- The Washington Times - Monday, December 1, 2003

Boeing Co. jettisoned Chairman and Chief Executive Officer Philip M. Condit yesterday in the face of federal investigations into its business practices and competitive pressures that threaten its position as the world’s leading manufacturer of airplanes.

Mr. Condit, 62, said in a conference call he decided to resign on Sunday after “a great deal of soul-searching” to help the Chicago aerospace company overcome a growing number of problems.

“In the end, I concluded that the controversies and distractions of the past year were obscuring the great accomplishments and performance of the company. My fear was [that] we would get bogged down. I believe the best way for the company to stay on track is to step aside and bring in new leadership,” Mr. Condit said.

Mr. Condit began working for Boeing in 1965 as an engineer and took over as its chief executive in 1996. He will continue as CEO until March 1.

Boeing’s commercial-plane business has been hammered by competition from European rival Airbus SAS, and its defense-industry unit has come under federal scrutiny from Congress and the Defense Department over its handling of contracts for new business.

Harry Stonecipher, a 67-year old retired Boeing vice chairman who will take over as president and chief executive, faulted the company’s execution of its strategy for getting the 87-year-old aerospace company into trouble.

“I think … we missed a few steps along the way,” said Mr. Stonecipher, who was president of St. Louis aerospace company McDonnell Douglas when Boeing bought it in 1997.

Boeing, which employs 160,000 people, lost $414 million through the first nine months of the year.

Its shares fell 37 cents yesterday, closing at $38.02 on the New York Stock Exchange.

Boeing has been plagued by problems including a drop-off in business travel that slowed orders for new planes.

Perhaps the most serious issue it faces surrounds a tanker jet it produces for the Air Force.

The company last week fired Chief Financial Officer Michael Sears and Vice President Darleen Druyun for violating corporate ethics rules related to a Defense Department contract for the jet tanker.

Boeing recruited Miss Druyun while terms of the tanker contract were being discussed, and Boeing said that violated company policies.

Miss Druyun was second in charge of acquisition for the Air Force and was in a position to influence Boeing contracts.

After Boeing fired Mr. Sears, Defense Secretary Donald H. Rumsfeld ordered a review of the tanker-jet contract. The Pentagon is investigating accusations that Miss Druyun gave Boeing information about another company’s competing bid for the tankers.

The agreement, in which the Air Force would lease 20 Boeing tankers and buy 80, was authorized as part of the $401.3 billion defense appropriations bill that President Bush signed last week.

The Pentagon might delay the $18 billion Air Force plan to lease and buy the tankers until officials complete an investigation, Defense Department officials said yesterday.

Mr. Condit, who made $2.5 million in salary and bonuses last year, doesn’t appear complicit in the tanker debacle, said Lewis Platt, who was named chairman.

“There appears to be no involvement on Phil’s part. Accepting Phil’s resignation has nothing to do with any ethical issues,” Mr. Platt said.

Nicolas Owens, analyst for investment research firm Morningstar Inc., said Boeing has taken steps to address ethical issues, but it already might have damaged its reputation with the Defense Department.

“If you don’t have the trust of the Pentagon, you aren’t going to win their contracts,” he said.

The Air Force in July suspended Boeing’s space unit from competing for military contracts because it stole documents from Lockheed Martin Corp. to help it win business.

Boeing’s commercial business also faces pressure.

Airbus yesterday said it won a $1.5 billion order for 23 planes from Qantas Airways Ltd., which had been a reliable Boeing customer.

Airbus, based in France, will deliver about 300 commercial planes this year. Boeing will deliver about 280. Airbus has a backlog of 1,020 for its A320 series of aircraft, compared with Boeing’s backlog of 808 orders for its 737 jets.

Boeing must makes changes and become more competitive, said Mark Blondin, president of the International Association of Machinists and Aerospace Workers District 751, which represents 16,000 Boeing workers in the Puget Sound region, the company’s former home.

“We hope they take this opportunity to assess the condition they’re in and choose a new path. I believe a resignation does us no good,” said Mr. Blondin, a fourth-generation Boeing employee.

Boeing plans to present a plan to its board of directors this month for a new commercial jet — the 7E7 — that the manufacturer says will help bolster sales.

“The commercial business, I would submit to you, is stronger today than it has ever been. These guys are really prepared to come out of the chute when the market turns up again,” Mr. Stonecipher said.

Revenue from commercial airplanes represented 44 percent of Boeing’s sales through Sept. 30, down from 55 percent for the comparable nine-month period a year ago.

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