Boeing Agrees To $2.5 Billion Settlement Over 737 MAX Fraud Probe
Boeing has reached an agreement exceeding $2.5 billion with the U.S. Justice Department (DOJ) to settle criminal charges that two of its employees defrauded the FAA’s Aircraft Evaluation Group (AEG) about safety issues connected to two fatal 737 MAX accidents.
The $2.5 billion includes a criminal penalty charge of $243.6 million as well as $1.77 billion in compensation payments to 737 MAX operators. It also includes the establishment of a $500 million crash-victim beneficiaries fund to compensate the families of the 346 passengers who died in the October 2018 crash of Lion Air Flight 610 and the March 2019 crash of Ethiopian Airlines Flight 302.
The DOJ concluded two Boeing 737 MAX Flight Technical Pilots specifically deceived the FAA AEG about the Maneuvering Characteristics Augmentation System (MCAS), a flight control system modification that later became central to the MAX accident investigations. “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 said Jan. 7.
Shortly after the initial accident, the FAA AEG “learned for the first time about the change to MCAS, including the information about MCAS that Boeing concealed from the FAA AEG,” DOJ said. “Meanwhile, while investigations into the Lion Air crash continued, the two 737 MAX Flight Technical Pilots continued misleading others—including at Boeing and the FAA—about their prior knowledge of the change to MCAS.”
On March 13, 2019, three days after the second accident involving Ethiopian Airlines Flight 302, the FAA joined other worldwide regulators in grounding the 737 MAX.
“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,” said David Burns, acting assistant attorney general of DOJ’s Criminal Division. The accidents exposed “fraudulent and deceptive conduct,” he added.
“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,” said Erin Nealy Cox, U.S. Attorney for Northern District of Texas, where the charges were filed. “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.”
DOJ determined that while two Boeing employees deceived the FAA, “the misconduct was neither pervasive across the organization, nor undertaken by a large number of employees, nor facilitated by senior management,” according to a court filing. “Others in the company disclosed MCAS’s expanded operational scope to different FAA personnel who were responsible for determining whether the 737 MAX met U.S. federal airworthiness standards.”
Several technical reviews have faulted a lack of effective communication within the FAA during the 737 MAX’s certification for helping set the stage for the accidents.
Of the $2.5 billion settlement, Boeing says $1.77 billion has already been included in amounts reserved in prior quarters for 737 MAX operator compensation and adds that it expects to incur earnings charges equal to the remaining $743.6 million in the fourth quarter of 2020.
“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 CEO David Calhoun wrote in a note 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.”