Boeing Co has violated a deferred-prosecution agreement with the US Justice Department related to the crashes of two 737 Max airplanes, the department said in a court filing.

The company breached the accord “by failing to design, implement, and enforce a compliance and ethics program to prevent and detect violations of the US fraud laws throughout its operations,” according to the filing Tuesday.

The Justice Department said it is still determining how to proceed, including whether and how to punish the company. The department has directed Boeing to respond by June 13 with its analysis and comments, which will be taken into consideration with regard to any punishment.

“We believe that we have honored the terms of that agreement, and look forward to the opportunity to respond to the Department on this issue,” Boeing said in a statement.

Boeing shares fell less than 1% following the department’s decision in after-hours trading. The stock has tumbled 31% so far this year, the second-worst performance on the Dow Jones Industrial Average.

Legal risks

The decision escalates the legal risks facing the planemaker in the wake of a near-catastrophe in early January when a fuselage panel blew off an Alaska Airlines 737 Max mid-flight, after workers failed to install critical bolts. The Justice Department opened a criminal investigation.

US prosecutors in Seattle have already sent subpoenas seeking documents and communications from Boeing and supplier Spirit AeroSystems Holdings Inc, which made the door plug. The US Securities and Exchange Commission is also scrutinizing Boeing’s comments about its safety practices after the Jan 5 accident.

The deferred-prosecution agreement, reached in the waning days of the Trump administration, appeared to give Boeing the equivalent of a “get out of jail free” card despite the two crashes that took the lives of 346 people.

Members of the victims families were outraged that prosecutors had not reached out to them before cutting the deal with Boeing, which agreed to pay a criminal fine of US$243 million , but was allowed to dodge a fraud charge for withholding important information about the 737 Max from the Federal Aviation Administration (FAA).

Presiding judge

In 2022, the families were able to convince the presiding judge in the case that the Justice Department had improperly excluded them, in violation of the Crime Victims’ Rights Act. Even so, the judge declined to alter the terms of the Boeing agreement.

Scrutiny of Boeing has ramped up in the months since the Alaska Airlines accident, the February FAA report, and amid a wave of new whistleblower allegations pertaining to the planemaker’s manufacturing processes. Congressional panels, including the Senate Commerce Committee, have already held hearings on some of these issues with plans to have both the FAA and Boeing executives testify in the near future.

Lawyers for families of crash victims hailed the Justice Department’s findings.

“This is a positive first step, and for the families, a long time coming,” said Paul Cassell, a lawyer representing the crash victims’ families. “But we need to see further action from DOJ to hold Boeing accountable, and plan to use our meeting on May 31 to explain in more details what we believe would be a satisfactory remedy to Boeing’s ongoing criminal conduct.”

‘Egregious’ acts

Erin Applebaum, a partner at Kreindler & Kreindler LLP who also represents families, said her clients “hope that DOJ will continue to pursue justice for Boeing’s victims and move forward with a prosecution against Boeing for its egregious criminal acts that resulted in the deaths of 346 innocent people.”

The Justice Department said it plans to confer with the families and their lawyers on May 31 and inform the court of its decision for any punishment against Boeing no later than July 7.

Boeing took steps to improve safety following the two 737 Max crashes in 2018 and 2019, including creating a chief aerospace safety officer and changing the management structure so its engineers reported to chief engineer Howard McKenzie rather than business leaders. But the measures didn’t go nearly far enough, according to scathing report issued by the Federal Aviation Administration in February.

The year-long study found that many Boeing employees didn’t know how to flag potential safety issues and didn’t trust the “Speak Up” program the company put in place to flag wrongdoing. The planemaker was also faulted for ineffective procedures and training.

The case USA v The Boeing Company, 21-cr-00005, US District Court, Northern District of Texas (Fort Worth).

  - Bloomberg