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Boeing has reached an agreement to pay over $2.5 billion to resolve a fraud conspiracy charge from the Department of Justice in connection to the Federal Aviation Administration’s evaluation of the company's 737 Max airplane.
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The criminal information charges Boeing with one count of conspiracy to defraud the United States for concealing information from regulators investigating the 737 Max's fatal role in the Lion Air Flight 610 and Ethiopian Airlines Flight 302 crashes.
“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 Attorney General of the Justice Department’s Criminal Division, David Burns, said in a statement. “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.”
Under the terms of the three-year deferred prosecution agreement, Boeing will pay a total criminal monetary amount of over $2.5 billion, composed of a penalty of $243.6 million and a $1.77 billion commitment to provide Boeing’s airline customers for financial losses resulting from the grounding of the 737 Max.
In addition, a $500 million crash-victim beneficiaries fund will be established to compensate the heirs, relatives, and legal beneficiaries of the 346 passengers who died in the two crashes.
"This is a substantial settlement of a very serious matter, and 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 President and CEO David Calhoun said in a memo to employees. "While we deeply regret the conduct described in the agreement, I am confident that it isn’t reflective of our employees as a whole or the culture or character of our company"
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The deferred prosecution agreement will also require Boeing to report any evidence or allegation of a violation of U.S. fraud laws committed by its employees or agents against any domestic or foreign government agency, regulator, or Boeing airline customers in any ongoing or future investigations and prosecutions.
Boeing will meet with the Justice Department's Fraud section quarterly and submit yearly reports regarding the status of its remediation efforts, the results of its testing of its compliance program, and its proposals to ensure that its compliance program is reasonably designed, implemented, and enforced so that it is effective at deterring and detecting violations of U.S. fraud laws in connection with interactions with any domestic or foreign government agency, regulator, or any of its airline customers.
In addition, the plane manufacturer will create a permanent aerospace safety committee led by the Board of Directors to oversee Boeing’s policies and procedures governing safety and its interactions with the FAA and other government agencies and regulators as well as a product and services safety organization to strengthen and centralize Boeing's safety-related functions.
Boeing's engineers and Flight Technical team will be required to report through the company's chief engineer rather than to business units. Structural changes will be made to the flight technical team to increase the supervision, effectiveness, and professionalism of technical pilots, including moving Boeing’s Flight Technical Team under the same organizational umbrella as Boeing’s Flight Test Team. The company will also be adopting new policies and procedures and conducting training to clarify expectations and requirements governing communications between Boeing’s Flight Technical Pilots and regulatory authorities, including the FAA AEG.
In connection with Boeing's commitments under the agreement, the company has taken a $743.6 million charge to earnings, according to an 8-K filing.
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According to court documents, Boeing admitted to deceiving the FAA’s Aircraft Evaluation Group after two former technical pilots concealed information about the 737 Max's Maneuvering Characteristics Augmentation System (MCAS), which impacts the aircraft’s flight control system.
In November 2016, the FAA AEG emailed its 737 Max Flight Standardization Board report to the two technical pilots and one other Boeing employee to review for "glaring issues." The technical pilots sent back proposed edits, which included a proposal to delete a reference to MCSA, writing: “We agreed not to reference MCAS since it’s outside normal operating envelope.”
However, neither employee disclosed to the FAA AEG that MCAS's expanded operational scope was "limited to high-speed, wind-up turns."
Information from the forthcoming FSB report was then sent to Boeing customers interested in purchasing the 737 Max between January and July 2017. After the publication of the final version of the report in July 2017, Boeing continued to sell 737 Max aircraft and the company's U.S.-based airline customers were permitted to fly the 737 Max.
As a result, U.S.-based airlines and pilots flying the 737 Max for Boeing’s airline customers were not provided any information about MCAS in their airplane manuals and pilot training materials.
"At all times during the conspiracy, Boeing Employee-1 and Boeing Employee-2 were acting within the scope of their employment and with the intention, at least in part, to benefit Boeing," the criminal information states. "The purpose of the conspiracy was to defraud the FAA AEG by impairing, obstructing, defeating, and interfering with the lawful function of the FAA AEG by dishonest means in connection with its publication of the 737 MAX FSB Report and its differences-training determination for the Boeing 737 MAX, in order to bring about a financial gain to Boeing."
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In October 2018, Lion Air Flight 610 crashed shortly after takeoff into the Java Sea near Indonesia, killing all 189 passengers and crew on board. During an investigation into the incident, the FAA AEG learned about the operational changes to MCAS for the first time and that the information was being concealed by Boeing. The FAA AEG also learned that MCAS activated during the flight and may have played a role in the crash.
In March 2019, Ethiopian Airlines Flight 302 crashed occurred in March 2019, killing all 157 passengers and crew on board. Following the Ethiopian Airlines crash, the FAA AEG learned that MCAS was also activated during that flight and may have played a role in the crash. The 737 Max was officially grounded in the U.S. on March 13, 2019.
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Lawyers for the families lost in the Ethiopian Airlines crash dismissed the settlement and said they would continue their litigation against Boeing.
"The allegations in the deferred prosecution agreement are just the tip of the iceberg of Boeing’s wrongdoing — a corporation that pays billions of dollars to avoid criminal liability while stonewalling and fighting the families in court," the Plaintiffs’ Executive Committee said in a statement. "This agreement, including the ‘crash-victim beneficiaries fund’, has no bearing on the pending civil litigation against Boeing, which we plan to prosecute fully to ensure the families receive the justice they deserve."
The families argue that the 737 MAX should not have been returned to service “until all of the airplane’s deficiencies are addressed and it has undergone transparent and independent safety reviews — which to date still has not occurred.”
The FAA officially cleared the 737 Max to begin flying again in November.
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