Summary
- Boeing discusses potential impact of guilty plea on defense contracts with DoD.
- US regulations may prohibit defense contracts for companies with criminal convictions, but waivers can be issued.
- Overseas customers may be impacted, as many countries prohibit bidding from companies with convictions.
Boeing is holding talks with the US Department of Defense (DoD) regarding how its decision to plead guilty to a criminal fraud conspiracy charge could impact its portfolio of defense contracts and future opportunities. More than one-third of the company’s revenue last year came from government defense contracts.
Boeing holds defense talks over guilty plea
As first reported by Reuters, company officials are in discussions with the Pentagon over the impact its guilty plea will have on the defense side of its business. Boeing is a major defense partner of the US military and maintains extensive foreign military sales (FMS) dealings too – however, its status as a company with a felony charge could harm both its current and future prospects in defense.
Photo: VDB Photos | Shutterstock
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Under the plea deal, the planemaker will be fined more than $243 million.
According to spokesperson Air Force Major General Patrick Ryder, the Pentagon will make a decision “as to what steps are necessary and appropriate to protect the federal government,” and did not confirm if it was in talks with Boeing. The planemaker is currently involved in several defense projects, including the Next Generation Air Dominance (NGAD), Joint Direct Attack Munition (JDAM) and KC-46 Pegasus programs.
Why a guilty plea matters
Going by the letter of the law, US regulations prohibit handing defense contracts to companies convicted of criminal activity. However, agencies are authorized to issue waivers as necessary, and this will probably be the case with Boeing and its US defense dealings. This is what happened with tech firm Siemens AG, which was handed a waiver to continue working on government contracts despite a conviction for corruption.
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Boeing and the DOJ entered into a plea agreement on July 7, with the two sides still finalizing the final text of the agreement.
Ben Tsocanos, airlines director at S&P Global Ratings, told Reuters,
“We expect that Boeing will likely continue to be a key supplier of defense and space products following the guilty plea.”
But things could be more difficult when it comes to overseas customers. Many countries, including those in the European Union, prohibit companies from bidding on contracts if they have convictions, so Boeing would lose out on valuable revenue in these markets. The Canadian government has also said it is keeping an eye on the case and “will assess implications once confirmed.”
A lucrative business
Any impediments to Boeing’s ability to win defense contracts will have a significant impact on the company’s finances, with its defense and space revenues helping to make up for shortfalls on the commercial side. Last year, Boeing’s government contracts accounted for 37% of its total revenue, while a government report from 2022 revealed the planemaker had $14.8 billion in defense contracts that year.
Photo: USAF
Also part of Boeing’s proposed guilty plea would be a $243.6 million fine and a commitment to invest over $450 million in its safety and compliance programs, as well as allowing an independent audit for the next three years.
Do you think Boeing should be allowed to continue working on defense contracts? Let us know in the comments section.