Boeing’s future CEO has same mess, different day
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, July 8 (Reuters Breakingviews) -Boeing BA.N has not yet met a sufficiently painful reckoning. The $113 billion jet maker will plead guilty to a criminal fraud conspiracy, according to court filings submitted Sunday by the U.S. Department of Justice. As part of the deal, Boeing will pay a further $244 million fine and put $455 million towards safety over the next three years. Neither does much to dent the earnings power of an entrenched duopolist – or dispel the mire of controversy awaiting the unnamed Boeing boss who is set to replace exiting David Calhoun.
The plea deal is the culmination of an investigation into whether Boeing violated the terms of a prior bargain, struck in 2021, that deferred prosecution for misleading aviation regulators. At root are two crashes involving the company’s 737 MAX, which together claimed 346 lives. The old agreement charged that Boeing’s employees had committed “fraudulent and deceptive conduct.” The new deal includes a criminal rap for Boeing itself.
That poses some potential complications, though on the face of it, nothing Boeing hasn’t weathered before. Felons are ordinarily barred from winning government contracts, which underpin Boeing’s crucial defense business. But the company can receive waivers to enable it to continue to do business with Washington, and has shrugged off prior threatened suspensions on winning contracts. Already, it is talking to the U.S. Defense Department about how it might be affected, according to a Reuters report. With the alternative being the U.S. government sending its business from the Virginia-based company to a foreign entity, for now, this chunk of Boeing’s earnings seems safe.
Still, any variation from that could substantially add to the company’s problems, which Calhoun partly inherited when he took the top job in 2020. Shares have fallen some 43% since the first crash in 2018; the government capped its production rate of 737 MAX planes at 38 per month; French rival Airbus AIR.PA is winning share. Sure, net income is expected to reach $9.5 billion by 2028, according to Visible Alpha, making the $151 million of implied extra annualized safety spending a drop in the bucket. But those estimates represent an ambitious an 18-fold increase from 2024. If plane orders are further delayed, or future dents to credibility give airline customers pause, earnings growth could stall. On Monday, Boeing’s stock gave up early gains amid news of a new government inspection over potentially faulty oxygen masks.
Plus, there’s nothing specific to suggest that the financial tax from the government comes with a promise that this is the end of Boeing’s woes. The DOJ’s court filing highlights that families of the victims of those crashes will ask a judge to reject the plea deal. Plus, Boeing is still liable for whatever comes of subsequent mishaps – like the panel blowout on an Alaska Airlines flight earlier this year, or whistleblower claims over lax manufacturing standards. Even with the catharsis of becoming a felon, old problems await the new boss.
Follow @johnsfoley on X
CONTEXT NEWS
Boeing will plead guilty to criminal fraud conspiracy charges relating to a 2021 settlement with the Department of Justice, which arose from an investigation into two fatal crashes involving its 737 MAX planes. The company has also agreed to spend at least $455 million over three years on safety and compliance. An independent monitor will also oversee Boeing’s progress and file annual progress reports.
Lawyers for the families of victims of those crashes have said that they will urge a judge to reject the settlement, Reuters reported.
Graphic: Boeing's earnings are expected to take off https://reut.rs/3S0sdYf
Editing by Lauren Silva Laughlin and Sharon Lam
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
