Boeing Charged With 737 MAX Fraud Conspiracy, Will Pay $2.5 Billion

Filed Under: Misc.

Wow, this is significant. While the Boeing 737 MAX is back in the US skies after having been grounded for nearly two years, that’s not the end of Boeing’s troubles with this plane. The United States Department of Justice has just charged Boeing with fraud conspiracy, and the aircraft manufacturer has agreed to pay over $2.5 billion.

Boeing charged with fraud conspiracy

Boeing has entered into an agreement with the Department of Justice to resolve a criminal charge related to a conspiracy to defraud the Federal Aviation Administration’s Aircraft Evaluation Group (FAA AEG). This is in connection with the FAA AEG’s evaluation of Boeing’s 737 MAX.

Boeing admitted in court documents that two of its 737 MAX Flight Technical Pilots deceived the FAA AEG about the Maneuvering Characteristics Augmentation System (MCAS) of the 737 MAX, which impacted the flight control system of the plane, and contributed to two crashes.

Because of this deception, a key document published by the FAA AEG lacked information about MCAS, and in turn, airplane manuals and pilot training materials lacked information about MCAS.

Around November 2016, two Boeing 737 MAX Flight Technical Pilots discovered information about an important change to the MCAS compared to previous models of the 737. Rather than sharing that information, Boeing concealed this information and deceived the FAA AEG.

Because of the deceit, the FAA AEG deleted all information about MCAS from the final version of the 737 MAX Flight Standardization Board Report, which was published in July 2017. As a result, airplane manuals and pilot training materials for US airlines lacked information about MCAS.

Even after the first Lion Air crash in October 2018, the 737 MAX Flight Technical Pilots continued misleading both Boeing and the FAA about their prior knowledge of the changes to MCAS.

Boeing is being charged with fraud conspiracy over the 737 MAX

Boeing will have to pay over $2.5 billion

Boeing has entered into a deferred prosecution agreement (DPA) in the Northern District of Texas, as the company is being charged with one count of conspiracy to defraud the United States. Boeing will pay a total criminal monetary amount of over $2.5 billion, including;

  • $243.6 million of criminal monetary penalty
  • $1.77 billion in compensation payments to Boeing 737 MAX airline customers
  • $500 million towards a crash victim beneficiaries fund to compensate the heirs, relatives, and legal beneficiaries, of the 346 people who died in the Boeing 737 MAX crashes of Lion Air and Ethiopian Airlines

The Department of Justice has reached this resolution based on a number of factors, including:

  • The nature and seriousness of the offense conduct
  • Boeing’s failure to timely and voluntarily self-disclose the offense conduct to the department
  • Boeing’s prior history, including a civil FAA settlement agreement from 2015 related to the safety and quality issues concerning the Boeing Commercial Airplanes business unit

Here’s what Acting Attorney General David P. Burns of the Justice Department’s Criminal Division said:

“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. Boeing’s employees chose the path of profit over candor 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. This resolution holds Boeing accountable for its employees’ criminal misconduct, addresses the financial impact to Boeing’s airline customers, and hopefully provides some measure of compensation to the crash-victims’ families and beneficiaries.”

Then here’s what US Attorney Erin Nealy Cox for the Norther District of Texas said:

“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. 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.”

Boeing will have to compensate families of crash victims

My take on this case

I’m no lawyer, and on top of that it’ll take me a little while to read the entire 58 page document. However, based on what I’ve seen so far, I have a few questions and thoughts:

  • It’s interesting that airlines are getting the bulk of the compensation here, and I would imagine this is in addition to the compensation they’ve already negotiated with Boeing?
  • It’s amazing to me that no one is being personally jailed and held responsible here, when you consider that negligence lead to nearly 350 deaths
  • This is also a reminder of the cozy relationship that Boeing and the FAA had; while Boeing was wrong for withholding information, it’s also disappointing the extent to which the FAA simply took Boeing at its word when certifying a new plane

Let’s hope Boeing learned its lessons with the new 777X

Bottom line

Boeing is facing fraud conspiracy charges, and will have to pay over $2.5 billion in compensation. Frankly when you consider the extent to which Boeing employees were being reckless and negligent here (combined with everything else we’ve learned), I feel like the company is getting off easy.

What do you make of this charge of fraud conspiracy against Boeing?

Comments
  1. Monetary fines are a joke in corporate America, it’s the cost of doing business. I’d like for judges and Gov agencies to hold people knowingly participating in this to be prosecuted in criminal court.

  2. Yes definitely just a slap on the wrist. Only $500M for the families of the people that died? That seems like a low number. Comes out to 1.4M per family but honestly after all they’ve been thru it should be double that.

  3. Holy S***! The wet noodle slaps Boeing’s corporate personhood wrist 12 times. And the penalty will be written off on its liabilities and taxes. Wow! Justice for corporate crime! And the airlines get the bulk of the settlement.

    On a serious note, When are the prosecutions of senior Boeing executives going to take place? Perhaps for the new administration? Not!

  4. Where’s Luke, who said all the pilots had to do on the two doomed flights was push a button to avoid the crash?

  5. Stockholders will pay it. None of the C level executives will get any fines, pay reduction, or jail. Life goes on.

  6. This is a plea by a corporation, not by individuals. Individual employees would have to be criminally charged to face incarceration; the corporation can’t make a plea bargain on their behalf. And one would have to show specific acts/intent to engage in criminal acts. It is also likely the the fine that is being paid to customers includes monies that have either already been promised or are anticipated to be promised. Nothing out of the ordinary there when dealing with a big settlement announcement.

  7. Boeing knew they needed to get it over with before the administration changes in the Justice Department.

  8. Criminal charges? Now let’s ban Boeing from future military contract biddings for the time being. We don’t want the great US of A to collab with fraudsters — oh, wait…

  9. How much money did Boeing save by cutting corners? I bet it’s a whole lot more than $2.5 billion. If Boeing had to do it again, they will absolutely do the exact same thing over.

  10. Lucky says: “It’s amazing to me that no one is being personally jailed and held responsible here, when you consider that negligence lead to nearly 350 deaths”

    Let’s just be clear about what’s really going on here: They don’t have enough evidence to actually bring charges in court and prove their case beyond a reasonable doubt, as required. DOJ often brings trumped-up “charges” against corporations, which usually are happy to agree to pay a fine rather than deal with the distraction and public relations debacle of a criminal prosecution. Almost invariably, these corporate crimes couldn’t actually be proven in court because usually what the DOJ is “charging” is based on a bunch of people being stupid — not true criminality. The prosecutors know, though, that the company can’t take the risk of actually defending itself because it might collapse while the criminal case is pending. (The most famous example is Arthur Andersen, which was charged criminally. The company collapsed while the case was pending — but in the end the Supreme Court rejected the charges. So the company was “cleared,” but at that point, everyone had left and it was no longer in business.)

    Would they really pay $2.5 billion just to avoid the hassle and public relations debacle? Perhaps not, but that’s not what they’re paying under this deal. The actual fine here is $243 million. The rest of the “penalty” is just counting compensation that Boeing already paid to airline customers and victims, in an effort to create the impression that DOJ is getting a massive penalty. In fact, they’re getting just $243 million, which is chump change to Boeing (worth $120 billion as of today’s market close). Just grandstanding by prosecutors, as usual. Cases like this are “easy” ways for them to get eye-popping settlement numbers without actually doing much work.

  11. In 2017 Boeing made total sales of 93.4 billion with a profit of 8.2 billion.
    So that 2.5 billion fine/payment/compensation is not going to break the bank, by any means.
    And no one will go to prison. Clearly there is no justice.

  12. Dumb question…..

    This settlement involves Boeing and the US government. Could there be other governments which might impose financial penalties in Boeing as well?

  13. So two pilots did this all by themselves? I wonder if the criminal charges and fines would have been materially different if one or both of the accidents had involved a US airline?

  14. Does this have to be approved by a Judge? If so they may have views on this. Of can a victim of the crashes or an airline sue so a judge can review it.

    I see Congress taking an interest as well. Not to stop the settlement but to ask questions as to how the DoJ calculated the actual fine element and the airline and victims compensation.

    Is it possible for the new administration to reopen this up? They may not change the decision but they may want to review it.

  15. This shows what a sick and warped legal system we have in the USA. People at Boeing responsible for mass homicide are let off free and easy with golden parachutes, all at the expense of their shareholders. Anyone else, without big time lawyers and shareholders to loot, who killed 377 humans through malign behavior would probably be sitting in SuperMax forever.

  16. Someone in the exec team instructed this behaviour from the test pilots in order for the corporation make billions and they should be held accountable

  17. Thoroughly disgusting that no one at CEO level or board of Directors is heading for jail time.
    After all, these people are copping huge bonuses when everything goes well, so why shouldn’t they should suffer the pain of loss that they knowingly caused the victims families by allowing this known deception.

    Criminal Accountability / Industrial Manslaughter laws should be applied.

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