Boeing will pay $2.5 billion to settle fraud charge over 737 Max

An American Airlines Boeing 737 Max 8 prepares to land
Investigators believe a design flaw in the 737 Max airplane, Boeing’s bestselling model, helped lead to two crashes in 2018 and 2019.
(Saul Loeb / AFP, Getty Images)

Boeing Co. agreed to pay $2.5 billion to settle a criminal charge that it defrauded the U.S. government by concealing information about the ill-fated 737 Max, which was involved in two fatal crashes.

The U.S. plane maker entered into a deferred prosecution agreement in the Northern District of Texas on Thursday, the Justice Department said in a news release.

“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,” Acting Assistant Atty. Gen. David P. Burns of the Justice Department’s Criminal Division said in a statement.

Boeing shares rose $1.68, or 0.8%, to $212.71 in regular trading Thursday but fell less than 1% to $211.26 after the markets closed.

A design flaw in the Max helped lead to the two crashes within about five months in 2018 and 2019, killing 346 people. The jetliner was grounded worldwide after the second crash. Several investigative reports have found that the company altered a flight control system but didn’t fully explain the changes to Federal Aviation Administration inspectors.

“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,” Boeing Chief Executive David Calhoun said in a message to employees. “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.”

The action is the latest to hit the plane maker’s bottom line. The company’s inability to deliver planes during the 737 Max grounding and cancellations of previous orders have cost the company billions of dollars.

Of the $2.5 billion, Boeing has already set aside $1.77 billion to reimburse airlines and other Max customers. The company said it expected to incur an additional $743.6-million charge for the fourth quarter of 2020, as it pays a $243.6 million penalty and $500 million in additional compensation for the families of the crash victims. Boeing is scheduled to report earnings for the quarter Jan. 27.

The plane, Boeing’s bestselling model, was grounded for 20 months while the FAA and regulators in other nations oversaw design changes to address problems revealed in investigations. The FAA lifted its grounding Nov. 18, provided airlines completed a list of repairs and revamped pilot training.

A criminal investigation into how the plane was designed and approved began after the Oct. 29, 2018, crash off the coast of Indonesia of a Lion Air flight, but before the second accident near Addis Ababa.

“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,” Erin Nealy Cox, U.S. attorney for the Northern District of Texas, said in a news release.

“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.”