Boeing Blowout Occurred Hours Before U.S. Deal On 737 Max Crashes Set To Expire

(Bloomberg) -- Last week’s accident involving a Boeing Co. 737 Max 9 not only resulted in the grounding of scores of jets, but could complicate a deferred prosecution agreement that Boeing struck with the Justice Department in 2021 that was set to expire over the weekend.

That deal resolved a probe into Boeing following the crashes of Lion Air Flight 610 in October 2018 and Ethiopian Airlines Flight 302 in March of 2019, which together killed 346 passengers and crew. The agreement allowed the DOJ to dismiss a criminal charge against Boeing if the company demonstrated that it had beefed up its compliance programs. 

A lawyer for the families of the victims of those crashes is now pushing the DOJ to review the latest incident before taking any steps to dismiss the case related to the Lion Air and Ethiopian Airlines crashes. 

The deferred prosecution pact was a victory for Boeing, which faced significant legal exposure, especially after the Ethiopian Airlines crash. That disaster, which took place five months after the Lion Air accident, raised questions about what the company’s senior executives had known about the 737 Max flight control system and what they’d told regulators, their customers and the public.

“The public was promised in this DPA that Boeing would have a renewed commitment to safety and new procedures put in place and new oversight,” said Paul Cassell, a former federal judge who represents the families. “The reality is, and people on that Alaska Airlines flight know, that it doesn’t look like the renewed commitment or enhanced commitment to safety that the DPA promised is being delivered on.”

The Alaska Air Group Inc. flight lost a panel during flight on Friday, leaving passengers exposed to a gaping hole in the side of the aircraft. While nobody was seriously injured, the accident puts the spotlight on possible manufacturing defects at Boeing and its suppliers. Investigators said it’s too soon to determine whether the fault lies with Boeing, Alaska Air or a third party.

Boeing didn’t respond to requests for comment.

Almost all corporate deferred prosecution cases result in charges being dismissed. But if the Justice Department determines that Boeing hasn’t met the terms of the deal, it could extend the agreement for one or more years. And in the unlikely case that prosecutors ultimately determine that Boeing breached the agreement, they can tear it up and charge the company with the conduct that it admitted to as part of the deal.

Under the terms of the DPA, dated Jan. 6, 2021, the Justice Department now has six months to determine whether Boeing has complied with the compliance obligations imposed by prosecutors. If it concludes that the company fulfilled its duties, the government would file a motion to dismiss a criminal charge against Boeing, one count of conspiring to defraud the United States. 

A Justice Department spokesman declined to comment.

Read more: The Airlines, Regulators Taking Action on Boeing 737 Max 9

The previous DOJ probe focused on the conduct of two technical test pilots in 2016 and 2017, who allegedly deceived representatives of the FAA over the scope of the changes in the 737 Max’s flight control system. Prosecutors charged one of them with lying to regulators, but he was acquitted by a jury in 2022 after his lawyers argued that Boeing was using him as a scapegoat.

The original agreement drew harsh criticism from white collar criminal experts. Although the DOJ announced that Boeing would pay $2.5 billion as part of the 2021 settlement, the criminal penalties amounted to $243.6 million, less than 10% of the total. Prosecutors said the fine was at the low end of the applicable sentencing guidelines range. 

Of the remainder, Boeing would pay $1.77 billion to its airline customers—most of which Boeing would have to pay anyway to compensate them for the losses associated with the plane’s grounding. An additional $500 million was contributed to a fund for families of the victims.

Cassell and the families lost a previous bid to challenge the agreement. A federal judge in February 2023 declined to revisit the DPA, saying he lacked the authority to order a “substantive review and disapproval or modification” of the deal.

Read more: Boeing Crash Victims’ Families Lose Bid to Block DOJ Deal

In a 2022 paper on the Justice Department’s fondness for DPAs, “Nosedive: Boeing and the Corruption of the Deferred Prosecution Agreement,” John Coffee of Columbia Law School argued that prosecutors and the company went to great lengths to strike a lenient deal. 

“DPAs are manipulated so that both the prosecution and the defendant gain goals important to them—at the cost of denying transparency to the public,” Coffee said in the paper. “In the Boeing case, the prosecution won a symbolic victory with an illusory $2.5 billion settlement.”

“The recurrent problem is that major corporations, using major well-connected law firms, can now flank the normal standards of the criminal justice system,” he wrote.

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