By Chris Prentice and Mike Spector
(Reuters) - The U.S. Justice Department will criminally charge Boeing (NYSE:BA) with fraud over two fatal crashes and ask the planemaker to plead guilty or face a trial, people familiar with the matter said on Sunday.
Boeing will have until the end of the week to respond to an offer of a plea deal from the Justice Department, the sources said. Such an agreement would allow the company to escape a courtroom battle with federal prosecutors. But it could still complicate the company's efforts to overcome an ongoing crisis sparked by the Jan. 5 mid-flight panel blowout on an Alaska Airlines-operated flight.
The proposed deal follows a Justice Department finding in May that Boeing breached a 2021 agreement that had shielded it from prosecution over fatal crashes in 2018 and 2019 that killed 346 people.
WHAT WAS THE ORIGINAL AGREEMENT?
The Justice Department in 2021 agreed to hold off prosecuting Boeing and ultimately ask a judge to dismiss a charge of conspiring to defraud the U.S. Federal Aviation Administration (FAA) so long as the company abided by the deal's terms over a three-year period.
Boeing agreed to overhaul compliance practices to prevent violation of U.S. fraud laws and submit regular reports. But the January mid-flight emergency occurred two days before the agreement expired.
The planemaker has told prosecutors it disagrees with their finding and has said it "honored the terms” of the settlement.
WHAT HAPPENS NEXT?
DOJ officials plan to give Boeing until the end of the week to respond to the offer, which they will present as nonnegotiable, Reuters reported. Should Boeing refuse, prosecutors plan to take the company to trial.
A courtroom battle would carry risks for both sides.
Prosecutors would have to prove the planemaker conspired to defraud the FAA about the flight system, after a jury in 2022 acquitted a Boeing pilot of related charges.
Still, companies are typically unlikely to risk going to trial, both because a conviction threatens to result in harsher penalties and lengthy court procedures could prolong uncertainty surrounding the case for Boeing investors, suppliers and employees.
WHAT WILL HAPPEN IF BOEING PLEADS GUILTY?
This may be the most risky aspect of the deal terms for Boeing, according to legal experts. A felony conviction could disrupt Boeing's ability to secure government contracts such as those with the U.S. military, which make up a significant portion of its revenue.
"In the world of government contracting, an indictment or finding of criminal liability can have a significant impact on a company," said Franklin Turner, a government contracts lawyer at McCarter & English.
Boeing could seek waivers from government departments and agencies to continue contracting with them. Some previous Justice Department settlements have provided details on how officials should address the issue. It remains unclear to what extent the proposed Boeing plea deal does.
If the plea offer does not address it, government officials at each department or agency would have to decide whether Boeing, as a convicted felon, is entitled to a waiver, said Vikramaditya Khanna, a law professor at University of Michigan.
WOULD THERE BE FINANCIAL PENALTIES FOR BOEING?
The proposed agreement includes a $487.2 million financial penalty, about half of which Boeing would need to pay as the government would credit it for previous penalties.
Boeing would likely be forced to pay restitution, an amount to be decided by a judge. The company already paid $2.5 billion in penalties and restitution in 2021 in connection with the original conspiracy charge, which included a criminal penalty and compensation for customers and relatives of crash victims.
The plea offer includes putting Boeing on probation for three years and requiring its board to meet with victims' family members, Reuters reported.
IF A FEDERAL MONITOR IS APPOINTED, WHO WOULD IT BE, AND HOW WOULD THAT BE DETERMINED?
The proposed plea deal includes the appointment of an independent monitor to audit Boeing's safely and compliance practices for three years.
The Justice Department under President Joe Biden has renewed the use of corporate monitors in its deals with companies to resolve charges of misconduct. The practice had fallen out of favor under the previous administration.
Companies typically fight against these terms. The outside firms, which are selected by the DOJ, act as the government’s eyes and ears. The company foots the bill.
FUTURE RISKS
The plea would not resolve or provide immunity to the company for any other conduct, including the Jan. 5 incident.