The DOJ’s Recent Plea Agreement Last Sunday with Boeing Is Outrageous

The logic is outrageous. It is we, the customers, who pay the fines when a corporation is fined. In this case it will be the downstream cost of plane tickets because planes have become more costly to the airlines. The executives keep all of their sky-high performance bonuses for the period they mismanaged.

Here is the background necessary to see that the Justice Department’s narrative, widely accepted by the media, is unjustified.

What happened?

There was a design defect in the new 737 Max that was hidden from the pilots that caused two fatal crashes. This is how it came about:

* In 2011 Boeing approved the design of a new 737 Max with a larger and more efficient engine but kept the original body design from 1960.

* Boeing knew the new heavier engine caused the plane to sometimes go nose up.

In a June 2011 article, The Peugeot Sound Business Journal reported that Boeing management determined that it would cost Boeing $7 billion to redesign the plane to safely accommodate the new engine. Boeing’s upper management decided not to do that- saving the $7 billion for themselves. (How they personally got that saving comes next post).

* Rather than redesign the plane for $7 billion, Boeing put in software to automatically correct that tilt by bringing the nose down.

* Boeing did not tell the pilots of this new danger, nor of the software.

But that wouldn’t have done any good because there was no manual override. If the software algorithm made a serious miscalculation, the plane could be doomed with all on board.

The plane was put in service in 2017. Within a year, the defect led to the crash of two 737 Max planes, one in Indonesia (October 29, 2018) and one in Ethiopia five months later, with the deaths of all aboard.

The DOJ settled the matter with Boeing for a fine paid to the government of 2.5 billion consisting of

• a fine of $243.6 million;
• victim family compensation of $500 million;
• and the balance to airlines affected by the design failure.

As part of this settlement, the DOJ gave Boeing an agreement that the DOJ would not prosecute Boeing criminally provided it complied with safety standards in the future (which it did not).

The DOJ and Boeing made this settlement and non-prosecution agreement on January 5, 2021. After the settlement:

Then, it was on July 7 of this year that the Justice Department made its second plea agreement, this time requiring Boeing to plead guilty to fraud and giving it a second fine, this time of half a billion .

When Fining a Corporation Makes No Sense.

Boeing is a monopoly. There is no other US aircraft manufacturer who can make full-size passenger jets. There is only one other in the entire world, Germany’s Airbus.

“Boeing is still a key component of the US economy. It remains the nation’s largest exporter and has nearly 150,000 US employees. The company estimates its economic impact at $79 billion, supporting 1.6 million direct and indirect jobs at more than 9,900 suppliers spread across all 50 states”.

Boeing is in financial difficulty. In May, 2024, even before the second fine, Isadore asked in the title of another article: Boeing has lost $32 billion since 2019, with no end in sight. How long can it keep losing money?

If Boeing failed, the great losers would be first the thousands of its employees and then, through a domino effect, all of the employees of related businesses, probably putting the US into a very serious recession if not a depression. Boeing is too-big-to-fail.

In this context, in July 2024, the Justice Department fined Boeing again, this time for that additional half $1 billion.

Of course, Boeing is too big to fail. So, in addition to the customers, the taxpayers may have to kick in.

Governments to the Rescue

• State and Federal Grants were $15,496,865,703

• Loans / Bailouts were $74,990,849,922.

Looking at the size of the grants from both levels of government, it’s hard to determine whether the Boeing executives are good at making a profit from running a business or from getting grants from governments. Whatever, these handouts will no doubt be increased to save Boeing if and when needed.

How the Department of Justice Shields the Executives

In deciding who and what to charge, the DOJ had three options.

● The corporation

● Upper management

● Lower-level employees

First, as outlined above, It knew that upper management:

• had made a conscious decision to save $7 billion in expenses by using an old body design;

• was aware that the new heavier engine could cause a nose-up;

• decided to proceed with the defective design and use software to cure the problem;

• did not have the software provide a manual override for the pilots;

• did not tell the pilots of this design issue.

The DOJ could have sued management civilly in negligence or with an easier to prove criminal charge like criminal negligence.

But this was also a win for the DOJ. It could then claim that it was too hard to convict personnel, therefore they can’t charge the executives, it must only pursue the corporation. This light touch on executive fortunes earns department members what has been called ‘bureaucratic capital’. When the members leave government, they will be rewarded with luxurious incomes at law firms that defend corporations against governments.

The solution to continuous corporate malfeasance is, as lawyer and former Senate Investigator Jack Blum once so insightfully said is to proceed against the executives and fine them “down to their last cufflinks”.

Originally published at https://jandweir.substack.com.