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Boeing To Pay $2.5 Billion In Penalties To Settle Fraud Charges In Connection With 737 Max Crashes

January 7, 2021 / 3:58 PM CST / CBS Chicago

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CHICAGO (CBS/AP) -- Boeing has agreed to pay more than $2.5 billion in penalties and compensation to settle criminal charges filed by federal prosecutors accusing the company of conspiring to defraud the FAA over design flaws in its 737 Max airplanes, which were involved in two deadly crashes months apart.

The Justice Department announced it has entered into a deferred prosecution agreement with the Chicago-based airplane manufacturer, which was charged with one count of conspiracy to defraud the United States.

Under the agreement, Boeing agreed to pay a criminal penalty of $243.6 million, $500 million in compensation to the survivors of the 346 passengers killed in the crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302, and $1.77 billion in compensation to Boeing's airline customers.

Boeing's entire fleet of 737 Max fleet was grounded for nearly two years following an airliner crash in Ethiopia in March 2019, which came just five months after another 737 Max crash in Indonesia in October 2018.

"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," said Acting Assistant Attorney General David P. Burns of the Justice Department's Criminal Division. "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. This resolution holds Boeing accountable for its employees' criminal misconduct, addresses the financial impact to Boeing's airline customers, and hopefully provides some measure of compensation to the crash-victims' families and beneficiaries."

Boeing admitted to deceiving the FAA regulators about vital aircraft flight control software known as the Maneuvering Characteristics Augmentation System (MCAS), which can alter a plane's path. Top FAA officials and most pilots did not know about the anti-stall system on the Max until after the first crash, in October 2018 in Indonesia. Less than five months later, another Max crashed in Ethiopia. In all, 346 people died.

"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 U.S. Attorney Erin Nealy Cox for the Northern District of Texas. "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."

In a statement, Boeing said the deferred prosecution agreement was based on the conduct of two former employees who intentionally failed to inform the FAA of changes to the MCAS software, which resulted in the agency not being fully informed about the system's operations when it made training determinations for the 737 Max.

"While focusing on the conduct of these two former employees, the agreement recognizes that other Boeing employees did inform other officials and organizations within the FAA about MCAS's expanded operating range in connection with the certification of the 737 MAX," the company said in a statement.

Boeing president and CEO David Calhoun sent a note to employees saying he believes the agreement with the feds is "the right thing for us to do—a step that appropriately acknowledges how we fell short of our values and expectations."

"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," Calhoun said.

Airlines began using the Max in 2017. There were nearly 400 in service when the planes were grounded after a 2018 crash in Indonesia and a 2019 crash in Ethiopia. Investigators have pointed to the role played MCAS software, which pushed the noses of the planes down based on faulty sensor readings.

As part of design changes the FAA mandated to get 737 Max planes flying again, more redundancy is required in the plane's design to improve safety, including linking MCAS to two sensors instead of one. Both crashes occurred after the system pushed the plane's nose down in response to a single misfiring sensor. The agency also required an alert to warn pilots if there appears to a problem with the sensors.

The FAA also required Boeing to make MCAS less powerful so that pilots can respond if it mistakenly pushes the plane's nose down. Pilots — who didn't know about MCAS until after the first crash — would also receive more training.

As part of the deferred prosecution agreement, Boeing also has agreed to continue cooperating with any ongoing or future federal investigations and prosecutions, and must report any evidence or allegation of a violation of U.S. fraud laws committed by its employees or agents upon any domestic or foreign government agency (including the FAA), regulator, or any of Boeing's airline customers.

Boeing also agreed to strengthen its compliance program and to enhanced compliance program reporting requirements, which require Boeing to meet with the Justice Department's Fraud Section at least quarterly and to submit yearly reports to the Fraud Section 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 (including the FAA), regulator, or any of its airline customers.

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