Can the US allow Boeing to fail?

Boeing is expected to respond this week to a plea deal presented by US lawmakers that would settle a criminal fraud trial in connection with two deadly crashes involving its 737 Max aircraft. On Sunday, US media reported that the Justice Department had presented the embattled plane maker with a deal in which Boeing would plead guilty to violating a 2021 agreement it made following two crashes in 2018 and 2019 that resulted in the deaths of 346 people. Accepting the deal would ensure Boeing avoids a criminal trial. Paul Cassell, a lawyer for the families of the crash victims, slammed the agreement as a “sweetheart plea deal”. “The deal will not acknowledge, in any way, that Boeing’s crime killed 346 people. It also appears to rest on the idea that Boeing did not harm any victim. The families will strenuously object to this plea deal,” he said. The National takes a look at the main implications for Boeing and the global aviation industry. Boeing entered into a deferred prosecution agreement (DPA) with the Justice Department in 2021 after the company was charged with one count of conspiracy to defraud the US. Under the terms of the DPA, the Virginia-based company was ordered to pay a $2.5 billion fine and undergo compliance and ethics programme for three years in exchange for the US granting Boeing amnesty. The three-year period expired in January, leading to a six-month window for the Justice Department to evaluate if Boeing complied with the terms of the DPA . But the aerospace giant has drawn intense scrutiny since a door plug blew midflight on an 737 Max 9 aircraft operated by Alaska Air in January. Since then, new evidence has been uncovered raising safety issues at the company that prompted numerous investigations from regulators and lawmakers. And in May, US prosecutors told a federal judge in Texas that Boeing violated the agreement because it failed to address the compliance measures. Boeing said it disagreed. Robert Clifford, a lawyer representing the families, said they “will most certainly object” before the federal judge in Texas and urge him to reject the plea deal should Boeing accept it. Deborah Curtis, partner at the Arnold & Porter law firm in Washington, does not believe Boeing's legal troubles would end there even if the plea deal were to be accepted. “I think they could likely face a lot more lawsuits [from] all over the place,” Ms Curtis said. One of the most severe punishments Boeing could face is suspension or debarment from US government contracts, including from the Defence Department. “That's something the government can do now,” Ms Curtis said. Still, there could be workarounds. Even when the Air Force suspended the company from winning contracts in 2003, the company was still granted waivers that allowed them to be awarded contracts. “The standard is that it's because they're a 'compelling national interest',” Ms Curtis said. Unlike most other companies that have faced legal troubles, Boeing has a unique footprint within the US. The company employs 170,000 people across the US and the world, and is a key supplier to major commercial airlines including Alaska, Delta, Southwest, Emirates , flydubai , Etihad Airways and Qatar Airways. And one of its biggest customers is the US government. The US government accounted for 37 per cent of Boeing's revenue last year, according to TenderAlpha, a global government procurement data intelligence platform. Ms Curtis said the US could be exploring ways of how to overcome a guilty plea bar in this case. One such way would be to structure the guilty plea that focuses on the civil aviation unit rather than the military unit. George Ferguson, senior aerospace and defence analyst at Bloomberg Intelligence, shares that view. “The US defence establishment needs Boeing as much as Boeing needs the establishment,” Mr Ferguson said. And given Boeing's major role in the supply chain, the Justice Department cannot afford to shut the company down completely. “They need the right amount of penalty and oversight but need to be careful about hurting the company's competitiveness. That said, I don't see why it would prevent holding executives accountable,” Mr Ferguson said. Richard Aboulafia, managing director of US-based AeroDynamic Advisory, said the plea deal offered to Boeing appears to be relatively lenient and will not have a serious impact on the company's business. “Boeing’s status as a top US defence prime means that any kind of government business sanction just isn’t realistic. As in so many other ways, with defence they’re simply too big to fail,” he said. Considering Boeing's position in the supply chain and the economy, Ms Curtis does not think prosecutors will “create a situation where there are unintended effects … ill effects on the US economy, or on the global economy, or on the supply chain for aircraft”. The Justice Department's decision will also have implications for aircraft supply globally. Boeing maintains a 40.6 per cent market share in the aeroplane manufacturing industry, second to French giant Airbus at 60.4 per cent. “If other countries and airlines are relying on them for their planes, where's that capacity going to come from to build those planes?” Ms Curtis said. While Boeing may not be penalised in a way that will hamper the supply chain, it is possible the manufacturer's continuing woes lead to stricter regulation. “Boeing’s legal troubles could lead to tighter regulations and increased scrutiny across the industry, potentially impacting other manufacturers and suppliers,” said Linus Bauer, founder and managing director of consultants BAA & Partners. Earlier this year, the US passed the FAA Reauthorisation Act, which builds on the Aircraft Certification, Safety and Accountability Act of 2020 (ACSAA). The updated legislation aims to strengthen aviation safety standards and other objectives. “Thanks to the ACSAA, and as re-emphasised in the FAA Reauthorisation Act of 2024, Boeing is now required to have a mandatory safety management system,” Federal Aviation Administration chief Michael Whitaker told Congress in May. Mr Bauer said a guilty plea in the trial could also temporarily weaken Boeing's market position, which could give Airbus an advantage in securing contracts. Boeing's credit rating, which has already taken a hit, is at risk of falling further. Fitch revised Boeing's outlook to “negative” from “stable”, while Moody's slashed Boeing's credit rating to one notch above junk status. S&P Global Ratings, which affirmed its “BBB-” and “A-3" ratings, also downgraded its outlook for Boeing. “The company faces heightened production uncertainty, notably related to quality issues affecting its 737 Max aircraft, and key changes to its leadership are pending,” the rating agency said at the time, also noting its acquisition of Spirit AeroSystems would increase its debt levels. Ben Tsocanos, airlines director at S&P Global Ratings, said Boeing's rating is more sensitive to production and delivery than legal troubles. “A rating downgrade would result in higher borrowing costs but again, its finances are more sensitive to its ability to make and deliver planes,” Mr Tsocanos said. Boeing did not respond to The National 's request for comment.

Can the US allow Boeing to fail?

Embattled aerospace giant's plea deal could have profound implications on the industry and economy