Boeing Agrees to $2.5 Billion Settlement Over 737 Max Fraud Charge

After a turbulent several years for Boeing, which has been riddled with scandals following two fatal 737 Max crashes, and then faced with added pressure after air travel became decimated from the pandemic, the plane manufacturer has agreed to pay $2.5 billion to settle its fraud charges.

According to a Justice Department press release reviewed by Bloomberg, Boeing entered into a deferred prosecution agreement in Texas on Thursday. The US planemaker will now have to pay $2.5 billion for defrauding the US government, after the company covered up information about its 737 Max that caused two deadly crashes. “The tragic crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302 exposed fraudulent and deceptive conduct by employees of one of the world’s leading commercial airplane manufacturers,” Acting Assistant Attorney General David P. Burns noted in a statement.

The latest settlement will certainly have an impact on Boeing’s bottom line, which has already been decimated after the company faced order cancellations, in addition to not being able to deliver new planes during the grounding. Of the 42.5 billion, Boeing already earmarked $1.77 billion for reimbursing Max customers and airlines. In addition, the company incurred a further $743.6 million in charges during the fourth quarter of 2020, which are comprised of a $243.6 million penalty and $500 million as compensation for families of the crash victims.

A design fault in Boeing’s Max 737 lead to two fatal crashes within a span of five months in 2018 and 2019, killing a total of 346 passengers. Following a series of investigations, it was determined that the planemaker made alterations to its flight control system, without fully disclosing the changes to the Federal Aviation Administration (FAA). As a result, the Max 737 was grounded for 20 months, while the FAA, along with regulators, overlooked the necessary changes required to lift the grounding.

Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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