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.
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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
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