Boeing admits to fraud and will likely pay a fine of $246 million 🛬

Boeing has decided to plead guilty to a criminal fraud charge in connection with the accidents of two 737 Max planes that led to the deaths of 346 people. The company then accepted a 3-year contract with the government, tightening the manufacturing process to eliminate similar defects in the future. However, just before the end of the contract period, a malfunction occurred on an Alaska Airlines flight that resulted in the plane losing its doors and having to make an emergency landing. This event again drew the attention of both the public and the Department of Justice (DOJ) to the company's actions.

Ultimately, the company decided to plead guilty to failing to live up to the terms of its contract and cheating on its aircraft safety data.

Consequences of the company's decision

As a result of the guilty plea, the company is likely to pay a fine of $243.6 million, the same amount it paid 3 years earlier in connection with the contract it breached.

What's more, Boeing is obliged to invest $455 million in developing its safety programs to eliminate similar situations in the future. In addition, the company will remain under external FAA oversight for another three years. 

The admission of guilt on Boeing's part, on the one hand, will likely allow it to avoid higher penalties associated with lawsuits from the victims' families. If the court accepts Boeing's plea of guilt, the company will be absolved of additional liability for the Indonesian and Ethiopian crashes. This leaves the consequences associated with later incidents, such as the grounding of the company's planes after the Alaska Airlines incident, further to fall on the aircraft manufacturer. 

According to lawyers representing the families of the victims, such a decision would hide Boeing's crimes. Hence, there have been announcements from the lawyers to appeal to the judge not to accept the settlement. A final decision on the case will be made in a District Court in Texas on July 19. 

While Boeing's decision may theoretically allow the company to avoid potential lawsuits and damages, it simultaneously puts the company's future government contracts at stake. On the one hand, Boeing is a very important supplier of equipment to the U.S. defense sector, as well as the space sector. On the other hand, potential cooperation with a company that has admitted to defrauding the DOJ could be challenging from a legal perspective. The wording of the settlement itself does not address this issue, leaving decisions to each government agency.

Boeing's shares, after a good start to the session, has returned more or less to the closing price of Friday's session. The share price has already lost more than 30% since its late 2023 peaks. Source: xStation