Boeing is negotiating with the U.S. Defense Department regarding how the planemaker’s planned guilty plea could affect its extensive government contracts, according to a person familiar with the matter.
On Sunday, the Justice Department announced in a court filing that Boeing had agreed to plead guilty to a criminal fraud conspiracy charge to resolve an investigation linked to two 737 MAX fatal crashes in 2018 and 2019 that killed 346 people.
A guilty plea could jeopardize Boeing’s ability to secure lucrative government contracts with the U.S. Defense Department and NASA, although government agencies can waive any restrictions. Final details of the deal should be filed by July 19.
Pentagon spokesperson Air Force Major General Patrick Ryder stated that the agency would assess the impact of the guilty plea on Boeing’s contracts. He did not confirm whether the agency was in talks with the planemaker.
“DOD will evaluate the company’s remediation plans and agreement with the Department of Justice to determine necessary and appropriate steps to protect the federal government,” Ryder said, adding that any actions would adhere to U.S. government contracting regulations.
Boeing and the Justice Department did not comment, and NASA declined to comment. Boeing shares, initially rising, closed up 0.6%.
Boeing’s Defense and Space unit remains vital to its business, generating $7 billion in first-quarter sales, a 6% increase from a year ago. Boeing’s annual report stated that U.S. government contracts represented 37% of last year’s revenue, including foreign military sales. A government report indicated that Boeing had $14.8 billion in Pentagon contracts in 2022.
Ben Tsocanos, airlines director at S&P Global Ratings, remarked that the financial costs tied to the plea appear “manageable relative to the company’s scale and overall obligations.” He expects Boeing to remain a key supplier of defense and space products following the guilty plea.
Defense industry experts believe the deal will also attract scrutiny outside the United States, where Boeing is a significant player in global markets. The Canadian government stated that it is “awaiting a decision on these legal proceedings and will assess implications once confirmed,” and noted that the planned acquisition of the Poseidon P-8A is proceeding.
Rising geopolitical tensions are driving up defense spending. On paper, Boeing faces possible restrictions on future exports to various international markets. However, the likelihood of exclusion depends on the discretion allowed to local agencies and the realities of the defense market.
For instance, Britain and the European Union have rules barring contractors with definitive criminal convictions from bidding for public contracts across many sectors for certain periods. “That is the letter of the law,” said Keith Hayward, a fellow of the UK’s Royal Aeronautical Society. “The worst-case analysis is that they would simply be barred from bidding, but this is as much a political issue as a legal one,” Hayward added. “It depends on how much the customer wants the product and whether Boeing controls a particular product line, like the P-8, where there aren’t many alternatives.”
As part of the plea deal, Boeing will pay a criminal fine of $243.6 million, doubling an earlier agreement. Boeing has also agreed to invest at least $455 million over three years to strengthen safety and compliance programs, and to allow the Justice Department to appoint an independent monitor to oversee compliance for three years.
On Monday, the Justice Department opposed a bid by the families of those killed to force the government to immediately appoint a monitor to oversee Boeing for five years. The DOJ stated that it generally takes “a number of months” to identify and vet candidates.
Under Sunday’s deal, Boeing will plead guilty to making knowingly false representations to the FAA about having expanded a key software feature used on the MAX to operate at low speeds, which was tied to both fatal crashes.
Family members intend to appear at a future hearing to object to the plea deal. Paul Cassell, an attorney for the families, described the proposed deal as the result of “crafty lawyering between Boeing and DOJ” and called for a public trial.
In 2023, U.S. District Judge Reed O’Connor, who will decide whether to accept the plea, harshly criticized Boeing, citing “egregious criminal conduct.” However, he stated that his actions were limited.
U.S. Senator Tammy Duckworth said on Monday that despite the expected guilty plea, Congress “must not let up on its own oversight of both Boeing and the FAA, and that is something I plan to continue to pursue.”
Boeing’s bonds traded higher on Monday, with their credit spreads, or premium over risk-free bonds, trading slightly tighter than their levels last week, according to data from BondCliq, which tracks secondary trading of corporate bonds.
