Boeing fraud case shows some companies are still too big to fail • Alaska Beacon

In January, Alaska Airlines Flight 1282 nearly fell out of the sky when a door stopper was lost at an altitude of over 10,000 feet, causing rapid decompression in the plane's main cabin.

Although no one was killed, the incident came after two similar 737 Max aircraft made by Boeing crashed in 2018 and 2019, killing 346 people.

These crashes triggered an investigation by the U.S. Department of Justice that led to Boeing being charged with conspiracy to defraud regulators in 2021.

The Justice Department agreed not to prosecute Boeing if the company paid a $243.6 million (£190 million) fine and underwent a three-year probation period during which it must enforce a compliance and ethics program. However, the Alaska Airlines incident prompted the Justice Department to reopen the case, and Boeing agreed to plead guilty to the original charge and pay an additional $243.6 million.

The U.S. government now faces the decision of whether to do business with a company that has admitted to a crime – a particularly shameful decision for a country where felons are routinely disenfranchised.

But the US government is apparently willing to look the other way. In 2006, the US Air Force justified this with “compelling business interests” and said that Boeing could settle criminal charges for serious crimes. This allowed Boeing to continue to compete for defense contracts.

Boeing is not the only major corporation with a troubled past that the US government likes to do business with. In 2008, Siemens pleaded guilty to regularly using bribes to win government contracts. However, Siemens was able to avoid conviction and thus retain its status as a “responsible contractor”.

The dependency runs deep

Pleading guilty to doing business with the U.S. government does not, apparently, make a company irresponsible. One could argue that some companies are too big to fail because the government is far too dependent on them.

The path dependencies are profound, the switching costs are far too high and there are bilateral dependencies between these parties. For Boeing, “too big to fail” means continuing to receive billions of dollars in defense contracts.

What does this mean for Boeing's customers – airlines and passengers? And, more importantly, will Boeing change its behavior? The company's behavior suggests that it has fallen into a trust trap: because risk-taking behavior has paid off in the past, Boeing seems to believe that doing so will be profitable in the future.

Even when Boeing encountered clear signs that something was wrong – two of the company's aircraft crashed – this did not lead to self-reflection. Instead, the company apparently continued as before and even applied for safety exemptions from the US Federal Aviation Administration (FAA).

Boeing is not only a major defense company, but also part of a duopoly (with European rival Airbus) and has secured orders for years to come. Of course, Airbus cannot simply ramp up production to secure a larger market share. At the same time, Boeing executives continue to receive tens of millions of dollars in compensation.

There simply seems to be no real incentive for key decision makers at Boeing to change their ways – they are generously paid for their public humiliation.

At first glance, the terms of the current agreement are not very different from those of the 2021 deal, other than third-party oversight (with observers awaiting more details). But that oversight includes reviewing Boeing's safety and compliance practices, something the FAA is supposed to do routinely anyway.

The Justice Department, with its call for third-party oversight, does not seem to have much confidence in the FAA's ability to effectively oversee Boeing. Perhaps this move marks the beginning of a new era of much more “privatized” regulatory oversight in aviation.

Are airlines concerned? Some seem to be, others not. Emirates has warned Boeing that it must take action to fix the problems, and Emirates President Sir Tim Clark has said the airline will send its engineers to monitor quality.

United Airlines CEO Scott Kirby reportedly asked Boeing to stop producing more advanced versions of the Max.

Ryanair, on the other hand, has fully supported Boeing. CEO Michael O'Leary may have called Boeing's management “headless chickens” in 2022, but praised them in 2024, saying that safety is their “number one buzzword.”

But as these events unfold and Boeing's turmoil continues, passengers will likely face higher fares. Those who don't want to fly on Boeing planes like the 737 Max can do so, but it's often complicated and expensive.

But there is a larger concern. Namely, the perception that the arc of the moral universe bends not toward justice—but rather toward the will of the rich and powerful.

Fixing this problem requires an approach that makes it clear that no one is above the law. That means holding leaders accountable.

One way to do this would be to introduce financial clawbacks. In this case, contracts could be drawn up that allow CEOs to reclaim their compensation in the event of accidents or near-misses resulting from criminal conduct.

Those of us who fly are literally putting something on the line every time we step aboard a Boeing—or any other aircraft. Financial clawbacks put much-needed money in the hands of executives. While this won't put passengers and executives on a level playing field, it could at least restore trust in the system.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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