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Aerospace & Defense

Boeing agrees to $2.5bn US settlement over 737 MAX crashes

Airplane maker still on the hook for disasters in Indonesia and Ethiopia

The settlement includes a criminal fine of over $243 million and compensation to airline customers of nearly $1.8 billion, according to the U.S. Justice Department.   © Reuters

WASHINGTON/SEATTLE/CHICAGO (Reuters) -- Boeing Co will pay over $2.5 billion to resolve a U.S. investigation into criminal conspiracy charges related to two fatal 737 MAX crashes, the Justice Department said, but the planemaker will not be required to plead guilty.

The settlement includes a criminal fine of $243.6 million, compensation payments to Boeing's 737 MAX airline customers of $1.77 billion, the Justice Department said. It also establishes a $500 million crash-victim beneficiaries fund to compensate heirs, relatives, and legal beneficiaries of passengers killed.

The 737 MAX crashes in Indonesia and Ethiopia killed 346 people within five months in 2018 and 2019. They triggered a hailstorm of investigations, frayed U.S. leadership in global aviation and have cost Boeing some $20 billion.

Plaintiffs lawyers representing families of victims of the Ethiopian Airlines crash said they were moving forward with civil litigation against Boeing in Chicago.

"The allegations in the deferred prosecution agreement are just the tip of the iceberg of Boeing's wrongdoing," they said in a joint statement.

Boeing is facing around 140 lawsuits by Ethiopian crash victim families and has already settled most of the lawsuits related to the Lion Air disaster in Indonesia.

Because of the crashes, the U.S. Congress in December passed legislation reforming how the Federal Aviation Administration (FAA) certifies new airplanes.

Acting Assistant Attorney General David P. Burns said the tragic crashes "exposed fraudulent and deceptive conduct by employees of one of the world's leading commercial airplane manufacturers."

"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," he said.

Boeing said it expects to incur additional charges of $743.6 million in the fourth quarter as part of the settlement.

In March, 2019, the 737 Max was grounded. The grounding was just lifted in November, 2020, after Boeing made significant safety upgrades and improvements in pilot training.

Boeing was charged with one count of conspiracy to defraud the United States. The largest U.S. airplane manufacturer faces a three-year deferred prosecution agreement, with the charge dismissed if it complies.

Boeing admitted in court documents that two of its 737 MAX flight technical pilots deceived the FAA about a safety system called MCAS, which was tied to both fatal crashes.

Boeing Chief Executive David Calhoun said in a statement the agreement "appropriately acknowledges how we fell short of our values and expectations."

The deferred prosecution agreement discussed Boeing's financial incentive to secure training that would not require additional pilot simulator time, which could have deterred airlines from buying the plane.

Reuters has reported that Boeing managers told engineers working on the MAX, including MCAS, their designs could not trigger more comprehensive training designations from the FAA.

One employee wrote another in 2014 that if the FAA required higher level training it would "cost Boeing tens of millions of dollars!"

The $243 million fine, which the Justice Department said was at "low end" of the sentencing guidelines, represents the amount of money Boeing saved by not implementing full-flight simulator training for the 737 MAX, the agreement stated.

On MCAS, Boeing disclosed to FAA personnel responsible for determining whether the MAX met federal airworthiness standards but it did not disclose it to other FAA key personnel.

The Justice Department said it was not requiring an independent compliance monitor because "the misconduct was neither pervasive across the organization, nor undertaken by a large number of employees, nor facilitated by senior management."

Boeing's board in late 2019 removed its prior chief executive and has created a permanent aerospace safety committee. Boeing has adopted new policies and procedures and conducted training to clarify expectations and requirements governing communications between its flight technical pilots and regulatory authorities.

The airline payment fund will include prior payments already made by the Boeing to airlines, which had to cancel flights due to a shortage of aircraft.

The deal comes almost exactly a year after European rival Airbus agreed a record $4 billion settlement with France, Britain and the United States over allegations of bribery, fraud and corruption.

Together, the Boeing 737 MAX safety scandal and the probe into the use of middlemen at Airbus represent the worst crises to hit the world's largest planemakers in decades and have left both rivals facing new compliance obligations.

DPAs are corporate plea bargains that typically allow a company to avoid criminal charges that could disrupt activities such as access to public contracts, in return for a fine and admission of wrongdoing, as well as internal reforms.

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