How Boeing defrauded the United States and escaped with a slap on the wrist

Boeing faces up to $487 million in fines as part of its anticipated guilty plea to a felony charge related to two fatal crashes of the 737 Max. Critics of the deal, however, are calling it a “slap on the wrist.”

While corporate guilty pleas by companies the size of Boeing are rare, and there are some terms of the plea agreement that Boeing leadership undoubtedly found onerous, the deal does show the limits of corporate criminal charges.

Boeing agreed to plead guilty to a charge that it defrauded the Federal Aviation Administration, hiding crucial information about a design flaw on the 737 Max during its original certification process. That design flaw has been tied to crashes in 2018 and 2019 that killed 346 people, plunging the company into a crisis that led to $32 billion in losses.

“The Justice Department does no one any favors by trying to sell this as a tough deal,” said Peter Goeltz, a former managing director of the National Transportation Safety Board and now a CNN contributor who consults for transportation companies. “It doesn’t smell like a tough deal.”

Under the plea settlement reached late Sunday, a $243 million fine that Boeing agreed to pay back in 2021 could be doubled to $487 million.

“That’s what, the price of three 777’s?” Goeltz said. “I’m not sure that it’s a significant fine.”

There are some other numbers backing Goeltz up.

Before the losses started in 2019, the company was reporting record annual revenue of $101 billion and record core operating profit of $10.7 billion, or 21 times the cost of of the $487 million fine.

While Boeing’s credit rating is now at risk of falling into the junk bond status for the first time, credit rating agency Moody’s came out with a statement Monday that the plea and penalties “will have little effect on Boeing’s finances or operations.”

And Boeing nearly escaped even this slap on the wrist.

In January a door plug blew off a 737 Max approaching 16,000 feet. While no one was killed or seriously injured on that Alaska Airlines flight, the incident not only brought unwanted attention and a slew of federal investigations, it upended an agreement Boeing reached in January 2021 with the Justice Department to end the risk of prosecution for defrauding the FAA during the Max certification. The Alaska Air incident happened just days before the probationary period would have ended.

The expected guilty plea did little to satisfy family members of the crash victims, who branded it a “sweetheart deal,” an “atrocious abomination” and a gross “miscarriage of justice.”

Their attorneys had argued that Boeing should have been hit with a maximum fine worth as much as $24.8 billion, which they calculated based on a multiple of their estimate of combined losses sustained by the families.

Other corporations that pleaded guilty to felonies have agreed to much larger fines. Oil giant BP agreed to pay $4 billion to settle criminal charges, including manslaughter, related to the explosion and oil spill at its Deepwater Horizon oil platform in 2010 that killed 11 workers.

Volkswagen pleaded guilty to three US felony criminal charges and agreed to pay $2.8 billion in criminal penalties in 2017 after it admitted to cheating on its diesel emissions tests.

“The fact that this is in the millions of dollars rather than billions is an indication this is a slap on the wrist,” said Paul Cassell, a University of Utah law professor who worked on the BP case on behalf of victims and is now working for the families in the Boeing crashes.

One of the facts angering family members is that Boeing agreed to plead guilty to simply defrauding the FAA, rather than facing manslaughter charges for the deaths of hundreds of people.

“That’s a tougher case to prove, but I believe the evidence was there,” said Mark Lindquist, another attorney representing family members, as well as some passengers aboard the Alaska Air flight.

“As a practical matter, the result might not have been a lot different” if there had been manslaughter rather than fraud charges in this criminal case, Lindquist said. “From a philosophical basis, it would have felt more like accountability and justice for the victims’ families.”

But while the Justice Department announced in January of 2021 that “misleading statements, half-truths, and omissions communicated by Boeing employees to the FAA” played a direct role in the crashes, it has taken only limited criminal action against any individual employee, and none against the top executives who oversaw the company’s decisions at that time.

The Justice Department said in a press statement early Monday that the agreement included “no immunity to any individual employees, including corporate executives, for any conduct.”

But of the two former Boeing employees cited in the original settlement of the case in 2021, only one, Mark Forkner, the chief technical pilot at Boeing at the time, ever faced criminal charges, and he was eventually acquitted after his attorney convinced the jury that he was being made a scapegoat.

“As a practical matter, individuals are more sympathetic to jurors than companies,” Lindquist said. “DOJ made a prosecutorial decision to pursue the company rather than individuals.”

There are also defenses in an individual’s criminal case that are not possible in a corporate criminal case.

“With an individual, there’s always someone else he or she can point the finger at,” said Lindquist.

Boeing attorneys had it as part of their mission to make sure that its executives did not face any criminal charges, Lindquist said.

“From the beginning, that’s been clear,” he said.

A Boeing spokesman said the company had no comment about the anticipated guilty plea or the case beyond a brief statement confirming the agreement.

Even if there are no criminal charges brought against executives, they can face significant penalties, Arlen said. That could come in the form of “clawbacks,” in which Boeing demands executives return bonuses they received during the time the misconduct was committed.

“Ensuring that the individuals are held accountable is the most important thing,” she said.

But so far the Boeing board has shown little indication of wanting to hold executives financially responsible. It recently gave CEO Dave Calhoun a 45% raise, taking his pay from $22.6 million to $32.8 million for 2023.

His predecessor, Dennis Muilenburg, lost the CEO job at the end of 2019 without any severance but left the company with a package of stock worth about $80 million at that time.

Asked about possible clawbacks, Boeing pointed to company policy, which states in part: “The board shall have the discretion… to recover incentive-based compensation paid to any executive of the company who has engaged in fraud, bribery, or illegal acts… or knowingly failed to report such acts of an employee over whom such officer had direct supervisory responsibility.” But despite that language, no clawbacks have occurred.

Arlen said it would also be justified for compensation for board members to be clawed back. While Calhoun was not an executive during this time, he was on the Boeing board, receiving more than $300,000 a year while the certification process for the Max was taking place.

“At the end of the day, when you have a company with systemic problems, the ultimate buck stops with the board,” she said.

The most serious penalty that Boeing could face is by far the least likely – it could be barred from federal government contracts due to its guilty plea. And that could conceivably force the company out of business: US government contracts accounted for 37% of its revenue in 2023, or about $29 billion, according to company filings.

But while it will need to get waivers from the government to continue its contracts, everyone expects those waivers will be granted.

Most of those contracts are with Boeing’s defense and space business, not its commercial aircraft unit. Asked about the Department of Defense contracts, Pentagon spokesperson Air Force Major General Patrick Ryder told reporters Monday that “DOD will assess the company’s remediation plans and agreement with the Department of Justice to make a determination as to what steps are necessary and appropriate to protect the federal government.”

But the US government has few alternatives than sticking with Boeing, despite both the expected guilty plea and the years of quality issues.

Beyond the lack of alternatives, few if any decision makers in the federal government want to see Boeing go out of business.

It remains the nation’s largest exporter, and has nearly 150,000 US employees. The company estimates its economic impact at $79 billion, supporting 1.6 million direct and indirect jobs at more than 9,900 suppliers spread across all 50 states. And it is crucial to the smooth operation of the nation’s air travel system.

“It’s very clear to me Boeing is going survive this,” said Robert Clifford, another lawyer for family members of crash victims. “Why is Boeing getting a pass that other criminal defendants do not? Because they’re Boeing.”

– CNN’s Natasha Bertrand contributed to this report.