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Boeing to pay $2.5 billion to settle U.S. fraud charges over 737 Max

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By Claudia Assis

Boeing Co. has agreed to pay more than $2.5 billion in penalties, including nearly $1.8 billion in compensation for airlines, to resolve charges of misleading U.S. aviation authorities in connection with the company’s 737 Max aircraft, the Justice Department said late Thursday.

Boeing /zigman2/quotes/208579720/composite BA +0.79% entered a deferred prosecution agreement in connection with charges, filed Thursday in the Northern District of Texas, of one count of conspiracy to defraud the United States.

The Justice Department’s investigation focused on whether Boeing employees misled the Federal Aviation Administration over manuals and pilot-training materials used by U.S. airlines.

Shares of Boeing fell 0.7% in the extended session Thursday, after ending the regular session up 0.8%. In the past 12 months, the stock has fallen 38%, contrasting with gains around 18% for the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.93%

Under the terms of the agreement, Boeing will pay a total criminal monetary amount of “over $2.5 billion,” the Justice Department said, including a criminal monetary penalty of $243.6 million, compensation payments to Boeing’s 737 Max airline customers of $1.77 billion, and the establishment of a $500 million crash-victim beneficiaries fund to compensate the heirs, relatives, and legal beneficiaries of the 346 passengers who died in the two crashes involving Boeing 737 Max jets.

The $1.77 billion payment already had been set aside. The $743.6 million to pay the criminal penalty and additional survivors compensation will be a fourth-quarter charge.

Analyst Sheila Kahyaoglu, with Jefferies, said in a note late Thursday she estimates that Boeing will use $20.3 billion of cash flow in 2020, with its free cash flow use moderating to $3.3 billion in 2021. “We expect (free cash flow) to improve to $8.4 (billion) and $12.5 (billion) in 2022 and 2023,” she said.

The deadly crashes, less than than five months apart and believed to be connected to a faulty antistall system, led to the worldwide grounding of the jet family in March 2019. The plane’s first commercial flights resumed last month.

“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,” David P. Burns, the Justice Department’s criminal division acting assistant attorney general, 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. 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,” he said.

/zigman2/quotes/208579720/composite
US : U.S.: NYSE
$ 235.92
+1.86 +0.79%
Volume: 12.85M
April 21, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$136.61 billion
Rev. per Employee
$412,489
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/zigman2/quotes/210599714/realtime
US : S&P US
4,173.42
+38.48 +0.93%
Volume: 2.10B
April 21, 2021 5:13p
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