Boeing Reaches $2.5 Billion Settlement of U.S. Probe Into 737 MAX Crashes

Agreement with Justice Department allows aerospace giant to avoid prosecution

The Wall Street Journal 

By Dave Michaels,, Andrew Tangel and Andy Pasztor

Updated January 7, 2021 6:49 pm ET

Boeing Co. will pay $2.5 billion to resolve a Justice Department criminal investigation and admit employees misled aviation regulators about safety issues that led to two deadly crashes of the 737 MAX, authorities said.

The settlement, which was filed Thursday in Dallas federal court, would lift a legal cloud that has hung over the aerospace company for about two years since the fatal crashes. Federal prosecutors had been investigating the role of two Boeing employees who interacted with the Federal Aviation Administration about the design of the 737 MAX and how much pilot training would be required for the new model.

The settlement includes a $243 million fine as well as $2.2 billion in compensation to airline customers and families of the 346 people who perished in two MAX crashes.

The plane maker was charged with one count of conspiracy to defraud the U.S., but will avoid prosecution on that charge as long as it avoids legal trouble for a period of three years. The deal also calls for Boeing to comply with any ongoing investigations, including probes by foreign law-enforcement and regulatory authorities, and to beef up compliance programs, according to its agreement with prosecutors. .

The FAA—which is conducting its own civil investigation of Boeing’s activities surrounding the MAX and could levy additional fines and penalties—didn’t have any immediate comment

The MAX debacle has dogged Boeing ever since one of the aircraft crashed in Indonesia in late 2018 and another in Ethiopia in early 2019. After the second accident, regulators around the globe grounded the aircraft, preventing Boeing from delivering a bestselling moneymaker. The plane maker came under investigation by the Justice Department, as well as the Federal Bureau of Investigation, the Transportation Department’s inspector general and the Securities and Exchange Commission.

Planes piled up, the manufacturer halted production and its frustrated board ousted senior executives including then-CEO Dennis Muilenburg. Last year the company estimated the MAX crisis had cost it around $20 billion for airline compensation and the factory pause.

Boeing Chief Executive David Calhoun said the Justice Department deal appropriately acknowledges how the company fell short of its 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,” Mr. Calhoun said in an internal memo.

Boeing’s total monetary sanctions qualify as one of the biggest corporate criminal resolutions of the Trump administration.

The company previously set aside $1.8 billion to compensate airlines and aircraft leasing companies, according to a securities filing. The company said Thursday it would book an additional $744 million in charges in its fourth-quarter results.

About 20% of the money Boeing was ordered to pay will go to the families of the crash victims. The company must contribute $500 million to a fund for their relatives and heirs. A claims administrator will decide who should receive the money, and the payments don’t affect or limit any legal claims the victims might make against Boeing.

Boeing shares fell about 1% in after-hours trading Thursday after closing at $212.71.

The court documents provide the most detailed narrative yet of what Boeing did—and failed to do—before and after certification of the MAX fleet, including its initial refusal to cooperate with federal investigators.

The criminal probe focused on the actions of two former Boeing pilots who were key liaisons with the Federal Aviation Administration on technical questions required to certify the MAX for commercial flying.

Court documents filed Thursday don’t identify the two individuals, but The Wall Street Journal has previously reported they are Mark Forkner and Patrik Gustavsson.

Neither Mr. Forkner nor Mr. Gustavsson was charged Thursday. An attorney for Mr. Forkner declined to comment.

“Patrik Gustavsson never hid anything from the FAA or any pilot,” his attorney, James F. Bennett, said. “He did the exact opposite throughout his time at Boeing and has been completely committed to the safety of passengers and crew. Any claim to the contrary is false.”

Boeing acknowledged that the pilots deceived the FAA to get approval for MAX training requirements. Prosecutors determined that the two employees illegally interfered with an FAA group’s responsibilities by providing “incomplete and inaccurate” information about an new flight-control system, known as the Maneuvering Characteristics Augmentation System or MCAS, which resulted in important data being withheld from FAA training experts and ultimately pilots.

Accident investigators in part blamed MCAS for pushing the aircraft into fatal nosedives. The system was only supposed to affect the plane’s aerodynamics during certain high-speed turns. But Boeing later expanded its scope, making it possible that MCAS could activate across “nearly the entire speed range for the 737 MAX, including low-speed flight,” according to the resolution.

According to a statement of facts included with Boeing’s settlement agreement, the former Boeing pilots were eager to avoid a mandate for more expensive, simulator training for MAX pilots. In one email cited in the agreement, a pilot wrote that “nothing can jeopardize [sic] level b,” referring to a less costly type of training that could be done on a laptop or tablet. The other pilot wrote: “if we lose Level B [it] will be thrown squarely on my shoulders.”

One of the pilots persuaded the FAA to remove mention of the new automated system from the pilot manuals as the company sought to avoid federal requirements that MAX pilots undergo simulator training. After the pilot seemed surprised how the system behaved in a flight simulator, he told his counterpart in a 2016 chat message: “So I basically lied to the regulators (unknowingly),” according to previously disclosed internal company messages.

Emails that emerged showed the pilot told his FAA counterpart that pilots would only encounter the system in extreme circumstances.

In determining the amount of the penalty, the Justice Department said it gave Boeing credit for ultimately cooperating with the investigation, as well as for voluntarily adopting enhanced internal safety controls, management changes and additional oversight of management pilots.

But the documents also say that Boeing’s cooperation was delayed and only began after the first six months of the DOJ’s Fraud Section’s criminal inquiry. During the early stages, Boeing’s response “frustrated the Fraud Section’s investigation.”

The agreement doesn’t require the appointment of an outside compliance or ethics monitor, a move sometimes imposed by prosecutors in major cases of corporate wrongdoing. But Boeing does have to provide the DOJ with periodic reports on its internal compliance program and efforts to improve it.

The MAX, which was grounded from March 2019 until November 2020, recently returned to commercial service after aviation authorities in the U.S. and Brazil approved a slate of fixes to the jet. Air-safety agencies in Canada, Europe and elsewhere are expected to take similar steps in coming weeks.

https://www.wsj.com