Equities

Boeing Fined $487M, Stock Up 3% Amid Safety Focus

Boeing to pay $487 million fine, invest $455 million in safety after 737 Max crashes.

By Bill Bullington

7/10, 07:16 EDT
Boeing Company
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Key Takeaway

  • Boeing's plea deal with the DOJ includes a $487 million fine and $455 million investment in safety programs, yet its stock rose 3%.
  • Analysts believe the penalty will have minimal financial impact on Boeing, representing just 0.3% of last year's revenue.
  • Despite regulatory scrutiny, Boeing is unlikely to lose defense contracts due to its critical role and limited competition.

Boeing's Plea Deal and Financial Impact

Boeing has reached an agreement with the US Department of Justice to plead guilty to one count of defrauding the US government. This plea deal stems from the company's misleading of aviation regulators about flight control software that led to two fatal crashes of the 737 Max. The deal includes a fine of approximately $487 million, of which Boeing has already paid half. Additionally, the company is required to invest $455 million into safety and compliance programs overseen by an independent monitor.

Despite the gravity of the situation, Boeing's stock price saw a positive reaction, rising 3% when the market opened on Monday. Analysts at Moody's Ratings noted that the penalty "will have little effect on Boeing’s finances or operations," and the company can fund the fine without noticeable impact on liquidity. The fine represents just 0.3% of Boeing's revenue last year, a stark contrast to larger fines imposed for financial crimes, such as the $4.3 billion fine on cryptocurrency exchange Binance.

Regulatory and Legal Implications

The plea deal has raised questions about the regulatory and legal frameworks governing corporate accountability. The Federal Aviation Administration (FAA) has been criticized for its light-touch regulatory approach, delegating much of its inspection and monitoring work to Boeing employees. The Justice Department's practice of arranging plea bargains and fines instead of pursuing criminal trials for companies and their senior executives has also come under scrutiny.

Despite Boeing's corporate guilty plea, it is unlikely that the company will lose its ability to supply the Pentagon. Boeing is a key supplier of critical military aircraft, including the F/A-18 Super Hornet fighter jet and the AH-64 Apache helicopter. Lawyers specializing in government contracting, such as Paul Seidman of Seidman & Associates, believe that Boeing is unlikely to be suspended or disbarred due to its essential role in defense and the limited number of competitors.

Financial and Operational Outlook

Boeing's financial outlook remains stable despite the plea deal. All three major credit rating agencies have rated Boeing one notch above junk, with a negative outlook. Jonathan Root, a credit rating analyst at Moody's, stated that the fine is "very manageable for the company" and not material to their view of Boeing's credit profile. The speed at which Boeing produces airplanes is a more significant factor in maintaining its investment-grade rating.

The Justice Department has been increasingly willing to prosecute corporations since the 2008 financial crisis. Notable cases include BP's guilty plea to manslaughter and environmental crimes in 2012 and BNP Paribas' guilty plea to violating sanctions in 2014. However, there is no guarantee that increased spending on compliance will resolve Boeing's quality issues. Brandon Garrett, a professor at Duke University's law school, noted that the plea deal represents a step up in enforcement but questioned whether it would lead to meaningful changes.

Street Views

  • Moody’s Ratings (Neutral on Boeing):

    "The penalty will have little effect on Boeing’s finances or operations. The company can readily fund the fine with no noticeable effect on liquidity."