WASHINGTON/PARIS (Reuters) -Boeing is in talks with the U.S. Defense Department over how the planemaker’s planned guilty plea could affect its extensive government contracts, a person briefed on the matter said.
On Sunday, the Justice Department said in a court filing that Boeing had agreed to plead guilty to a criminal fraud conspiracy charge to resolve an investigation linked to two 737 MAX fatal crashes in 2018 and 2019 that killed 346 people.
A guilty plea potentially threatens the company’s ability to secure lucrative government contracts with the likes of the U.S Defense Department and NASA, although government agencies can waive any restrictions. Final details of the deal are expected to be filed by July 19.
Pentagon spokesperson Air Force Major General Patrick Ryder told reporters the agency would make an assessment to decide the impact of the guilty plea on Boeing’s contracts. He did not address whether the agency was in talks with the planemaker.
“DOD will assess the company’s remediation plans and agreement with the Department of Justice to make a determination as to what steps are necessary and appropriate to protect the federal government,” Ryder said, adding any actions would be under U.S. government contracting regulations.
Boeing and the Justice Department had no immediate comment. NASA declined to comment.
Boeing shares pared early gains and closed up 0.6%.
Boeing’s Defense and Space unit is vital to its business, with $7 billion in first-quarter sales, up 6% from a year ago.
In its annual report, Boeing said U.S. government contracts represented 37% of last year’s revenue including foreign military sales. A government report said Boeing had $14.8 billion in Pentagon contracts in 2022.
The financial costs tied to the plea appear “manageable relative to the company’s scale and overall obligations,” said Ben Tsocanos, airlines director at S&P Global Ratings.
“We expect that Boeing will likely continue to be a key supplier of defense and space products following the guilty plea,” he added.
The deal is also likely to be scrutinized outside the United States where Boeing is a key player on global markets, defense industry experts said.
The Canadian government said it is “awaiting a decision on these legal proceedings and will assess implications once confirmed” and said the planned acquisition of the Poseidon P-8A is proceeding.
All this comes at a time when geopolitical tensions are rising, pushing up defense spending.
On paper, Boeing faces possible restrictions on future exports to a swathe of international markets, though whether it is actually excluded could depend on discretion allowed to local agencies and the realities of the defense market, they added.
FOREIGN SALES
For example, Britain, which operates Boeing’s P-8A maritime patrol plane, and the European Union both have rules barring contractors with definitive criminal convictions from bidding for public contracts across many sectors for certain periods.
“That is the letter of the law,” said Keith Hayward, a fellow of the UK’s Royal Aeronautical Society whose published research include works on localization in the defense industry.
“The worst case analysis is that they would simply be barred from bidding, but this is a highly political as much as a legally defined business,” Hayward said.
“It depends how much the customer wants the product and whether Boeing control a particular product line – P-8 is a good example – where there aren’t many alternatives.”
As part of the plea deal, Boeing will pay a criminal fine of $243.6 million, doubling an earlier agreement.
Boeing has also agreed to invest at least $455 million over three years to strengthen safety and compliance programs and to have the Justice Department appoint an independent monitor to oversee compliance for three years.
On Monday, the Justice Department opposed a bid by the families of those killed to force the government to immediately appoint a monitor that would oversee Boeing for five years.
The DOJ said it generally takes “a number of months” to identify and vet candidates.
Under Sunday’s deal, Boeing is set to plead guilty to making knowingly false representations to the FAA about having expanded a key software feature used on the MAX to operate at low speeds that was tied to both fatal crashes.
Family members intend to appear at a future hearing to object to the plea deal. Paul Cassell, an attorney for the families, described the proposed deal as the result of “crafty lawyering between Boeing and DOJ” and called for a public trial.
In 2023, U.S. District Judge Reed O’Connor, who will decide whether to accept the plea, leveled harsh criticism at Boeing, citing what he called “egregious criminal conduct”. But he said he was limited in what actions he could take.
U.S. Senator Tammy Duckworth said on Monday that despite the expected guilty plea, 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.”
Boeing’s bonds were trading higher Monday. Their credit spreads, or premium over risk-free bonds, were trading slightly tighter than their levels last week, according to data from BondCliq which tracks secondary trading of corporate bonds.
(Reporting by David Shepardson in Washington; additional reporting by Allison Lampert in Montreal, Idrees Ali in Washington and Shankar Ramakrishnan in New York; Editing by Deepa Babington and Matthew Lewis)
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