane was designed and approved began after the Oct. 29, 2018, crash off the coast of Indonesia of a Lion Air flight, but before the second accident near Addis Ababa.

“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,” U.S. Attorney Erin Nealy Cox for the Northern District of Texas said in a press release. “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.”