What's the right punishment for 'too big to fail' Boeing?

Boeing name and logo seen on the side of a plane
[Reuters]

Boeing is one of the largest and most important companies in the United States. Arguably, it is too big to fail. But is it also too big to be held to account?

The company is one of the world’s two main manufacturers of large commercial jets. It ranks among the top five US defence contractors.

It employs more than 170,000 people globally, including 150,000 in the US, and generated revenues of nearly $78bn (£60bn) last year. It makes a vital contribution to the US economy.

But its commitment to safety has repeatedly been called into question, most recently following an incident earlier this year in which a disused door fell off a Boeing 737 Max minutes after takeoff.

Whistleblowers have since made a series of claims about alleged unsafe practices in Boeing’s factories, as well as in those of its main supplier, Spirit Aerosystems.

Critics say the company has not taken its problems seriously - and that regulators, cowed by the firm's importance, are not taking the steps necessary to force Boeing to fix its problems.

A new deal for the firm has amplified those claims.

This week, the firm agreed to plead guilty to an existing criminal fraud charge, which was brought after two near-identical crashes involving Boeing's brand new 737 Max, that occurred more than five years ago, killing 346 people.

Family members of many of those killed have said the agreement, which will be submitted to a judge for approval, is far too lenient.

"The plea deal with Boeing unfairly makes concessions to Boeing that other criminal defendants would never receive and fails to hold Boeing accountable for the deaths of 346 persons," their lawyer Paul Cassell wrote in a written objection to the deal.

The deal stems from an investigation that started in 2019, after the second crash.

Investigators later concluded that Boeing had cut corners during the design of its 737 Max, and deceived regulators.

Boeing was accused of putting profits ahead of passenger safety.

In 2021, Boeing agreed to pay a $2.5bn settlement, but avoided prosecution on a criminal fraud conspiracy charge.

But in May the Department of Justice (DoJ) found Boeing broke the terms of that settlement by not implementing and enforcing a suitable compliance and ethics programme.

As part of its guilty plea, Boeing agreed to pay a $243.6m penalty and submit to independent monitoring for three years.

It also agreed that its board of directors would meet with victims' families and pledged to invest some $455m in safety improvements.

Family members of those killed in the Ethiopian Airlines Flight 302 and Lion Air Flight 610 crashes hold photographs of their loved ones as Boeing CEO Dave Calhoun arrives for a Senate Homeland Security and Governmental Affairs Investigations Subcommittee hearing on Boeing's broken safety culture on Capitol Hill on June 18, 2024 in Washington, DC
Boeing CEO Dave Calhoun was quizzed by a Senate subcommittee last month [Getty Images]

Erin Applebaum, a lawyer who represents 34 families who lost loved ones on Ethiopian Airlines Flight 302, said the deal was "nothing more than a slap on the wrist and will do nothing to effectuate meaningful change within the company".

The DoJ said the agreement did not preclude action against any individual executives or against the company for conduct that occurred after the 2018 and 2019 crashes.

But officials left some key questions - such as how the guilty plea would affect Boeing's ability to bid for government work - unanswered.

In Washington, the agreement was greeted by some calls from lawmakers for further action.

Senator Richard Blumenthal, a Democrat who has led hearings focused on Boeing's retaliation against whistleblowers said, individuals, not just the company, should face consequences "for past illegalities as well as continuing retaliation against whistleblowers & other wrongdoing".

"This plea deal cannot be the end of Boeing’s accountability," he wrote on social media. "The need for ongoing aggressive investigative efforts and other action is obvious."

"Regardless of the DOJ’s efforts, Congress must not let up on its own oversight of both Boeing and the FAA, and that is something I plan to continue to pursue,” Senator Tammy Duckworth added.

Before the deal was announced, others had expressed concerns that Boeing was too important to be held fully accountable.

"I’ll go back to the reality of the fact that we all want Boeing to succeed,” Republican Senator Ron Johnson said at a hearing in April.

“We don’t want to think that there are conditions in these planes that should really force regulators to ground these planes - what that would do to our economy, what that would do to people’s lives."

Analysts said there was little doubt Boeing’s status as a major contractor to the US military would have been a key factor in deciding what action to take against the company.

In 2022 alone, it racked up more than $14bn worth of contracts with the Department of Defense.

"That may matter the most regarding not the direct terms of the plea, but rather the negotiations over possible debarment or suspension from contracting," said Prof Brandon Garrett of Duke University School of Law, who tracks corporate prosecutions.

A Boeing 737 MAX aircraft is assembled at the Boeing Renton Factory in Renton, Washington, on June 25, 2024.
Boeing generated revenues of nearly $78bn last year [Getty Images]

There is also Boeing’s position in the commercial aviation market to consider.

The crises have already taken a heavy toll on the company, which has lost money every year since 2019, a sum totalling more than $30bn.

But the market currently needs Boeing if airlines are to obtain the planes they need.

The aerospace giant currently has orders for more than 6,000 jets, representing years of production. Its great rival Airbus has an even larger backlog, and has been struggling to produce enough planes to meet demand.

In the future the company will also have to be in good shape if it is to see off the threat from an emerging rival.

"Boeing's too big to fail, but it's not too big to be mediocre," says Ronald Epstein, a managing director at Bank of America, who follows the firm.

Chinese state-backed manufacturer Comac is now producing the C919 passenger jet, a potential rival to the 737 Max and Airbus A320 neo. It began commercial flights in May.

Its order book is tiny compared to those of Airbus and Boeing but in the longer term it could profit from any weakness at the American giant.

There is also potential for Brazil’s Embraer, a successful manufacturer for smaller regional airlines, to move into the space occupied by Boeing and Airbus.

All of this may explain why the DoJ has not imposed steeper penalties on Boeing. Nevertheless, the company has admitted to a serious crime.

That in itself is a major development. The question now is whether the DoJ has done enough to deter future wrongdoing.