Judge Reed O’Connor rejected a plea deal between the US Department of Justice and Boeing Company today. The second deal was rejected after the Alaska door panel blowout breached the first deal.
The First Deal
The first deal, completed on January 7th, 2021, had a three-year period during which safe operations from Boeing would result in charges being dropped and the case finished. But two days prior, on January 5th, a 737 MAX 9 operated by Alaska Airlines had a door panel blowout that resulted in a decompression, meaning that Boeing failed to meet the required conditions of the original deal.
The two parties then renegotiated the deal, this time including a guilty plea by Boeing to conspiracy to commit fraud related to its failures to disclose complete details about the MCAS system that was shown to be a causative factor in the two fatal 737 MAX crashes in 2018 and 2019 that killed 346 people.
In July, Boeing pleaded guilty in a new settlement to fraud charges that had been deferred as part of its prior agreement. The judge reconsidered this deal.
The Rejection
The judge rejected the deal for two reasons: the lack of enforcement provisions for the independent monitor.“The plea agreement provides that the retention of an independent compliance monitor is a special condition of probation, meaning if Boeing fails to retain the monitor, it will violate its probation,” O’Connor wrote. “But the plea agreement prohibits imposing as a condition of probation a requirement for Boeing to comply with the monitor’s anti-fraud recommendations.”
A second element of the rejection was the Diversity, Equity, and Inclusion provisions endorsed by both the DOJ and Boeing. The judge wanted to ensure that the independent monitor was selected by merit rather than race and was not confident that would happen under the terms of the agreement.
“While the Government assures the Court that the Government will consider all possible monitors (i.e., all backgrounds, etc.) but will choose a monitor solely based on merit and talent, the Court is skeptical of this assertion,” O’Connor wrote.
The Future
With a rejection of the plea deal, the parties must negotiate a new one.The question now is whether the crash victims’ families will have input into the process. Paul Cassel, an attorney for the victim families, indicated that the ruling was an important win for his clients.“No longer can federal prosecutors and high-powered defense attorneys craft back-room deals and just expect judges to approve them,” Cassel said.
“Judge O’Connor has recognized that this was a cozy deal between the government and Boeing that failed to focus on the overriding concerns – holding Boeing accountable for its deadly crime and ensuring that nothing like this happens again in the future,” said Cassel.
The justice department said it would not bring charges against Boeing for fraud beyond the guilty plea.However, with the agreement rejected, everything must be reconsidered in light of the decision.
The best case scenario for the company is a quick renegotiation of the agreement that addresses the judge’s points on enforcement, selection of an independent monitor, and resubmitting the new deal for approval.
The worst-case scenario for Boeing is a public trial on the issues, with the company being taken to court and the dirty laundry surrounding the development of the 737 MAX re-emerging in the news.
The Bottom Line
Boeing needs a plea deal to continue focusing on its recovery. That will likely mean a merit-based selection of an independent monitor and additional enforcement teeth being provided to said independent monitor in the event that Boeing strays from his anti-fraud recommendations to ensure that FARs are followed and further fraud can be avoided.
The parties have a strong incentive to reach a deal that is more acceptable to the public and both parties. Since the original 2021 arrangements, this deal has been strongly criticized as a sweetheart deal, and revisiting it could increase Boeing’s penalties. While Boeing remains “too big to fail and too big to jail,” victim families will pressure Boeing to take stronger actions.
Uncertainty is never good for a company, particularly in a financial crisis, restarting production after a strike, restructuring with 17,000 layoffs, and trying to implement a culture change.If 2024 has been a year of chaos for Boeing, this ruling will continue that trend that will also be felt in 2025.
