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Why U.S. government may still do business with Boeing, even as a felon

Boeing employees work on a 737 Max on the final assembly line at Boeing’s Renton, Wash., plant on June 15, 2022.  (Ellen M. Banner/Seattle Times)
By Lauren Rosenblatt Seattle Times

SEATTLE – As Boeing continues to face the fallout from two fatal 737 Max crashes roughly five years ago, the company now meets another question about its future.

Could the Justice Department’s recent decision to offer Boeing a plea deal to resolve a criminal fraud charge curtail the company’s government contracts, including its billions in defense work?

Legally speaking, it’s still not clear.

The terms of the deal could provide the answer, or Boeing may separately reach agreements with individual agencies, according to Brandon Garrett, a law professor at Duke University.

Practically speaking, the plea deal is unlikely to bar Boeing from government work, according to five law professors and analysts who spoke with the Seattle Times in June.

The government depends too much on Boeing, the experts said.

“I very much doubt that Boeing’s federal contracting work will be interfered with at all,” said Peter Reilly, a Texas A&M law professor who represents families who lost loved ones in the 2018 and 2019 Max crashes.

The Justice Department determined earlier this year that Boeing had violated a 2021 agreement that allowed it to avoid criminal prosecution following the Max crashes. As the deal was approaching its expiration, an Alaska Airlines Max 9 lost a panel midflight, reigniting concern that Boeing had not lived up to its promised safety and quality improvements.

On Sunday, the Justice Department said it would offer Boeing a plea deal to resolve the criminal charge, again raising the question about what a guilty plea or fraud conviction would mean for one of the country’s largest defense contractors.

There is a statute that prevents defense contractors who have been convicted of certain felonies from winning future defense contracts, said John Coffee, a law professor at Columbia University. But, in this case, “that’s a hopeless dead end.”

“The government does not have an alternative to Boeing,” Coffee said.

If necessary, Reilly said, lawmakers would find a workaround. “Boeing is one of the most powerful companies in the world,” he said.

From military aircraft to weapons systems to satellites to the Starliner spacecraft, Boeing’s government contractors cover a range of research, production and modification services. Most of its federal contracts come from the Department of Defense, which paid Boeing $14.8 billion in 2022, according to the Congressional Research Service.

Globally, Boeing ranked among the top-five defense contractors, competing with companies like Lockheed Martin and Northrop Grumman, according to a 2023 ranking from trade publication DefenseNews.

Revenue from the company’s government contracts has become increasingly important to Boeing, as the company’s commercial airplane business has slowed dramatically following the fatal Max crashes and resulting groundings, a pandemic-induced travel decline and the federally mandated production cap following the Jan. 5 fuselage blowout of Alaska Airlines Flight 1282.

Last year, government contracts accounted for nearly 40% of the company’s revenue, according to Boeing’s most recent annual report. In the first quarter this year, Boeing’s defense, space and security sector brought in $7 billion in revenue, while the commercial airplanes business reported $4.7 billion.

The future of Boeing’s government contracts came into question in 2021, when the Justice Department charged Boeing with one count of fraud following the Max crashes.

Federal prosecutors accused Boeing of misleading safety regulators about a new software system on the 737 Max planes. An error with that system caused two planes to nosedive shortly after takeoff, killing 346 people.

The criminal charge was put on hold at the time it was filed when Boeing agreed to a deal with federal prosecutors that would allow it to avoid criminal charges if it met certain conditions, like setting up a new compliance program and encouraging a culture of reporting safety concerns.

The Justice Department in May determined Boeing violated the terms of the original agreement.

Boeing declined to comment on the plea deal or the potential impact to future government contract work. The company has said it complied with the terms of the 2021 agreement.

The families of the Max crash victims have said they plan to object to the proposed plea agreement, which they described as “another sweetheart deal” that does not hold the company accountable for the deaths of more than 300 people.

Reilly, the Texas attorney representing some of those families, said the group has “no interest whatsoever in interfering with Boeing’s federal contracting work.”

“They want Boeing to succeed, and they are well aware of that company’s importance to our national security,” Reilly said. “The families simply want Boeing products to be safe.”

Mark Lindquist, a Tacoma-based attorney representing victims’ families from the Max crashes as well as passengers on board the Max jet that lost a panel in January, said the Justice Department is trying to master a balancing act right now.

“They have got to make the victims’ families feel like there’s been some accountability and justice here,” Lindquist said. “They have to do it in a way where it doesn’t negatively impact Boeing’s status in our economy and our national security.”

“The whole point of the (2021) deferred prosecution agreement was for Boeing to avoid a felony,” Lindquist said. “Because the evidence was there.”

Scott Hamilton, an analyst and managing director of aviation consulting firm Leeham Co., agreed that the possibility of a felony conviction or guilty plea would not impact Boeing’s government contract work – or Boeing’s commercial airplane division, known as BCA.

Those customers are more worried about production rates and manufacturing quality than the fallout from the crashes, Hamilton said.

Boeing’s commercial backlog grew 23% last year, according to company statements. Revenue from BCA dropped 31% in the first quarter this year, compared to the same time period last year. Deliveries were down 36%.

In response to the panel blowout, the Federal Aviation Administration put a cap on Boeing’s production. That cap remains in place, but Boeing is producing far fewer planes than the FAA mandate allows.

“The commercial orders, they have much bigger worries with BCA’s performance,” Hamilton said. “Boeing has issues with the FAA that are driving the health of BCA.”