Boeing has not yet had to face a sufficiently unpleasant reality. According to court documents the US Department of Justice filed on Sunday, the $113 billion aircraft maker will enter a guilty plea to a criminal fraud conspiracy. Boeing agreed to pay an additional $244 million in fines and allocate $455 million for safety over the following three years. Neither does much to weaken the economic power of a well-established duopolist, nor does it clear the air of intrigue surrounding the unknown Boeing CEO who is expected to succeed departing David Calhoun.
The plea deal is the result of a probe into whether Boeing broke the terms of an earlier agreement that was reached in 2021 and postponed prosecution for deceiving aviation regulators. The company's 737 MAX was involved in two incidents, which resulted in 346 fatalities. Employees of Boeing were accused of "fraudulent and deceptive conduct" under the previous agreement. The new deal involves a criminal charge against Boeing.
Although, on the surface, it seems like nothing Boeing hasn't faced before, it presents some potential difficulties. Government contracts, which are the cornerstone of Boeing's vital defense sector, are typically not given to felons. However, the business can obtain waivers to keep doing business with Washington, and it has previously ignored threats of suspension on contracts that it has won. It is already discussing potential effects with the U.S. Defense Department. This portion of Boeing's profits appears secure for the time being, given the alternative of the US government shifting its operations from the Virginia-based firm to a foreign entity.
Yet, deviating from it might significantly worsen the situation the company faces, some of which Calhoun inherited when taking the CEO position in 2020. Since the first tragedy in 2018, shares have dropped by about 43%. The government has limited the number of 737 MAX aircraft that may be produced each month at 38, and French competitor Airbus is gaining market share. Indeed, Visible Alpha projects that net income will reach $9.5 billion by 2028, so the $151 million in additional annualized safety investment is minimal. However, their projections show an ambitious eighteen-fold rise from 2024. Earnings growth may stop if plane purchases are further delayed or if future damage to the airline's reputation causes customers to hesitate. Boeing's stock lost early gains on Monday due to reports of a new government probe into possibly defective oxygen masks.
Furthermore, there's no concrete evidence that the government's financial tax is accompanied by a guarantee that Boeing's problems will stop. A judge will be asked to reject the plea offer by the families of those crash victims, according to a DOJ court filing. Moreover, Boeing remains accountable for any consequences that may arise from later accidents, including the panel blowout that occurred on an Alaska Airlines flight earlier this year or allegations made by whistleblowers regarding inadequate manufacturing standards. For the new boss, old problems still await.