Boeing has agreed to pay just over $2.5 billion to resolve a federal charge of "criminal misconduct" for how its employees misled regulatory officials during certification of the 737 MAX, the Department of Justice announced Thursday.
Of that amount, only $243.6 million, less than 10%, is a fine paid to the U.S. government for the criminal conduct, "which reflects a fine at the low end" of the sentencing guidelines, the court agreement states.
The rest includes an additional $500 million Boeing commits to pay in compensation to the families of the 346 people who died in two crashes of the MAX.
However, 70% of the $2.5 billion cited in the settlement, or $1.77 billion, is compensation to Boeing's airline customers that the company has already agreed to pay. (Indeed, that's just a fraction of what it has agreed to pay them.)
The agreement stipulates that if Boeing meets a series of requirements, the charge of criminal fraud will be dropped after three years.
Critically, this avoids a potential criminal conviction of Boeing as a company. That's important for Boeing as a key U.S. defense contractor; a conviction could have excluded it from future government contracts.
With that possibility looming, large corporations typically opt for this kind of "deferred prosecution" settlement rather than taking their chances in court.
U.S. House Transportation Committee Chair Peter DeFazio, D-Ore., who led a major investigation into the crashes and who last month helped propel into law major reform of the Federal Aviation Administration's certification process, called the agreement "a slap on the wrist" and an insult to the victims.
"The settlement sidesteps any real accountability in terms of criminal charges," DeFazio said. "From where I sit this attempt to change corporate behavior is pathetic ... Senior management and the Boeing board were not held to account, and in fact, the former CEO skated out with more than $60 million."
Zipporah Kuria, of the U.K., who lost her father Joseph Kuria Waithaka, 55, in the crash of Ethiopian Airlines Flight 302 in March 2019, called the news "somewhat bittersweet."
"It won't bring back our loved ones but at least there is clarity that their deaths weren't incidental and there is clarity in liability," Kuria said in a statement.
However she added that for Boeing, the penalty "doesn't even scratch the surface of justice."
"The individuals responsible at Boeing should not be retiring or resigning with bonuses — they should be held criminally liable for their actions," she said.
Criminal conduct
The criminal complaint charges the company with one count of conspiracy to defraud the government by supplying false information to the Federal Aviation Administration (FAA) during certification of the jet.
The Department of Justice (DOJ) said the criminal charges center on the conduct of two former 737 MAX program employees, Chief Technical Pilot Mark Forkner and his deputy Patrik Gustavsson, whose job was to finalize the pilot training requirements for the airplane.
Those two "deceived the FAA" about a new flight control system on the MAX — the Maneuvering Characteristics Augmentation System (MCAS) — that activated erroneously to cause both crashes, the DOJ said.
"Because of their deception, a key document published by the FAA Airplane Evaluation Group lacked information about MCAS, and in turn, airplane manuals and pilot-training materials for U.S.-based airlines lacked information about MCAS," the DOJ said.
Acting Assistant Attorney General David Burns of the Justice Department's Criminal Division said, "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," Burns said.
Neither Forkner nor Gustavsson, nor other Boeing employees who were interviewed by the FBI, have been charged.
However, the court document notes that the agreement protects only the company, not individuals, from prosecution. It further notes that evidence arising from the DOJ investigation may be used to bring charges of perjury, obstruction of justice or making a false statement.
"Patrik Gustavsson never hid anything from the FAA or any pilot," his attorney, James Bennett, said in a statement Thursday. "He ... has been completely committed to the safety of passengers and crew. Any claim to the contrary is false."
Forkner's attorney, David Gerger, did not respond to a request for comment Thursday. However, early last year he issued a statement saying that Forkner "did his job honestly, and his communications to the FAA were honest."
Responding to the news Thursday, lawyers for the families of the victims of Ethiopian Airlines Flight 302 dismissed the focus on the wrongdoing of the two technical pilots as "just the tip of the iceberg of Boeing's wrongdoing."
In a statement, lawyers Bob Clifford, Steven Marks and Justin Green characterized the DOJ agreement as Boeing paying "billions of dollars to avoid criminal liability while stonewalling and fighting the families in court."
"This agreement, including the 'crash-victim beneficiaries fund', has no bearing on the pending civil litigation against Boeing, which we plan to prosecute fully to ensure the families receive the justice they deserve," they said.
The legal team added that "the FAA should not have allowed the 737 MAX to return to service" pending "transparent and independent safety reviews."
After grounding the MAX for 20 months, in November the FAA allowed the MAX to resume flying following protracted design reviews and technical improvements. International regulators are set to follow this month.
To get the criminal charge dropped in three years, the agreement requires Boeing to continue to cooperate with the DOJ Fraud Section in current and future investigations and prosecutions, and to report any allegation of a violation of U.S. fraud laws committed by its employees.
In addition, Boeing must meet with the Fraud Section at least quarterly and submit yearly reports regarding proposals to ensure its compliance with U.S. and foreign government regulations.
Boeing response
Dave Calhoun, Boeing's chief executive officer, in a note to employees Thursday called the agreement "a substantial settlement of a very serious matter."
"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," he said.
Boeing sought to mitigate the impact of the charge by noting that just "two former Boeing employees" were involved in the criminal conduct cited.
Calhoun's message to employees recalled the infamous text message and email exchanges between the two pilots — full of derogatory remarks about the FAA, the airlines, suppliers and Boeing colleagues — that the company belatedly turned over to the FAA and the DOJ.
"The agreement reflects that those former employees, in addition to showing deep disrespect for our regulators and customers, also intentionally failed to inform FAA training officials about changes in MCAS's design," Calhoun wrote.
"The agreement recognizes that other Boeing employees did inform other officials and organizations within the FAA about MCAS," Boeing said in a statement.
"While we deeply regret the conduct described in the agreement, I am confident that it isn't reflective of our employees as a whole or the culture or character of our company," Calhoun told employees.
Indeed, the DOJ Fraud Section concluded that "the misconduct was neither pervasive across the organization, nor undertaken by a large number of employees, nor facilitated by senior management."
Nevertheless, the DOJ press statement emphasized the culpability of the company for "the misleading statements, half-truths, and omissions" the two pilots communicated to the FAA.
"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," said the U.S. Attorney for the Northern District of Texas, Erin Nealy Cox.
Additional failures on the MAX not cited
Boeing's development of the MAX fell tragically short in other ways besides the one where Forkner and Gustavsson were implicated: the lack of pilot training and the omission of any information for the airlines about MCAS.
Incomplete and fragmentary information about the design and potential danger of MCAS was provided to the FAA's safety engineers. And Boeing managers brought "undue pressure" to bear on some of its engineers who were evaluating the jet's systems on behalf of the FAA.
A Boeing engineer, Curtis Ewbank, blew the whistle internally after the second crash about flight control system improvements proposed for the MAX that might have prevented the accidents but were rejected on cost grounds.
Ewbank also drew attention to inadequacies in the crew alerting system on the MAX that were never addressed because Boeing, at the insistence of its airline customers, decided to keep the flight deck on the MAX largely unchanged from the previous 737 model.
However, the DOJ does not mention any criminal wrongdoing in these failures.
Under the terms of the agreement, Boeing must pay:
* $243.6 million as a "criminal monetary penalty"
* $500 million to a fund to compensate the relatives of the 346 passengers who died in the two MAX crashes
* $1.77 billion in compensation payments to Boeing's MAX airline customers
Boeing said that with the compensation to customers already included in previous quarterly disclosures, it will declare an accounting write-off of $743.6 million for the other two amounts in the fourth quarter.
Aside from the cost of compensating victims' families, Boeing has previously estimated the total cost of the MAX grounding in extra production expenses and customer compensation costs at $20.6 billion — including $8.8 billion in compensation to airlines.
Going easy on Boeing
Chuck Herrmann, a Tacoma-based attorney who represents families of 51 victims of the two crashes, said Thursday Boeing previously had distributed $144,500 to the beneficiaries of each of the 346 crash victims from a $50 million compensation fund set up by the company in 2019.
Herrmann confirmed with the Justice Department Thursday afternoon that the $500 million compensation requirement is additional to this previously distributed money.
Family members of scores of victims of the two crashes also have separately filed civil lawsuits against Boeing. More than 40 of Herrmann's clients have agreed to settlements for undisclosed amounts protected by confidentiality agreements, with nine of his cases still pending, he said.
"There was deception in several directions, and they definitely deserve to be punished. Boeing deceived the FAA, their customers and the pilots of their airplanes. All of that is important, and this action today reveals that," Herrmann said. "I'm reasonably satisfied that Boeing's deception has been revealed and they can't deny it."
Yet Michael Stumo, father of Samya Rose Stumo, 24, who died in the Ethiopian crash, said the settlement "holds no one at the company accountable" and called the fine "a rounding error for Boeing."
"This settlement is protection for Boeing rather than justice," Stumo said. "It is a continuation of Boeing evading accountability and transparency."
Wall Street analysts, whose eyes are fixed on the implications for the share price, see the fine as not material for Boeing. Doug Harned of Bernstein Research told investors in a note Thursday that the $743 million write-off "should not be a significant issue for the stock."
The court filing explains the leniency in the size of the fine by noting that Boeing received partial credit from investigators for "voluntarily and proactively ... identifying potentially significant documents," presumably the message exchanges between Forkner and Gustavsson.
However, the agreement says such cooperation "was delayed and only began after the first six months of the ... investigation, during which time the Company's response frustrated the (DOJ's) Fraud Section's investigation."
The DOJ also cited Boeing's efforts after the crash to make changes that enhance oversight and accountability within various internal engineering and safety organizations.
The FBI's Special Agent in Charge at the agency's Chicago Field Office, Emmerson Buie Jr., said the penalties in the DOJ agreement "demonstrate the consequences of failing to be fully transparent with government regulators."
"The public should be confident that government regulators are effectively doing their job, and those they regulate are being truthful and transparent," he added.
From the Department of Transportation Office of Inspector General, Special Agent in Charge for the Midwestern Region, Andrea M. Kropf, said, "This landmark deferred prosecution agreement will forever serve as a stark reminder of the paramount importance of safety in the commercial aviation industry, and that integrity and transparency may never be sacrificed for efficiency or profit."
Seattle Times reporter Mike Carter contributed to this story.
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