Key points:

  • Boeing pleads guilty to fraud related to the 737 MAX crash.
  • Boeing shares gave up early gains to gain just 0.6%.
  • Boeing may be subject to restrictions in countries with rules prohibiting companies with criminal records from participating in government contracts (UK, EU).

According to Reuters, Boeing is currently discussing with the US Department of Defense the possible consequences of the aircraft manufacturer’s admission of liability and how this could affect its significant government contracts and the aviation market.

Boeing pleads guilty to fraud related to 737 MAX crashes

The US Department of Justice announced that Boeing has agreed to plead guilty as part of a pre-trial settlement deal related to two 737 MAX crashes in 2018 and 2019. The company is accused of conspiring to defraud the Federal Aviation Administration (FAA) about a flight control system that was responsible for the tragedies that killed 346 people.

A guilty plea could have serious consequences for Boeing, jeopardizing its ability to secure lucrative contracts with government agencies such as the US Department of Defense and NASA. Although these agencies may subsequently ease the restrictions, final details of the deal, including possible sanctions, will not be presented until July 19.

Pentagon spokesman Air Force Maj. Gen. Patrick Ryder said the Defense Department will conduct a thorough assessment to determine how Boeing’s guilty plea will affect its current and future contracts with the department.

Despite the initial gains, Boeing shares ended the day down just 0.6%.

Boeing Defense and Space Division

Boeing’s defense and space division posted strong growth in the first quarter, achieving sales of $7 billion, up 6% year-over-year.

US government contracts accounted for 37% of Boeing’s total revenue last year, according to the company’s annual report. This includes both domestic sales and exports of military equipment. In 2022, Boeing signed contracts worth $14.8 billion with the Pentagon.

Defense industry experts believe a plea deal for fraud related to the 737 MAX crash could have far-reaching consequences outside the United States. Boeing is a key player in global arms markets, and this situation is likely to be carefully studied by foreign partners.

Formally, Boeing may face restrictions on exports to a number of countries. However, the implementation of these restrictions will depend on the discretion of local regulatory authorities and the specifics of defense markets.

Consequences of Boeing’s guilty plea for international contracts

Boeing’s admission of guilt in fraud related to the 737 MAX crashes could have far-reaching consequences for the company in international markets.

Some countries, such as the UK, which operates the Boeing P-8A maritime patrol aircraft, and the European Union, have strict rules restricting companies with criminal convictions from participating in government tenders. In a worst-case scenario, Boeing could be completely barred from trading in these markets.

It is worth noting that this situation has not only a legal, but also a political aspect. In addition to the $243.6 million fine, Boeing also pledged to invest $455 million over three years in programs to improve safety and controls. The US Department of Justice will appoint an independent monitor who will monitor Boeing’s compliance with its obligations for three years.