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Boeing Co (NYSE:BA) investors appeared unaltered this week by a suspenseful decision that could put the company under independent monitoring for three years or take it back to court on criminal charges.
The non-negotiable plea deal offered to Boeing by the Department of Justice over the alleged violation of a previous agreement was made public on Monday, the same day that the company announced a definitive agreement to purchase Spirit AeroSystems Holdings Inc (NYSE:SPR).
The acquisition of the Wichita-based fuselage maker, which was founded as a spin-off of Boeing itself and has served as its main fuselage provider for almost two decades, was met with mild enthusiasm from investors.
Boeing shares rose by about 3% on Monday and remained approximately 1.3% higher on Wednesday compared to their closing price on Friday.
The $4.7 billion all-stock deal was read by many as part of a Boeing strategy to clean up its safety reputation by owning a bigger chunk of its supply chain, after the company returned to the center of public scrutiny for a series of fatal plane crashes that occurred five years ago.
One piece of news that went somewhat buried under the acquisition announcement was a proposal by federal prosecutors for Boeing to plead guilty to breaking its previous "probation" deal.
The Context: Boeing faced severe pressure at the end of the last decade after two crashes in 2018 and 2019 claimed the lives of 346 people, raising concerns over the safety of the 737 MAX passenger aircraft.
In 2021, a deal was reached where Boeing was offered a $2.5 billion settlement in exchange for having charges dropped, provided the company cleaned up its act. This arrangement was referred to at the time as a type of "corporate probation" that would last three years.
The settlement included $500 million in compensation for the families of the deceased, and Boeing committed to developing a new compliance program to assess the safety of its production aircrafts.
An Alaska Airlines flight forced to make an emergency landing in January brought the company's safety practices back under the scrutiny of the DOJ.
Further investigation found that irregularities in the Boeing manufacturing chain led to the Alaska Airlines 737 Max incident, leading Boeing to compensate the airline for $160 million in damages.
In May, federal prosecutors said Boeing broke the deal, by failing to “design, implement, and enforce a compliance and ethics program to prevent and detect violations of the U.S. fraud laws throughout its operations”.
Read also: Boeing Set For Improved Deliveries And Production Rates, Goldman Sachs Analyst Says
This week, the DOJ gave Boeing a new opportunity to avoid criminal charges. The company now has until July 7 to admit it broke the terms of the 2021 deal and plead guilty.
n doing so, it would also commit to taking on an independent compliance monitor for three years and paying an additional $243.6 million fine.
According to The Wall Street Journal, a third-party law firm would typically be hired as the compliance monitor, responsible for reporting any irregularities to the DOJ.
Victims’ families have rejected the deal, as they argue it leaves Boeing home free for a small price. They expect the company to admit full responsibility for the loss of lives and pay a sum 10 times greater.
Taking the deal would clear up Boeing's criminal liability but would require the company to allow a third-party monitor full access to its day-to-day operations, previous records, and information. Additionally, a guilty plea would leave a stain on the company's reputation.
Boeing can choose to reject the deal, which would put it back on trial on criminal charges. This would be a risky move, as federal prosecutors have documented evidence amounting to a confession of breaking the 2021 deal. Two Boeing executives have admitted that the company misled air-safety regulators about a safety feature linked to the 2018 and 2019 crashes.
Legal commentators quoted by WSJ said Boeing has little chances of winning that trial by trying to convince a judge that the company didn't break the 2021 deal. Losing it would severely jeopardize the company's ability to land government contracts, which currently amount to tens of billions of dollars.
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