German suppliers break with postwar taboo to serve arms industry
Growing number of Mittelstand companies lift bans on selling to defence sector following Russia’s invasion of Ukraine
A growing number of German businesses are moving into military equipment and services as they break a widespread taboo to supply the arms industry in the wake of Russia’s invasion of Ukraine.
Engine maker Deutz last week saw its shares jump more than 20 per cent after it said it was looking to build tank engines alongside its motorcycle operations. The engineering group is among those Mittelstand manufacturing and engineering companies reconsidering or ending their ban on defence contracts.
Swaths of German business have long shunned association with the defence sector because of the legacy of industrial co-operation with the Nazi regime. But since February 2022, some key players in the country’s engineering supply chain, such as laser maker Trumpf and components firm Hawe Hydraulik, have placed military contracts in their sights.
Cathryn Clüver Ashbrook, political scientist and former director of the German Council on Foreign Relations, said long-held attitudes around the defence sector were changing rapidly.
“After three years of war on the European continent, with searing economic losses, Germany seems poised to be making a historic shift,” she said.
The change in attitudes has followed Olaf Scholz’s announcement soon after Moscow’s invasion of Ukraine of a €100bn fund to boost Germany’s defence and modernise its armed forces. It is planning to send an armoured brigade to Lithuania — its first permanent foreign deployment in the country’s modern history — and is reintroducing a limited form of national service.
Parts of German society are also reconsidering this postwar aversion. A poll by PwC Germany this year showed that almost 70 per cent of those surveyed supported an increase in defence spending.
“Russia’s war of aggression against Ukraine definitely has increased awareness in our society that freedom needs to be defended by military means if necessary,” said Daimler Truck, which last month announced a new contract to ship 1,500 trucks to the Canadian military.
Karl Haeusgen, chair of engineering company Hawe Hydraulik, which ended its ban on defence orders in 2022, said Russia’s invasion of Ukraine and the subsequent push for Europe to increase its military spending had reduced the stigma around the defence sector.
“A big part of the defence supply chain has a completely different image than it did three or four years ago,” he said in an interview.
The company used to have a rule of not supplying the defence sector, but now its board-level committee assesses orders for its valves and pumps, which can be used in military equipment including vehicles and ships.
The shift also comes as German industry struggles to recover from weaker demand from China. In sharp contrast to the booming defence sector, the country’s auto industry has had to announce swingeing job cuts amid a difficult transition to electric vehicles.
Germany was facing the reverse situation of Europe immediately after the cold war, when companies faced the need to convert military production operations to civilian manufacturing, said Christian Mölling at the German Council of Foreign Relations.
“You are rethinking how you can use [civilian] production capacity, technology and procedures to become more efficient in the military world,” he said.
Continental, one of the world’s leading automotive suppliers with 200,000 employees which has announced large job cuts, recently launched a scheme to transfer hundreds of its employees to German defence contractor Rheinmetall.
Peter Sebastian Krause, an executive at Rheinmetall, said at the time that the Continental employees would bring “highly valuable” skills to the company.
Laser maker Trumpf, whose customers include the semiconductor industry including chipmaking equipment group ASML, is another company considering lifting its blanket ban on supplying the defence sector.
The company’s lasers are subject to export restrictions, including to China, because the German government considers them “dual use”, with both civilian and military applications.
Defence companies have shown interest in military uses for the company’s lasers, such as for shooting down drones, said Hagen Zimer, head of the company’s laser operations.
The laser can be a powerful defence tool, he told the FT, adding that without the technology, “it is simply not possible . . . to defend against a multipronged attack of 200 drones in war zones”.
Lufthansa Technik, a wholly-owned subsidiary of the airline group which has contracts to service about a fifth of the active global fleet, last year formally launched a military aircraft servicing division. The unit has become a fast growing business line, and is set to help maintain Germany’s Chinook helicopters and F-35 fighter jets.
“In 2019 we decided to make a bigger step into defence, based on our relationship with the German government,” said Lufthansa Technik executive Michael von Puttkamer, adding that the €100bn fund “was an opportunity to step into the industry more”.
“We think stepping into defence is not only a great business opportunity but also to support our German armed forces to be capable of defending our country,” he said.
Susanne Wiegand, chief executive of tank parts manufacturer Renk, said growing “synergies” between civil and defence manufacturing sectors in Germany could benefit both sides.
“It’s a great way of developing technology further. Innovations are coming from the military world and find their way to civilian applications and vice versa.”
M&A and the cosy ties between boards and their advisers
The ties that bind
Last week, DD brought you the inside story of the cosy ties between Goldman Sachs and its newest board member, John Hess. The oil tycoon has been a longtime client of the bank and is in the process of completing a sale of his energy business to Chevron, in a deal that will see Goldman potentially reap as much as $80mn in fees from the sale if Hess Corporation completes it.
Today, we bring you two fresh situations that once again highlight the close relations between companies doing deals and their advisers. And we’d like to hear from you about where you think the lines should be drawn. Writes to us at Due.Diligence@ft.com.
The first involves Boeing, a public company, which on Monday announced an all-stock deal to buy its aviation supplier Spirit AeroSystems that valued its equity at $4.7bn. Boeing is chaired by Steve Mollenkopf, the former longtime CEO of Qualcomm. Mollenkopf is also a senior adviser at Consello, the advisory and investing business set up by Teneo co-founder Declan Kelly. (Recall our coverage of Kelly’s inglorious Teneo exit.)
Consello has already been reported as helping Boeing, which is facing scrutiny due to a series of mishaps, with its search for a new CEO. Boeing said on Monday that Consello was among its advisers on the Spirit deal, alongside lead adviser PJT Partners as well as Goldman.
Boards have plenty of discretion in which advisers they select, and their comfort with a particular banker or lawyer can be useful in stressful deal negotiations. The question always is whether conflicts of interest are fully disclosed to other directors, and if all sides understand that they first have duties to the ordinary shareholders, not to each other. Consello’s role in the Boeing CEO search and the advisory work raise questions over what sort of disclosures were made to fellow Boeing directors about any potential conflicts.
Boeing said that Mollenkopf’s advisory role with Consello has been called out in the past three proxy statements within his bio “and has been thoroughly reviewed and disclosed”.
Separately on Monday, financial data company Preqin agreed to be sold to asset management giant BlackRock for a staggering price of £2.55bn, or 13 times its expected 2024 revenue of $240mn. Preqin, a private company, is chaired by Bradley Fried, who also happened to be the chair of Goldman Sachs International until April. And, as fate would have it, Goldman Sachs International was the sole adviser to Preqin on its sale.
(Goldman declined to comment while Preqin did not respond to a request for comment.)
The world of dealmaking is big, but sometimes it can seem quite small.
‘We thought there was a capital structure’: how western investors lost billions in China
For much of the past two decades, international investors have been keen to finance one of the world’s most dramatic growth stories: China’s property boom.
But China’s regulators impose strict controls on money moving in and out of the country, especially as debt. So bankers and lawyers used a more creative, if complicated, mechanism to bridge China and the wider world.
That mechanism, and its implications for the future flow of capital between China and the west, are barely discussed outside specialist circles. DD’s Kaye Wiggins and the FT’s Thomas Hale and Wang Xueqiao took a close look at it in this FT Big Read on China Evergrande.
Here’s how it worked. Specially created vehicles outside China, often in the British Virgin Islands, would sell bonds to international investors. They would send the proceeds into China as equity investments in subsidiaries. To pay bondholders’ coupons, they relied on equity dividends from those subsidiaries.
The bonds themselves were often issued via Hong Kong, with its westernised legal system and investor protections, and stamped with the logos of some of Wall Street’s biggest banks who had underwritten them. They promised coupons of up to 9.25 per cent, a heady prospect in a low-rate world.
But when things went wrong in China’s property market — beginning when China Evergrande defaulted in 2021, with $20bn of offshore debt in issue — those bonds offered little of the protection that western investors typically associate with debt instruments.
When it defaulted, Evergrande’s offshore bondholders included BlackRock, HSBC and emerging market specialist Ashmore. Those that still had some exposure this year, according to Bloomberg terminal data, included UK insurer Legal & General and US hedge fund Saba Capital Management.
“It will be a very, very low price, like 0.0 something,” one investor said of their firm’s “legacy exposure” to Evergrande. Another described his firm’s holdings in other Chinese developers’ bonds, which he hopes to negotiate some recovery on, as “subordinated equity”, a far more junior entity than a bond secured on real assets. “We thought there was a capital structure in China,” he said.
“Tourist investors,” or those with little experience of investing in Chinese property groups, had ploughed money into Evergrande’s bonds because it was such a well-known name, said one person involved with the fallout. The person added that some hedge funds “decided, without knowing much, to pile in” when signs of distress emerged.
Advising Chinese developers was a “fee machine” for the banks, said one investor who participated in an Evergrande private placement in the mid-2000s. There were fees from the pre-IPO bonds, the IPO itself, and then high-yield bond issues.
But any western investor who thought they were buying what they would think of as “a normal bond” was under “an illusion”, this person said. “They were always going to be the part that didn’t get paid.”
Iran would use ‘all means’ to back Hizbollah if Israel launches full-blown war, official says
Aide to supreme leader warns Israel risks triggering regional conflict in the event of all-out offensive against militant group
An adviser to Iran’s supreme leader has warned that if Israel launches an all-out offensive against Hizbollah, it would risk triggering a regional war in which Tehran and the “axis of resistance” would support the Lebanese militant movement with “all means”.
Kamal Kharrazi, foreign affairs adviser to Ayatollah Ali Khamenei, told the Financial Times that the Islamic republic was “not interested” in a regional war and urged the US to put pressure on Israel to prevent further escalation.
But asked if Iran would support Hizbollah — its most important and powerful proxy — militarily in the event of a full-blown conflict, Kharrazi said: “All Lebanese people, Arab countries and members of the axis of resistance will support Lebanon against Israel.”
“There would be a chance of expansion of the war to the whole region, in which all countries including Iran would become engaged,” he said in an interview. “In that situation, we would have no choice, but to support Hizbollah by all means.”
He added: “The expansion of war is not in the interest of anyone — not Iran or the US.”
Tensions between Iran, the US and Israel have soared since Hamas’s October 7 attack and Israel’s retaliatory offensive in Gaza, with Iranian-backed militant groups launching attacks against the Jewish state and US soldiers in the region.
Hizbollah has traded almost daily cross-border fire with Israel, Houthi rebels in Yemen have attacked ships in the Red Sea and fired drones and missiles at Israel, and Shia militants in Iraq and Syria have attacked US troops and fired projectiles at Israel.
Iran and Israel also launched tit-for-tat missile attacks against each other in April — marking the first direct Iranian strike against Israel from its own soil. However, both sides sought to de-escalate the tension, with the respective strikes considered calibrated and causing limited damage.
But fears of an all-out Israel-Hizbollah war have intensified in recent weeks amid increasingly bellicose rhetoric from both camps, raising concerns in the west about how Iran would react.
Iran’s mission to the UN on Friday warned of an “obliterating war” if Israel launched an offensive against Hizbollah, saying “all options’‘ were on the table.
Another Iranian official told the FT that Iran would be unlikely to directly target Israel, instead mobilising the network of Iran-backed militant groups across the region that make up the axis of resistance.
The concerns come as Iranians prepare for a new government following the death in May of President Ebrahim Raisi in a helicopter crash. A presidential election run-off is scheduled for Friday after no candidate secured more than 50 per cent of the vote in the first round on June 28.
Voters will choose between reformist Masoud Pezeshkian, who wants to re-engage with the west to secure relief from sanctions, including those imposed over Tehran’s nuclear ambitions, and Saeed Jalili, an ideological hardliner hostile to the US.
Kharrazi said that while there would be “some differences” in approach depending on who won, the overall foreign policy strategy was determined by Khamenei and would remain the same.
The election would create the chance for “new openings” between Iran and the west, he said. But to achieve that, western states would need to retreat “from the current policies and engage in negotiations with Iran based on equal footing and mutual respect”.
Kharrazi added. “If they decide to co-operate, we are ready for co-operation.”
The Islamic republic would be willing to hold indirect negotiations with Washington about Tehran’s nuclear programme under a new government, if it would lead to the US rejoining the 2015 accord Iran signed with world powers — known as the JCPOA — he said.
Iran and the west have been locked in a stand-off since former US president Donald Trump unilaterally abandoned the JCPOA in 2018 and imposed waves of sanctions on the republic. The Biden administration sought to revive the accord, but diplomatic efforts collapsed after the west blamed Iran for rejecting a draft proposal to save the deal in August 2022.
The US and European signatories to the JCPOA have since become increasingly concerned about Tehran’s expansion of its nuclear programme. Iran has been enriching uranium at 60 per cent purity — close to weapons-grade — for more than three years. It now has sufficient fissile material to produce about three nuclear bombs within weeks, experts say.
Senior US and Iranian officials held indirect talks in Oman in February and May to discuss the crisis, as well as regional hostilities.
“We are not for building nuclear weapons,” Kharrazi said, citing a fatwa issued by Khamenei in 2003 banning the development of the arms. But he said that if Iran faced an existential threat, “naturally we [would] have to change our doctrine”.
He added that if the west triggered “snapback” provisions to reimpose UN sanctions lifted when Tehran signed the JCPOA, in response to Iran’s continued expansion of its programme, “there would be a severe reaction from Iran in terms of changing its nuclear strategy”.
“Up to now, we have not decided to go further than 60 per cent enrichment,” he said. “But we have been trying to expand our experience by using different machines and different set-ups.”
The west has also been angered by Iran’s sale of armed drones to Moscow, which Russia has used in its war in Ukraine.
Kharrazi insisted Iran was neutral in that conflict, saying it sold drones to Russia prior to Moscow’s invasion of its neighbour. When asked about western concerns that Iran could sell missiles to Moscow, he said: “There have been such accusations, but it is not true.”
However, he said, there was “no obstacle between Iran and Russia for arms deals”, adding that Tehran was in negotiations to buy Russian fighter jets.
“We are due to sign a comprehensive strategic agreement with them in the near future,” Kharrazi said.
Chinese exporters raise fears of Christmas freight crisis
Red Sea attacks have pushed up costs and put pressure on profits during critical season for trade
At southern Chinese Christmas tree maker Golden Arts Gifts & Decor, the mood is anything but festive.
With freight costs rising due to attacks on Red Sea shipping by Yemen’s Houthi militant group, manager Richard Chan said this year was shaping up to be one of the worst in his more than two decades in the industry.
“We are not talking about making a profit this year. We just need to survive,” said Chan. “The Red Sea crisis has been such a headache.”
The manufacturer, which counts Walmart as a client and exports about 80 per cent of its products to the US and Europe, said the attacks had delayed shipments. As a result, his clients have requested orders be shipped up to a month earlier than usual.
The challenges facing Chan’s factory are mirrored across China, where manufacturers said they were struggling to meet shortened schedules as US and European buyers demanded orders be front-loaded to ensure timely delivery for the festive peak season.
The average cost of moving a 40ft container between Asia and northern Europe at short notice hit $6,855 in late June, up more than 110 per cent in two months and a roughly fivefold increase compared with the same period last year, according to freight market tracker Xeneta.
“Importers all over the world, including US importers, are nervous because of all the uncertainty and the disruption that is going on currently with the Red Sea crisis,” said Simon Heaney, senior manager of container research at maritime consultancy Drewry. “It seems to be extending and there is no end in sight.”
About 19 per cent of US clients and 26 per cent of European customers surveyed by Drewry in May said they were advancing shipping schedules over fears of supply chain disruptions, Heaney said.
Some worry that planned US tariff increases could further push up freight costs as exporters rush to front-load shipments ahead of the introduction of levies, said Thomas Eisenblätter, executive vice-president of global sea freight at Berlin-based freight forwarder Forto. Goods targeted by the US include electric vehicle-related materials, battery parts and solar cells.
As the Houthi attacks — which started in response to Israel’s war in Gaza after the October 7 assault by Hamas — enter their ninth month, ships are taking longer routes to avoid the Red Sea. Big shipowners have in recent weeks added vessels and launched new services from China. But these efforts have not completely eased the pressure on Chinese manufacturers.
Michael Lu, president of China-based gift box producer Brothersbox, which exports to clients including Marks and Spencer and has a factory in Dongguan, said it was paying 40 per cent more than last year to ship goods to the west in some cases. Not all of those costs could be passed on to customers.
The factory has begun to operate on weekends to meet some western clients’ demands for shipments two weeks earlier than expected. The company has had to “recalculate and reassess our production schedules”, said Lu.
Danny Lau, honorary chair of the Hong Kong Small and Medium Enterprises Association, which includes exporters with factories in mainland China, said many manufacturers had been “hurt” by the tighter deadlines.
“Overtime extra pay in mainland China could be 1.5 to 2 times higher,” said Lau. “It would be amazing if manufacturers can still make a profit this year.”
Anny Cheung, senior director at Hong Kong-based Wah Lung Toys, which manufactures in mainland China, said higher shipping costs and lengthened delivery times were also “likely to lead to increased prices for imported goods and potential delays in product availability in the US and Europe” this year.
Carriers’ ability to cash in on high spot prices is limited however as the costs of many shipments are tied to long-term deals. This, combined with increased capacity in the shipping industry and higher costs associated with longer export routes, has limited potential profit rises at carriers such as Maersk and CMA CGM.
Some shipping companies were breaking long-term contracts to take advantage of the high spot rates, said one person in the industry.
With the prospect of further US tariffs to come as both Joe Biden and Donald Trump drum up protectionist rhetoric, it is unclear how long the “vicious cycle” will last, said Drewry’s Heaney.
Golden Arts Gifts & Decor’s Chan said the company had to borrow to buy new machinery and accelerate manufacturing to cut production times.
But that has put pressure on profits at a time when it is cutting prices to keep US and European buyers, many of whom were seeking to source goods outside China. “Things have been so difficult,” he said.
After Hours Summary: Relatively quiet session; SAVE +0.7% up on new CFO announcement; ADEA -0.8% down on license agreement with X Corp (formerly Twitter)
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: None
Companies trading higher in after hours in reaction to news: USAP +1.8% (announces North Jackson labor contract continuance), SAVE +0.7% (appoints new CFO), BX +0.5% (to sell Alinamin to MBK Partners, according to Nikkei), CFR +0.3% (CFO to retire), GE +0.2% (extends CEO's employement), GPI +0.1% (acquires four Mercedes-Benz dealerships in the U.K.), MSI +0.1% (acquires Noggin)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: None
Companies trading lower in after hours in reaction to news: AZTR -5.9% (files mixed shelf and secondary stock offering), YMAB -2.3% (appoints new CFO), ARCT -1.7% (provides updates for two of its programs), ADEA -0.8% (multi-year license agreement with X Corp), BEN -0.6% (stock offering), FUN -0.5% (completes merger with Cedar Fair), GL -0.4% (files mixed shelf), DHX -0.2% (to reduce workforce by around 7%), AWK -0.2% (files rate request driven by water investments), IBM -0.1% (collaborating with Microsoft (MSFT) on cybersecurity)
NATO to Establish Kyiv Post and Seek to ‘Trump-Proof’ Ukraine Aid
The move is among changes that aim to safeguard support amid European right-wing surge
NATO will station a senior civilian official in Kyiv, among a raft of new measures designed to shore up long-term support for Ukraine that are expected to be announced at a summit in Washington next week, U.S. and alliance officials say.
The steps seek to buttress Ukraine’s prospects to eventually join the alliance without offering it membership. They come amid a right-wing political surge across Europe and the growing possibility that former President Donald Trump could return to the White House and reduce American support for Ukraine.
The North Atlantic Treaty Organization is also establishing a new command in Wiesbaden, Germany, to coordinate the provision of military equipment to Kyiv and the training of Ukrainian troops.
The operation, to be called NATO Security Assistance and Training for Ukraine, will be staffed by nearly 700 U.S. and other allied personnel from across the 32-country alliance. It will take over much of a mission that has been run by the American military since Russia’s full-scale invasion of Ukraine in February 2022.
The new initiatives have been in development for months, but they take on new urgency following President Biden’s weak performance in his televised debate with Trump on Thursday and Trump’s complaints about the money the U.S. has spent on Ukraine.
“A big reason for the change is to Trump-proof the assistance effort to Ukraine,” said Ivo Daalder, who served as the U.S. ambassador to NATO from 2009 to 2013. “Rather than having Washington in charge of managing the training and assistance, NATO will be in charge. So even if the U.S. reduces or withdraws support for the effort, it won’t be eliminated.”
With far-right parties gaining voter support in France, the Netherlands and across the European Union, the institutionalization of NATO’s role could also make military assistance to Ukraine less vulnerable to policy swings among alliance members.
“It does provide for durability in the face of potential national political changes, whether it is as the result of elections in the United States, France, the U.K. or even in the European Union,” said Douglas Lute, a retired three-star Army general who served as the U.S. ambassador to NATO from 2013 to 2017.
Current and former U.S. officials said that the steps would enable the alliance to better coordinate Western countries’ efforts to provide Ukraine with military support, in what has become a protracted test of wills between Moscow and the West on NATO’s border. The plan also aims to make Ukraine’s military more like those in NATO.
Alliance members hope that the summit will also agree on an annual financial pledge of military support to Ukraine, although terms are still under negotiation, NATO diplomats said. Recent discussions among alliance members have included setting a goal of roughly $40 billion annually and increasing the value of many countries’ contributions, though the U.S. would likely continue to be a major donor.
While many NATO members say that the alliance should invite Ukraine to join, initiating a process that could take years, the U.S. and Germany oppose taking such a step at next week’s summit.
In an effort to paper over differences within the alliance, officials say, NATO is likely to describe Ukraine’s bid to join NATO as “irreversible,” building on language in an alliance communiqué last year that “Ukraine’s future is in NATO” and a 2008 communiqué that said Ukraine would become a NATO member one day.
Under the initiatives already agreed upon for final approval at the summit, staff from non-U.S. members will work alongside Americans at the new NATO command to align military-equipment donations with Ukraine’s needs and coordinate deliveries. They will also coordinate training for Ukrainian troops, to ensure what is being offered meets Kyiv’s needs. NATO staff won’t themselves do any training, officials said.
The shifts are aimed at building institutional momentum and spreading knowledge of the nitty-gritty logistics involved in channeling provisions from dozens of countries to Ukraine’s borders. NATO Secretary-General Jens Stoltenberg said last month in Brussels that the changes would put alliance support to Ukraine “on a firmer footing for years to come.”
While the change will broaden NATO involvement, the U.S. will continue to provide most of the staff, which will report to Army Gen. Christopher Cavoli, who serves as NATO’s top commander.
The senior civilian official in Kyiv would focus on Ukraine’s longer-term military- modernization requirements and nonmilitary support, linking to both the planned Wiesbaden command and NATO headquarters in Brussels.
The new steps also signal an important shift in alliance posture. NATO initially kept its distance from Ukraine’s military campaign to avoid accusations it was a party to the conflict. The organizational changes mean it is now prepared to take a more substantial role in helping Kyiv fight Russia.
“Since NATO allies have provided over 90% of total security assistance to Ukraine, NATO is the natural place to coordinate assistance to ensure Ukraine is more capable of defending itself now and in the future,” said a senior State Department official.
NATO’s summit comes at a pivotal time in the American political scene. Biden has touted his role in mobilizing the alliance’s support to Ukraine as one of his cardinal foreign-policy accomplishments, as the White House has sought to help Ukrainian forces stand up to Russia’s attack while limiting the risk that the conflict might escalate into a direct U.S.- Russia clash. Biden also said that halting Russian forces in Ukraine is vital to stopping Moscow’s aggression elsewhere in Europe and even beyond.
“I got 50 other nations around the world to support Ukraine, including Japan and South Korea,” Biden said during the Thursday debate. “No major war in Europe has ever been able to be contained just to Europe.”
Trump called Ukrainian President Volodymyr Zelensky “the greatest salesman ever” for persuading the U.S. to provide military support to Kyiv and said that the conflict there was more of a security problem for European nations than the U.S. “because we have an ocean in between.”
Trump also vowed to negotiate a diplomatic agreement between Zelensky and Russian President Vladimir Putin before he was sworn in as president. Trump didn’t explain what the terms of such a settlement might be, but said that Putin’s demand that Moscow keep four provinces in Eastern Ukraine while Kyiv drop its bid to join NATO was unacceptable.
“I will have that war settled between Putin and Zelensky as president-elect before I take office on January 20,” Trump said.
Boeing to plead guilty to fraud or face criminal trial under DoJ offer
Aircraft maker faces high-stakes choice over door panel blowout case and implications for US government contracts
Boeing must either plead guilty to felony fraud or go to trial against the US government as the next step in a criminal case stemming from its door panel blowout, according to the latest terms offered to the company by the Department of Justice.
Under the potential plea agreement, the airline would plead guilty to one charge of conspiring to defraud the US and pay a fine of $243.6mn, the second criminal penalty of this size in the case, according to someone familiar with the matter.
The move comes after the DoJ notified Boeing it had breached the deferred prosecution agreement it signed in 2021 in the wake of the fatal Lion Air and Ethiopian Airlines 737 Max crashes.
The notification followed the mid-air blowout that terrified passengers of an Alaska Airlines flight earlier this year.
The potential agreement, which was communicated to Boeing and the victims’ families on Sunday, would also require Boeing to accept a government-appointed monitor as well as three years of probation, said the person familiar with the matter.
Boeing has until close of business Friday to respond to the DoJ, after which US courts must be notified by midnight Sunday.
Boeing declined to comment. Paul Cassell, a lawyer who represents families of victims in the 737 Max crashes, said the DoJ was “preparing to offer to Boeing another sweetheart plea deal”.
Families “will strenuously object to this plea deal” and “plan to send a formal objection to the Justice Department soon,” he added.
Agreeing to a guilty plea could raise questions around Boeing’s ability to secure contracts with the US government, which make up a significant portion of its revenue — an increasingly important source of funds as the business faces steep costs in its commercial division.
The legal wrangling comes as Boeing has agreed to buy Spirit AeroSystems in a deal valuing the airline supplier at $4.7bn.
Boeing had spun off the parts builder in 2005 but remained its biggest customer. It has said repurchasing the airline supplier would boost safety in the manufacturing process.