Boeing's Guilty Plea and Its Impact on Defense Contracts

Boeing is negotiating with the U.S. Defense Department on how a planned guilty plea might affect its government contracts. The plea addresses a criminal fraud conspiracy charge tied to two 737 MAX crashes. Despite potential threats to government contracts, Boeing's defense unit remains strong with $7 billion in sales.

Boeing is currently negotiating with the U.S. Defense Department regarding the potential effects of its planned guilty plea on its extensive government contracts, according to a source familiar with the situation.

The Justice Department announced on Sunday that Boeing has agreed to plead guilty to a criminal fraud conspiracy charge related to two fatal 737 MAX crashes. Both Boeing and the Defense Department have yet to comment.

Boeing shares increased 3.4% on Monday amid concerns the plea could jeopardize its ability to secure lucrative government contracts with the Defense Department and NASA.

Despite the guilty plea, Boeing's defense and space unit, which reported $7 billion in first quarter sales (up 6% from last year), remains critical to its business. U.S. government contracts constituted 37% of Boeing's revenue last year, including foreign military sales. Financial penalties from the plea are seen as manageable given the company's scale, said Ben Tsocanos, airlines director at S&P Global Ratings.

Tsocanos added, "We expect Boeing to continue as a key supplier of defense and space products post-plea." Boeing will pay a $243.6 million criminal fine and invest at least $455 million over the next three years to enhance its safety and compliance programs. A third-party monitor will be appointed by the Justice Department to oversee Boeing's compliance, with annual reports to be submitted.

Boeing's bond prices remained stable in morning trading in New York, although Wall Street bankers indicated that financing for Boeing might be affected if the guilty plea significantly impacts its business.

(With inputs from agencies.)