Boeing CEO quits amid Pentagon investigation

By Peter Pae
Los Angeles Times

Allegations of misconduct and CEO Phil Condit's resignation have come as Boeing's once-dominant commercial passenger jet business has continued to shrink. Associated Press

Although Boeing asserted that Condit wasn't forced out, the board of directors made clear that they were comfortable with his decision, saying that a "new structure for the leadership ... was needed to restore the company's reputation."

Boeing's former president, Harry C. Stonecipher, 67, was brought out of retirement and named chief executive. Stonecipher headed McDonnell Douglas Corp. before it was acquired by Boeing.

Condit's resignation came as the Pentagon stepped up an investigation into allegations that Chief Financial Officer Mike Sears began recruiting a top Defense Department official to join Boeing at the same time the company was bidding on an $18 billion contract for aerial refueling tankers. Boeing eventually hired the procurement official.

Last week, Boeing fired both Sears and the former Pentagon official, Darleen Druyun, citing breach of company policy. Sears has denied the allegations.

Late yesterday, the Pentagon announced that it might delay the hard-fought deal to lease and buy 100 Boeing air tankers until officials thoroughly investigate the circumstances surrounding the awarding of the contract.

Beyond the controversy over the air tanker, Boeing has seen its reputation tarnished by a Pentagon inquiry that found two Boeing employees illicitly obtained proprietary documents from rival Lockheed Martin Corp. to win a lucrative rocket-launching contract.

Last summer, as punishment, the Air Force took away about $1 billion worth of rocket work from Boeing and indefinitely suspended the company from seeking any future rocket contracts.

Condit "created a culture where this type of activity was routine," said Steve Ellis, vice president of programs for Taxpayers for Common Sense, a watchdog group that has been critical of Boeing's tanker deal. While Condit might have not been directly responsible, he "oversaw a career's worth of scandals in just one year."

Condit, 62, joined Boeing in 1965 as an aerodynamic engineer and rose through the ranks, becoming CEO in 1995 and chairman the year after.

The allegations of misconduct have come as Boeing's once-dominant commercial passenger-jet business has continued to shrink amid one of the worst travel slumps in decades.

In October, Boeing said it would stop making the 757 aircraft, citing lack of demand. This year — for the first time — European rival Airbus is expected to deliver more airplanes than Boeing.

"The company has had more than its share of disappointments over the course of the last year and half," said Wolfgang Demisch, a longtime aerospace analyst.

Boeing watchers give Condit mixed grades for his eight-year tenure as CEO. He is credited with aggressively expanding Boeing's defense operations to take up the slack from falling passenger-jet sales — reshaping the aerospace industry. Boeing acquired Rockwell International's aerospace and defense units in 1996, McDonnell Douglas in 1997, and the satellite-making division of Hughes Electronics in 2000. Along the way, Boeing established itself as the nation's second-largest defense contractor, just behind Lockheed Martin.

This year, Boeing's revenue from Pentagon contracts will surpass its commercial plane sales: about $27 billion vs. $22 billion.

Yet in recent months, the scandals have made the Pentagon wary of dealing with the company — threatening its continued growth as a defense contractor.

"It was time for Condit to go," said Loren Thompson, chief operating officer for the Lexington Institute, a defense think tank in Arlington, Va.

"It's unfortunate, because the company will benefit from the business he built — and will benefit for years to come."

Condit said yesterday that the allegations against Sears were "a critical factor" in his decision to resign — a move that he insisted was entirely voluntary.

"I ultimately concluded it was the best decision for the good of the company," Condit said. "The controversies and distractions of the past year were obscuring the great accomplishments and performance of this company."

Stonecipher said Condit's offer to resign came as a "total shock" to the board. Condit made the offer to step down about a week and a half ago, and the company's 10 directors, after deliberating on telephone conference calls, agreed to accept the resignation Thanksgiving Day.

In the 1990s, Stonecipher was credited with turning around scandal-ridden McDonnell Douglas by focusing on sales to the Pentagon.

He said yesterday that one of his main tasks would be to fix Boeing's reputation within the Defense Department, including getting the rocket suspension lifted.

"I know the business quite well," Stonecipher said. "That's where I'll spend a lot of time."

Yet Stonecipher also made clear that he wouldn't abandon the commercial-jet market. Specifically, he said he was "a proponent" of Boeing's proposed 7E7 jetliner, which analysts see as a crucial step to slowing Airbus' rise.

"We are ... looking forward to going forward with the airplane," he said.

Boeing also named board member Lewis E. Platt, the former CEO of Hewlett-Packard Co., as a non-executive chairman.