By David Shepardson
WASHINGTON (Reuters) – Boeing is in talks with the U.S. Defense Department over how the planemaker’s planned guilty plea could affect its extensive government contracts, a person briefed on the matter said.
Late on Sunday, the Justice Department said in a court filing that Boeing had agreed to plead guilty to a criminal fraud conspiracy charge to resolve an investigation linked to two 737 MAX fatal crashes.
Boeing and the Defense Department did not immediately comment on Monday.
Boeing shares were up 3.4% on Monday to $190.68 in morning trading.
A guilty plea potentially threatens the company’s ability to secure lucrative government contracts with the likes of the U.S. Defense Department and NASA.
Boeing’s defense and space unit is vital to its business, with $7 billion in first quarter sales, up 6% from a year ago. Boeing in its annual report said U.S. government contracts represented 37% of its revenue last year including foreign military sales.
Still, the financial costs tied to the plea appeared “manageable relative to the company’s scale and overall obligations,” said Ben Tsocanos, airlines director at S&P Global Ratings.
“We expect that Boeing will likely continue to be a key supplier of defense and space products following the guilty plea,” he said.
As part of the plea deal, Boeing will pay a criminal fine of $243.6 million. Boeing has also agreed to invest at least $455 million over the next three years to strengthen its safety and compliance programs, have the Justice Department appoint a third party monitor to oversee the firm’s compliance, and to make annual reports to the Department of Justice.
The prices of Boeing’s bonds were little changed in morning trading in New York on Monday, LSEG data shows.
Bankers said Wall Street’s appetite to finance Boeing could sour if the guilty plea had a material impact on its business – through missing out on major contracts, for example.
(Reporting by David Shepardson, additional reporting by Allison Lampert, editing by Deepa Babington)
