A legal crisis for Boeing (BA) that looked like it was nearly over now hangs in the balance as the company’s financial crisis deepens, adding yet another layer of uncertainty to the plane maker’s recovery efforts.
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A federal judge in Texas is weighing whether to approve a plea deal Boeing reached with the Justice Department in July, when the company agreed to plead guilty to misleading FAA regulators before two 737 MAX fatal crashes at the end of last decade.
Boeing and DOJ lawyers last Friday urged federal District Court Judge Reed O'Connor to sign off on the agreement, which is being opposed by family members of the crash victims.
The families want the agreement thrown out in favor of a trial and bigger fines. Boeing has agreed to pay $487 million, including a credit for roughly $243 million in fines already paid.
On Tuesday O'Connor ordered Boeing to file more court documents to explain how its diversity, ethics, and inclusion (DCE) policy would impact the plea agreement — specifically, how DEI considerations would apply to selecting a third party monitor to oversee Boeing's safety reporting compliance.
Catherine Berthet, whose daughter Camille Geoffrey died in the March 2019, crash of an Ethiopian Airlines 737 Max, speaks outside federal court in Fort Worth, Texas, on Oct. 11. Lawyers are asking a federal judge to throw out a plea agreement that Boeing struck with federal prosecutors. (AP Photo/Dave Koenig) ·ASSOCIATED PRESS
"Given the facts and history here, I can foresee a scenario where the court rejects the plea," said Rizwan Qureshi, a former former federal prosecutor and white collar partner in Reed Smith LLP’s Washington office.
The fact that Boeing was already granted a chance to live up to legally-binding promises under a deferred prosecution agreement (DPA) and was obligated to design, implement and enforce an effective compliance program, Qureshi added, leads him to believe the judge may send Boeing and the DOJ back to the drawing table.
In 2021, Boeing entered a DPA with the DOJ that allowed it to avoid criminal charges associated with the two 737 Max 8 crashes in 2018 and 2019 that killed 346 people.
But after a third life-threatening aircraft failure in January 2024 when a door plug blew out aboard an Alaska Airlines (ALK) Boeing 737 Max 9, the DOJ determined Boeing had breached that agreement and as part of the plea deal required Boeing to plead guilty to a charge of conspiracy to defraud the US.
Boeing not only breached its original agreement, Qureshi said, but there is also public pressure for the judge to demand harsher consequences as a result of hundreds of the January 2024 door plug failure.
"This is not a technical breach or violation of the DPA," Qureshi said. "This is an actual affirmative breach which put people's lives in danger" that the court may perceive as a "sweetheart deal" for a defendant already given leniency.
Relatives of the victims asked the judge to fine Boeing $24.8 billion.
Boeing machinists, labor allies and elected officials rally in Seattle at their union hall on Tuesday. (AP Photo/Manuel Valdes) ·ASSOCIATED PRESS
Boeing declined to comment on the plea agreement.
Its push for the deal's approval comes as it faces challenges on several other fronts.
This week Boeing took actions to shore up its balance sheet as the company faces an extremely difficult time ahead, including an agreement to secure $10 billion in supplemental credit from a consortium of banks and a mixed shelf registration with the SEC to offer up to $25 billion in new debt securities, common stock, preferred stock, and other share offerings.
"The credit facility provides additional short term access to liquidity as we navigate through a challenging environment," Boeing said in a statement, noting that it had not drawn on the facility or its existing credit revolver.
At the same time, Boeing is mired in a labor dispute with its largest union, and plans to lay off 10% of its labor force, or around 17,000 employees.
Boeing’s plan to lay off thousands of workers could potentially pose a problem for approval of the guilty plea deal, according to Qureshi.
The company breached its original DOJ agreement by failing to carry out its promised compliance and ethics measures. Because those requirements were meant to prevent and detect future violations of US fraud laws, Boeing may need to satisfy Judge O’Connor that laid off workers are not needed to carry out its future safety commitments.
Relatives of Boeing airplane crash victims demonstrate in June as then Boeing CEO Dave Calhoun testified before a Senate subcommittee. (Photo by SAMUEL CORUM/AFP via Getty Images) ·SAMUEL CORUM via Getty Images
Qureshi said it is unlikely that the layoffs at Boeing would jeopardize the plea deal unless the court makes a finding that the cuts will adversely impact Boeing’s ability to meet ongoing safety requirements.
Boeing said after the layoffs and once striking workers return to their positions its worker headcount will total more than 150,000.
Even if the plea deal is approved, Boeing’s legal problems are far from over. The agreement would insulate Boeing only from future criminal charges tied to the conspiracy, and not future civil or regulatory actions.
“I think it would be a mistake to think that’s the end of it,” said University of Michigan assistant business law professor Will Thomas, who expects the plea deal to be approved while acknowledging that’s not a guaranteed outcome.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.
