Boeing will pay $2.5 billion in settlement for criminal charges of deceiving safety regulators in connection with the development of its 737 Max aircraft.
The US Department of Justice in a statement on Thursday (January 7) announced that it has entered into an agreement with Boeing to resolve a criminal charge related to a conspiracy to defraud the Federal Aviation Administration’s Aircraft Evaluation Group when it evaluated the company’s 737 MAX airplane.
The Boeing 737 Max was involved in two fatal crashes in 2018 and 2019 that resulted to deaths of hundreds of people.
The US aircraft manufacturer entered into a deferred prosecution agreement for the one count of conspiracy to defraud safety regulators.
Under the terms of the DPA, Boeing will pay over $2.5 billion, composed of a criminal monetary penalty of $243.6 million, compensation payments to Boeing’s 737 MAX airline customers of $1.77 billion, and the establishment of a $500 million crash-victim beneficiaries fund to compensate the heirs, relatives, and legal beneficiaries of the 346 passengers who died in the Boeing 737 MAX crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302.
“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,” said Acting Assistant Attorney General David P. Burns of the Justice Department’s Criminal Division.
“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,” he said.
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According to the DOJ, Boeing—through two of its 737 MAX Flight Technical Pilots—deceived the FAA AEG about an important aircraft part called the Maneuvering Characteristics Augmentation System (MCAS) that impacted the flight control system of the Boeing 737 MAX.
“Because of their deception, a key document published by the FAA AEG lacked information about MCAS, and in turn, airplane manuals and pilot-training materials for U.S.-based airlines lacked information about MCAS,” the DOJ statement stated.
Boeing began developing and marketing the 737 MAX in or around June 2011. Before any U.S.-based airline could operate the new 737 MAX, U.S. regulations required the FAA to evaluate and approve the airplane for commercial use.
In a statement on Thursday, Boeing said the settlement resolves DOJ’s investigation as the government agreed to defer prosecution of the company, provided that it abides by the obligations set forth in a three-year deferred prosecution agreement, after which time the charge will be dismissed.
Boeing President and Chief Executive Officer David Calhoun, in a note to employees, said:
“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. 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.”
Boeing’s announcement of the agreement was accompanied by an 8-K filing with the Securities and Exchange Commission, which reflected that the Company had taken a $743.6 million charge to earnings in connection with its commitments under the agreement.
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