By Dave Michaels and Andrew Tangel
The Justice Department said Boeing violated a settlement reached three years ago over its employees’ role in two fatal jet crashes, exposing the company to potential criminal prosecution over one of the biggest crises in its history.
Boeing admitted in January 2021 that two employees misled federal air-safety regulators over facets of the 737 MAX, but it entered into a form of corporate probation that allowed it to avert prosecution at the time. Now, prosecutors say the company failed to live up to obligations that it committed to in the $2.5 billion settlement.
In January a fuselage panel blew off an Alaska Airlines 737 MAX, the same type of jet involved in the earlier accidents. The latest accident triggered a new criminal investigation and sparked fresh worries about a safety culture that Boeing was supposed to have fixed.
The company also recently told regulators that its employees might have skipped some inspections on 787 Dreamliner jets and falsified records.
The Tuesday announcement, which the department made in a letter to a federal court in Texas, doesn’t disclose the punishment Boeing might face. The Justice Department could seek to extend probation under the current deferred prosecution agreement. It could also seek a guilty plea from the company.
“For failing to fulfill completely the terms of and obligations under the DPA, Boeing is subject to prosecution by the United States for any federal criminal violation” federal prosecutors know about, the Justice Department said in the letter filed in court Tuesday.
Boeing has until June 13 to challenge the department’s finding, the letter said. The agreement had allowed Boeing to avoid prosecution for one charge of conspiracy to defraud the United States.
Boeing said it believes it has honored the terms of the 2021 agreement and looks forward to responding to the Justice Department.
“We will engage with the department with the utmost transparency, as we have throughout the entire term of the agreement, including in response to their questions following the Alaska Airlines 1282 accident, ” the company said, referring to the flight number.
The sections of the agreement that the Justice Department said Boeing violated required the company to create and maintain a compliance program designed to detect violations of the antifraud laws, according to the department.
The letter didn’t disclose what other illegal conduct Boeing should have detected and prevented or how its compliance programs otherwise fell short.
At a meeting in Washington, D.C., in April, Justice Department officials told relatives of 737 MAX crash victims and their lawyers that information about potential crimes from the Alaska investigation could factor into a determination of whether Boeing breached the 2021 criminal settlement, according to people familiar with the proceeding.
One senior Justice Department official said at the meeting that Boeing’s apparent lack of documentation related to factory work on the Alaska Airlines jet might amount to a breach of the deal’s compliance provisions.
Paul Cassell, a lawyer representing relatives of 737 MAX crash victims, said Tuesday: “This is a positive first step, and for the families, a long time coming. But we need to see further action from DOJ to hold Boeing accountable.”
Prosecutors reached the settlement with Boeing in the last days of the Trump administration. The case focused on then-Boeing employees’ interactions with the Federal Aviation Administration over a flight-control system blamed for sending two 737 MAX jets into fatal nosedives in 2018 and 2019. One of those employees faced prosecution in 2022, but a jury acquitted him.
Prosecutors didn’t blame Boeing or its ex-employees for the crashes but said they had misled the FAA about pilot-training requirements related to the flight-control system. Boeing had aimed to avoid the FAA requiring simulator training for 737 pilots who fly the jets, a potentially expensive prospect for airline customers.
The settlement required Boeing to establish a $500 million fund for the families of crash victims and pay a $244 million fine. The bulk of the total $2.5 billion value of the deal was money Boeing had already set aside to pay its airline customers.
Boeing’s predicament is a stark illustration of how corporate probation deals, a staple of white-collar justice for over two decades, have attracted more scrutiny during the Biden administration. Officials vowed to stop handing them out so frequently, especially if culpable individuals weren’t prosecuted.
The Justice Department under the Biden administration earlier found that two other big companies violated their probation deals. In one case last year, it forced the Swedish telecom company Ericsson to plead guilty and pay a $206 million fine. In another matter, Deutsche Bank agreed to more supervision by an outside compliance monitor after the Justice Department found that the bank violated an earlier settlement on corruption and market-manipulation charges.
A conviction for Boeing could complicate the company’s ability to remain a government contractor, a potential consequence prosecutors would likely consider when determining how to proceed in this case, according to specialists in procurement law. They said, however, that the Arlington, Va.-based aerospace giant, which also makes military aircraft and weapons in addition to commercial aircraft, could potentially remain a U.S. defense contractor even with a felony conviction.
Prosecutors are slated to confer with the family members on May 31 about where the case might go next.
Write to Andrew Tangel at andrew.tangel@wsj.com and Dave Michaels at dave.michaels@wsj.com