Prosecutors urge Justice Department to file criminal charges against Boeing over 737 Max

CNN

By Chris Isidore and Evan Perez, CNN

New York (CNN) — Prosecutors are urging the US Justice Department to file criminal charges against Boeing for safety issues surrounding its 737 Max, although top Justice Department officials haven’t made a final decision, a source familiar with the development tells CNN.

The possible criminal charges are just the latest severe blow to the reputation of Boeing, a company once known for the quality and safety of its commercial jets. Beyond two fatal crashes of the 737 Max in 2018 and 2019, the company has faced a series of questions about the safety and quality of its jets. In January, a door plug on a 737 Max flown by Alaska Air blew out early in a flight, leaving a gaping hole in the side of the jet, further damaging Boeing’s reputation.

The Justice Department and Boeing had reached an agreement in January of 2021 to settle charges that alleged the company defrauded the Federal Aviation Administration during the certification process of the 737 Max before it could carry its first passengers. The plane started service in 2017, but suffered two fatal crashes – in October 2018 and March of 2019 – which led to a 20-month grounding of the jet. The cause of the crashes proved to be a design flaw, Boeing has admitted.

The 2021 settlement would have spared Boeing any criminal liability despite the Justice Department’s statement at that time that “misleading statements, half-truths, and omissions communicated by Boeing employees to the FAA” had hidden potential problems with the the design flaw.

Reuters first reported the charging recommendation. Boeing declined to comment on that report earlier Monday, nor did it have any comment when reached again Monday evening.

Boeing has told prosecutors that it will contest claims that it violated the 2021 deal.

Some family members of the crash victims and members of Congress harshly criticized the 2021 deal, known as a deferred prosecution agreement, which spared Boeing from criminal charges at that time. And this month a group of those family members wrote a letter to the Justice Department urging Boeing be hit with the maximum possible $24.9 billion fine. The letter they wrote to the Justice department called Boeing’s actions “the deadliest corporate crime in U.S. history.”

Boeing had just over $6.9 billion cash on hand as of its last quarterly earnings statement in late March.

The 2021 deferred prosecution agreement was due to expire this past January, freeing Boeing from the risk of criminal liability. But just days before that deadline expired, the Alaska Air incident happened.

The charges against Boeing don’t mean any Boeing executive will face charges as an individual. But it could add to the company’s deep financial problems. It has posted core operating losses of $31.9 billion since the start of the 20-month grounding of the 737 Max that followed its second fatal crash in 2019.

The company is at risk of losing its investment grade credit rating for the first time in its history. If its debt falls into junk bond status, its cost of borrowing money that it needs to cover losses will soar.

At its most extreme, Boeing could be found ineligible to do business with the federal government if found guilty of a crime. That would be an virtual death sentence for Boeing, which gets 37% of its revenue in 2023 from US government contracts. But such a penalty is highly unlikely for reasons of national security, since most of those contracts are with the Department of Defense.

But if the company faces criminal charges, a new settlement is the most likely outcome. And such a settlement would likely include some manner of additional oversight of the company’s operations, perhaps in the form of a federal monitor, said Richard Aboulafia, managing director at AeroDynamic Advisory, an aerospace and defense management consultant.

This story has been updated with additional reporting and context.

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