The Journal. - Boeing Agrees to Felony Plea. Now Its Future Is Up in the Air.

Episode Date: July 9, 2024

In a stunning concession, Boeing agreed Sunday to plead guilty to misleading air-safety regulators ahead of two deadly 737 MAX crashes in 2018 and 2019. WSJ’s Andrew Tangel reports on Boeing’s long and complicated journey to the plea deal and what a felony record would mean for the company.  Further Listening: -The Failures Inside Boeing’s 737 Factory  -A Hole in a Plane and a Headache for Boeing  Further Reading: -Boeing Agrees to Plead Guilty in 737 MAX Criminal Case  -Inside DOJ’s Wrenching Decision on Whether to Prosecute Boeing  -Boeing Violated Criminal Settlement After 737 MAX Crashes, Justice Department Says  Learn more about your ad choices. Visit megaphone.fm/adchoices

Boeing, the world's largest aerospace company, has agreed to plead guilty to a crime. Boeing has agreed to plead guilty. Boeing will plead guilty to a criminal fraud charge for misleading the FAA. Boeing pleading guilty to one criminal fraud charge in a controversial deal with the Department of Justice. The plea relates to two deadly crashes in 2018 and 2019. And it's a stunning concession that would make Boeing a felon. And what does it mean for a company to be a convicted felon? For a company like Boeing,

it can have big implications for its ability to do business with the federal government. It could lead to its suspension or debarment as a contractor for the Pentagon. And so that would be a very big problem for Boeing. That's our colleague Andrew Tangle. How significant a moment is this for Boeing, for the airline industry? It's a big moment for Boeing. It's an iconic American manufacturer that is very important for the global aviation industry and the United States' national defense. A guilty plea, you know, it carries symbolic weight for any company. And this is the conclusion of a very long legal odyssey that started with these two plane crashes, which set into motion the most serious crisis this company has faced in its storied more than 100-year history. and it's storied more than a hundred year history.

Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Tuesday, July 9th. Coming up on the show, Boeing will plead guilty, but questions about safety and accountability remain. This episode is brought to you by LEGO Fortnite. LEGO Fortnite is the ultimate survival crafting game found within Fortnite. It's not just Fortnite Battle Royale with minifigures. It's an entirely new experience that combines the best of Lego play and Fortnite.

Created to give players of all ages, including kids and families, a safe digital space to play in. Download Fortnite on consoles, PC, cloud services, or Android and play Lego Fortnite for free. Rated ESRB E10+. In 2018 and 2019, there were two fatal crashes of Boeing 737 MAX planes in Indonesia and Ethiopia. 346 people were killed. 346 people were killed. The Boeing 737 operated by Lion Air crashed into the sea this morning shortly after taking off from the capital of Jakarta. Boeing 737 crashed just minutes after taking off from Ethiopia's capital. The airline confirming just a few minutes ago there are no survivors. Both planes went into a nosedive shortly after takeoff with very erratic vertical speeds and almost a porpoising effect of the plane bobbing up and down.

In the investigations that followed, several factors were blamed for these two crashes. But one component of the 737 MAX was especially scrutinized, a little-known flight control system developed by Boeing. There seemed to be missteps by the pilots. There seemed to be missteps by the maintenance crews at the airline. And so there were questions of this mysterious flight control system that no one seemed to know about, including U.S. pilots who fly the same exact airplane.

And it wasn't mentioned in the pilot manuals. No one seemed to know about it. And that's where the mystery started to deepen and questions started getting asked. Regulators around the world soon grounded all 737 MAX planes. In the U.S., the Department of Justice began an investigation into Boeing and the accidents. The DOJ zeroed in on the new flight control system, how Boeing designed it, and how the FAA approved it.

That investigation eventually focused on two Boeing employees. They allegedly conspired to mislead the FAA about training requirements related to that flight control system. And their objective, as was the company's objective, was to get the FAA to approve this new version of the 737 MAX without requiring additional simulator training for pilots. So basically, Boeing wanted to be able to sell a new aircraft to its customers that wouldn't require taking pilots off the line from flying passengers on revenue-producing flights and just

allow them to undergo a quick iPad training. Felt like a shortcut. It's not unusual in the aviation world to do that, but that's where Boeing got into trouble and that's what's at issue in this current criminal case. In 2021, the DOJ and Boeing reached a deal. The company admitted to wrongdoing in relation to the deadly crashes,

but it did not plead guilty to any felonies. Instead, Boeing was placed on something like probation. The Justice Department calls it a deferred prosecution agreement. And if Boeing cleaned up its act and stayed out of trouble for three years, it wouldn't face charges. Essentially said, yep, these employees committed this crime on the company's behalf and will go on probation for three years. We will do X, Y, and Z, pay the airline customers who suffered from the grounding of the plane. And in exchange for doing these things and going on probation for three years, Boeing was supposed to get out from under the charge and to be able to have that charge dismissed after three years of good behavior. Three years of good behavior, meaning they needed to hit certain standards of safety and quality

for those three years. Is that right? Right. They couldn't commit any new crimes and they had to roll out a robust compliance program to avoid and detect any violations and not screw up again, not run afoul of the law again. There was one group that was furious about this deal, the families of the victims of the two plane crashes. They argued that the DOJ violated the law because it didn't consult them ahead of time. And the families thought Boeing and its leaders got off easy.

They were livid. They saw it as a total sweetheart deal. They saw it as a deal done in secret with Boeing and without their knowledge or input. And so what did the families say they wanted? They wanted to have some ability to have input in the punishment for Boeing, given that the fraud committed by the company had resulted in their loved ones' deaths. They also wanted Boeing to pay a bigger price.

They wanted executives to go to prison who they believe were responsible. They didn't think the conspiracy to defraud the FAA started and ended with the two pilots mentioned in the deferred prosecution agreement. In 2022, the families challenged the deal in court. The judge denied their request, but ruled that the DOJ should have let the families have a role in shaping the agreement. Boeing's three-year probation period was due to end on January 7, 2024. And the company almost made it across the finish line. But two days before that deadline, on January 5th... Yes, we are emergency. We are depressurized.

We do need to return back to... We have 177 passengers. A panel blew off a Boeing plane just after it took off from an airport in Portland, Oregon. That incident dramatically changed Boeing's fate. That's after the break. How do stop losses work on Kraken? Let's say I have a birthday party on Wednesday night, but an important meeting Thursday morning.

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customized coverage for your business. Contact a licensed TD Insurance advisor to learn more. Just after that Alaska Airlines flight took off from Portland, Oregon, a panel referred to as a door plug blew off the plane, leaving a gaping hole. The force depressurized the cabin. It sucked people's cell phones out and ripped a shirt off a passenger's back. There were no fatalities, but it brought Boeing back under scrutiny. Boeing in the last three years has been seeming to improve its quality, seeming to improve its business, seemed to be on the right path of recovery. And then all of a sudden this door blew off.

Blew the top off, so to speak. Yeah, blew the door off. Blew the top off, so to speak. Blew the door off. And showed everybody, oh, okay, well, there's some serious problems still at this company. And it seems to have given DOJ an opening to get essentially a do-over for this deal in 2021 that has been criticized for various reasons. in 2021 that has been criticized for various reasons. It made this mess of a case even messier and added significant pressure on the DOJ to do something. What has Boeing said about that door panel? They've acknowledged just generally that they screwed up. And they more recently said that there was a mix-up with the crews who were working on the plane. They've acknowledged that the required documentation needed to remove the door plug during manufacturing doesn't exist, which is a very big deal in aerospace manufacturing. And then an executive of Boeing said recently to reporters

that the crew that was supposed to move the airplane out of the factory just closed up the plane but didn't think to put the bolts back in because they weren't told by the documents that didn't exist to do so. The blowout was unrelated to the issues of the 737 MAX that led to those earlier crashes. It was the same type of plane, but this time, the problem was due to a manufacturing mistake rather than an engineering flaw. But because Boeing was still just barely under probation for the earlier crashes, instead of closing that case, the DOJ dug back in. earlier crashes. Instead of closing that case, the DOJ dug back in. As part of its settlement with the DOJ, Boeing was supposed to maintain an effective compliance program. And we don't know

the reasons yet, but the DOJ said after the Alaska door blowout, Boeing failed to live up to its commitments for maintaining that compliance program. Certainly, Boeing has given the DOJ ammo to make a case for why it didn't live up to its terms of the agreement. The families of the 2018 and 2019 crash victims also spoke up after the blowout. These angry, outraged family members who think Boeing got up easy are now in the room with DOJ. And the families made a very strong case to the DOJ, actually a very strenuous case,

that there's not much evidence that you need to look for. The door flew off the airplane. Right. And the families are essentially asking the DOJ to throw the book at Boeing, pointing to the Alaska blowout as an example that Boeing hasn't changed. It really needs to be kicked in the ass to fix itself. All this led to the deal revealed on Sunday, the one that would make Boeing a felon. The company agreed to plead guilty to misleading air safety regulators.

This deal is tougher than the original agreement from three years ago. The exact terms haven't been officially hammered out, but what is known is that the DOJ is asking for a new three-year probationary period, this time under an external monitor. for a new three-year probationary period, this time under an external monitor. The agency would also fine Boeing an additional $244 million. Boeing must also spend $455 million more on safety and compliance over the next three years,

and its board has agreed to meet with the victims' families. A DOJ official said this criminal conviction demonstrates the department's commitment to holding Boeing accountable. It also doesn't provide immunity for any other incidents, including the Alaska Airline panel blowout. Boeing confirmed that it reached the agreement and declined to comment further. For Boeing, the plea deal could have a major impact on its bottom line. Companies with felonies might not be allowed to have contracts with the U.S. government, but those contracts account for a third of Boeing's revenue.

We'll have to wait and see. The company is in talks with the Department of Defense about potential implications and possibly getting a waiver for being a convicted felon and still being able to do business with the government. So we'll have to see what the DOD decides and what happens with this plea agreement. For the families of the victims, this new plea deal is still not enough. Here's a lawyer for the families at a recent press conference. It appears to us

that the Justice Department is continuing to give a wealthy, powerful, well-connected corporation benefits that any other defendant in the criminal justice system would never get. They want Boeing to be held criminally responsible for the deaths. The deal that the DOJ has offered Boeing doesn't do that. A lot of them are frustrated and unsatisfied. They wanted Boeing prosecuted at trial or Boeing to plead guilty, quote unquote, straight up without any concessions. No deal, no concessions. And they wanted a much more significant fine. They wanted a $24 billion fine and some other strict penalties for attorneys working with the DOJ are already expressing their deep and vigorous dissatisfaction with this plea agreement and

plan to object in court. But Boeing is such a behemoth. It's one of just two major airplane makers in the world that the economy, especially the American economy, needs it. Boeing airplanes rely on a vast U.S. supply chain, and they're so expensive, often tens or even hundreds of millions of dollars per plane, that the company's success or failure can have an impact on the U.S. GDP. How can you hold a company as big and as important as Boeing accountable? I think the Justice Department is trying to answer that very difficult question. And it's not also just about accountability for a single company, but when you have a tragedy, there may not be all the legal requirements met to prove beyond a reasonable doubt that somebody had criminal intent to kill somebody or be reckless about their decision making. And so it can be really, really frustrating, especially for the government when there is public outrage and a public interest in preventing tragedies like this from happening again.

That's all for today, Tuesday, July 9th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Dave Michaels and Sharon Turlip. Thanks for listening. See you tomorrow.