How Boeing's Guilty Plea Could Impact US Defense Contracts

Boeing Co BA is negotiating with the U.S. Defense Department to understand how its planned guilty plea could impact its substantial government contracts.

This follows the company’s agreement to plead guilty to a criminal fraud conspiracy charge related to the two 737 MAX crashes in 2018 and 2019, which resulted in 346 deaths.

A guilty plea could potentially jeopardize Boeing’s ability to secure future contracts with government agencies, including the Department of Defense and NASA.

However, these agencies can choose to waive any restrictions. The final terms of the deal are expected to be finalized by July 19, according to a report from Reuters.

Pentagon spokesperson Air Force Major General Patrick Ryder stated that the agency will evaluate Boeing’s remediation plans and agreement with the Justice Department to determine necessary actions to protect the federal government, according to Reuters.

Boeing’s Defense and Space unit, which had $7 billion in first-quarter sales, is critical to its business. Last year, U.S. government contracts made up 37% of Boeing's revenue, including foreign military sales.

Also Read: US Regulator Orders Inspection Of 2,600 Boeing 737s Over Oxygen Mask Concerns Amid Legal Woes

In 2022, Boeing held $14.8 billion in Pentagon contracts.

Boeing’s plea deal is being closely watched globally. The Canadian government is waiting for a decision on the legal proceedings before assessing its implications.

Meanwhile, the acquisition of the Poseidon P-8A is continuing. The deal may also face scrutiny in other regions, such as the European Union and the U.K., where rules bar contractors with criminal convictions from bidding on public contracts for specific periods.

As part of the plea agreement, Boeing will pay a criminal fine of $243.6 million and invest at least $455 million over three years to enhance safety and compliance programs.

An independent monitor appointed by the Justice Department will oversee compliance for three years.

Sen. Tammy Duckworth (D-IL) emphasized that despite the guilty plea, Congress must continue its oversight of Boeing and the FAA.

Boeing stock has lost more than 12% in the last 12 months. Investors can gain exposure to the stock via IShares U.S. Aerospace & Defense ETF ITA and and Invesco Aerospace & Defense ETF PPA.

Price Action: BA shares are trading lower by 0.45% at $185.00 at last check Tuesday.

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