Boeing discusses potential impacts of guilty plea on U.S. defense contracts

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Boeing discusses potential impacts of guilty plea on U.S. defense contracts

Policy

Tom Boon Content Manager | Simple Flying

By Sky Industry News

Jul 9, 2024

Boeing is currently engaged in discussions with the U.S. Department of Defense (DoD) regarding the potential impact of its decision to plead guilty to a criminal fraud conspiracy charge on its defense contracts and future opportunities. The company, which derived more than one-third of its revenue last year from government defense contracts, is exploring how this plea could affect its standing.

As initially reported by Reuters, Boeing officials are in talks with the Pentagon about the implications of the guilty plea on its defense business. Boeing's status as a major defense partner for the U.S. military and its extensive foreign military sales dealings may be jeopardized by this felony charge.

Air Force Major General Patrick Ryder, a Pentagon spokesperson, stated that the department will determine "what steps are necessary and appropriate to protect the federal government," without confirming if discussions with Boeing were taking place. Currently, Boeing is involved in several significant defense projects, including the Next Generation Air Dominance (NGAD), P-8 Poseidon, and KC-46 Pegasus programs.

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U.S. regulations typically prohibit awarding defense contracts to companies convicted of criminal activity; however, waivers can be issued when deemed necessary. This was exemplified by Siemens AG, which received a waiver to continue working on government contracts despite a corruption conviction.

Ben Tsocanos, airlines director at S&P Global Ratings, expressed confidence that "Boeing will likely continue to be a key supplier of defense and space products following the guilty plea." However, overseas customers might pose more challenges. Many countries within the European Union prohibit companies with convictions from bidding on contracts, potentially resulting in lost revenue for Boeing in these markets. The Canadian government has also indicated it is monitoring the situation closely and will assess implications once confirmed.

Any hindrance to Boeing's ability to secure defense contracts would significantly impact its finances since defense and space revenues help offset shortfalls on the commercial side. In 2022 alone, Boeing's government contracts accounted for 37% of its total revenue, amounting to $14.8 billion in defense contracts.

As part of Boeing's proposed guilty plea agreement with the Department of Justice (DOJ), it would pay a $243.6 million fine and commit over $450 million towards enhancing safety and compliance programs while undergoing an independent audit for three years.