Boeing guilty plea to fraud unlikely to hit shares or credit rating, say analysts

Boeing’s guilty plea to a fraud charge is unlikely to affect the company’s stock price, credit rating or revenue from the US government, analysts have predicted.

The aerospace manufacturer said on Sunday it had reached an agreement in principle with the US Department of Justice to plead guilty to one count of defrauding the US government after it misled aviation regulators about flight control software that caused two fatal crashes of the 737 Max.

The plea deal fines Boeing about $487mn, of which it has already paid half. It also demands the company plough $455mn into safety and compliance programmes overseen by an independent monitor.

“The problem is this settlement gives you the idea that justice can be bought — and bought very cheaply,” said Pratap Chatterjee, executive director of watchdog group CorpWatch.

The agreement continues a justice department pattern of seeking increasingly aggressive financial penalties in corporate criminal cases over the past 15 years, yet underscores the difficulty of handing out meaningful consequences for companies that earn billions.

Boeing’s stock ended at $185.84 on Monday, up $1.01 from the close on Friday.

Boeing declined to comment.

Lawyers who specialise in government contracting also said Boeing was unlikely to lose its ability to supply the Pentagon, despite rules that can bar companies with criminal records from doing business with the US government.

Boeing supplies critical military aircraft, including the F/A-18 Super Hornet fighter jet, the AH-64 Apache helicopter and the KC-46 refuelling tanker, as well as its prestige project, the US president’s Air Force One. Though Boeing’s defence business has failed to turn a full-year profit since 2021, it remains a critical source of revenue.

The government can grant waivers to allow contractors with a record to continue as suppliers. Paul Seidman, a partner at the boutique government contracting law firm Seidman & Associates, said the rules demanded that a contractor showed they had taken steps to fix their problems.

“It would be unusual for a large firm like Boeing to be [suspended or disbarred] because they’re essential to the defence, and there’s a limited number of competitors,” he said.

The cost of the US Department of Defense finding another contractor seems “prohibitive”, said Moody’s credit rating analyst Jonathan Root. At the same time, the criminal penalty the justice department is levying is “very manageable for the company”.

All three credit rating agencies have rated Boeing one notch about junk, with a negative outlook. But the speed at which the manufacturer produces aeroplanes counts more towards whether Boeing maintains its investment-grade rating than other factors.

“The dollar amount of the fine is of a size that is not material to our view of the credit profile,” he said.

The justice department has been increasingly willing since the 2008 financial crisis to prosecute corporations, said Brandon Garrett, a professor at Duke University’s law school who established an online database tracking corporate prosecutions.

In 2012, BP pleaded guilty to manslaughter and environmental crimes following the explosion on the Deepwater Horizon oil rig. Two years later prosecutors required BNP Paribas to plead guilty to violating sanctions against Iran, Sudan and Cuba, and in 2020, the Malaysian subsidiary to Goldman Sachs pleaded guilty to violating the Foreign Corrupt Practices Act in the 1MDB bribery scandal.

There is no guarantee that spending more on compliance will fix Boeing’s quality problems, Garrett said, or that the limited information the monitor will make public will be enough to understand what led to the company’s failures. Still, the plea deal represents a step up in enforcement, because prosecutors are forcing a plea rather than simply extending the deferred prosecution agreement.

“Twenty years ago companies were hardly prosecuted for any reason,” he said. “Taking corporate crime seriously is pretty recent in this country.”

This article has been amended to correct the spelling of the name of Pratap Chatterjee, executive director of CorpWatch.