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Boeing To Pay $2.5 Billion Fine Linked to 737 MAX Program Fraud Charges

Boeing CEO Dave Calhoun said the $2.5 billion fine is a "step that appropriately acknowledges how we fell short of our values and expectations" following two fatal crashes of its 737 MAX that killed 346 people.

Boeing Co.  (BA) - Get The Boeing Company Report has agreed to pay a $2.5 billion fine to the U.S. Department of Justice over fraud and conspiracy charges linked to its 737 MAX jet program, the  company said Thursday.

Boeing said the settlement involves a criminal penalty of $243.6 million, based on the conduct of two former MAX program technical pilots, and set up a $500 million fund to provide compensation for families of the victims of the Lion Air and Ethiopian Airlines accidents. Boeing said around $1.77 billion has already been set aside for costs related to settlement and will be used to compensate its customers for the losses linked the the 737 MAX's grounding. 

The deferred Prosecution Agreement with the DoJ will impact Boeing's fourth quarter earnings, set to be published on January 27, by $743.5 million, the company said. 

"I firmly believe that entering into this resolution is the right thing for us to do—a step that appropriately acknowledges how we fell short of our values and expectations," said CEO Dave Calhoun. "This resolution is a serious reminder to all of us of how critical our obligation of transparency to regulators is, and the consequences that our company can face if any one of us falls short of those expectations."

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Boeing shares were marked 1.18% lower in after-hours trading Thursday following the Justice Department news, indicating a Friday opening bell price of $210.20 each.

The DoJ settlement follows a Senate report last month that criticized the planemaker for coaching pilots during recertification tests of the grounded 737 MAX.

The Senate Commerce Committee said late Friday that officials from both Boeing and the Federal Aviation Administration had a 'pre-determined outcome' in mind during flight tests of the grounded 737 MAX and accused the pair of "attempting to cover up important information that may have contributed to the 737 MAX tragedies." 

The FAA approved a return to service for the 737 MAX last month, with U.S. flights expected to resume on December 29. FAA Administrator Steven Dickson said at the time he was "100% confident" in the safety of the aircraft after rescinding a 20-month old order that allows the plane to resume commercial flights. 

The 737 MAX was grounded in March of 2019 following two fatal crashes which were ultimately linked to its navigation system, in Ethiopia and Indonesia that killed 346 people.