Profile of Boeing

compiled by George Draffan, Public Information Network, Endgame.org

 

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History

Acquisitions and Mergers

Environmental

Commercial Aircraft

Military Aircraft/Weapons

Military Scandals

Subsidies

Moving Overseas

Other News

Bibliography on Boeing

 

 

Boeing World Headquarters
100 North Riverside
Chicago, Illinois 60606
312-544-2000

Boeing Commercial Airplanes
Seattle, Washington

Boeing Integrated Defense Systems
St. Louis, Missouri

 

HISTORY

William Boeing, like fellow Midwesterners Weyerhaeuser and Bloedel, went to the Northwest U.S. at the turn of the 20th century to acquire more timberland as the Midwest had been deforested. Employees of Boeing's Crescent Logging Company, one of the big players on the Olympic Peninsula, later were involved in arranging the exclusion of valuable timberlands from Olympic National Park (Ficken, 1987; and Lien, 1991). Boeing built his first airplane in 1916.

Boeing built training planes for the U.S. Navy during World War I. After the war, Boeing began the first international airmail service (between Seattle and Victoria BC), and in 1927 acquired a contract with the U.S. Postal Service for the San Francisco to Chicago airmail route.

In 1934, the U.S. government investigated United Aircraft (in which Boeing was a partner) for collusion in the awarding of air mail contracts; the conclusion was that aircraft manufacturers should be separated from airline operators. Boeing sold its air transportation operations (United Aircraft and Transport, later United Air Lines, aircraft engine manufacturer Pratt & Whitney, military plane builder Northrop, Sikorsky Aviation, Stout Air Services, and Clement Key's National Air Transport), to concentrate on manufacturing (Biddle, 1991, p. 179).

In the 1930s-40s, Columbia River hydropower dams lead to Boeing's World War II expansion.

 

ACQUISITIONS AND MERGERS

In 1990, Boeing sold its 15 percent interest in Peabody (Coal) Holding Co. to Hanson PLC. In 1996, Boeing acquired Rockwell International's Aerospace and Defense Electronics.

In 1997, Boeing's acquisition of McDonnell Douglas was cleared by federal antitrust regulators; the combined corporation is expected to employ 200,000 people in 27 American states and several other countries, and collect revenues of $48 billion per year.

 

ENVIRONMENTAL

In the 1930s and 1940s, the Columbia River was dammed to benefit aluminum corporations and irrigated agribusiness. Kaiser Aluminum helped build the Bonneville, Grand Coulee, and Hoover dams (Kaiser was acquired in 1988 by Maxxam, of Pacific Lumber infamy). With the dams came irrigation, aluminum, and the aircraft industry. The demand for military planes for World War II made Boeing an attractive supplier, since aluminum requires lots of cheap electricity. Boeing became one of the country's biggest military contractors, as well as the world's largest commercial aircraft manufacturer, and the Northwest (and America's trade balance) has become dependent on Boeing.

The Council on Economic Priorities produced an environmental report on Boeing in 1991-92 ($20 from CEP, 30 Irving Place, New York NY 10003, 1-800-729-4237).

From 1954 to 1977, Boeing dumped military waste at Western Processing and Queen City Farm sites in Washington State. U.S. GAO report for U.S. House Committee on Government Operations chairman John Conyers show Boeing and other military contractors profit from federal reimbursement for hazardous waste site clean-up; Boeing denies profiting (West, Oct 29, 1992; and Associated Press, Oct 30, 1992).

 

COMMERCIAL AIRCRAFT

World's largest manufacturer of commercial aircraft since its 707 in 1958.

By the early 1990s Boeing had two-thirds of the global commercial air business, and have built more than half the jets ever flown (Moskowitz, 1990, p. 535).

Boeing's commercial models have included the 737, 747, 757, 767, and 777.

 

MILITARY AIRCRAFT/WEAPONS

Boeing is the number one NASA contractor and the number two DoD contractor (Boeing Annual Report 1997, p. 45).

1935-1965: Boeing bombers included the B-17, B-29, B-47, B-50, and B-52.

1988 Boeing military sales to Europe ($478 million) and Asia ($225 million) (Moskowitz, 1990, p. 538).

In 1991, military transport, missiles, and space contracts provided 20 percent of Boeing's sales (and 2 percent of its 1991 profits).

Recent Boeing military contracts:

A-6 attach aircraft (wings).
AH-64A Apache Longbow.
Airborne Laser.
Avenger air-defense system.
AWAC (Airborne Warning and Control System).
B-2.
B-52.
C-17 Globemaster III.
Chinook CH-47D transport helicopter.
E-6A airborne submarine communications aircraft.
F-15 Eagles.
F-22 fighter.

F/A-18 Hornet.
Harpoon missile.
Harrier II Plus.
Inertial Upper Stage (IUS) booster rockets for space shuttle and Titan rockets.
Minuteman ICBM modernization and improvement.
RAH-66 Comanche helicopter.
SRAM.
T-45A Goshawks.
TACAMO.
V-22 Osprey helicopters.


MILITARY SCANDALS

Boeing makes payments and kickbacks for foreign aircraft sales. In the 1970s, Boeing paid more than $3 million to Japanese officials to obtain JAL (Japan Air Lines) orders (Moskowitz, Everybody's Business, 1980, p. 686, citing U.S. SEC investigation). The 1970s anti-corruption agreement between Boeing and the U.S. government banned Boeing consultants from work on each sale except under unusual circumstances which require the CEO's approval. In the 1990s, Bahamas bribery and US SEC probe (Anderson, Jan 24, 1996; Mar 20, 1996; Aug 7, 1996 and June 13, 1998). Boeing has been convicted numerous times in recent years for bribing foreign officials, overcharging the Pentagon for military hardware, and other forms of financial corruption (See, for example, Rick Anderson's articles in the Seattle Weekly (May 18, 1994; Jan. 24, 1996; Aug. 7, 1996). Boeing's longstanding involvement in bribery of foreign officials, admitted in the 1970s-1980s, denied in the 1990s (Anderson, 1996). In 1994, Boeing paid $75 million to avoid criminal prosecution. (shortly before had paid $5 million for trafficking insider information from the Pentagon, ad $11 million for overcharges on the KC-125 tanker (Anderson, May 18, 1994).

Assistant Navy Secretary Melvyn Paisley had worked for Boeing; was convicted in the 1986-1990 Ill Wind Pentagon scandal for bribery, improper contracts, and diverting contracts to a firm he secretly controlled. More than 90 corporations and individuals were convicted, including Boeing, Hughes, Unisys, Raytheon, Loral, Litton, Teledyne, Cubic, Hazeltine, Whittaker, and LTV. Ill Wind included $190 million in fines, penalties, and foregone profits (Zepezauer and Naiman, 1996, pp. 20-21).

Navy Secretary John Lehman worked for Boeing.

Boeing charged $2,548 for a pair of duckbill pliers; the Air Force reduced the price to $748. Boeing charged $1,118 for a plastic cap that goes over the end of a stool leg (Zepezauer, 16).

Boeing stole documents and information from rivals Lockheed Martin and Raytheon. A New Ethical Era for the Sleazy B? Seattle Weekly, Dec 3-9, 2003.

When Pork Flies. Seattle Weekly, May 21, 2003. $20 billion deal for leasing 767 aerial refueling tankers to the Pentagon.

Senators denied documents on Boeing tanker deal, By Joseph L. Galloway, Seattle Times, June 4, 2004. "Defense Secretary Donald Rumsfeld has sharply limited the information he is willing to let Congress see on the controversial Boeing tanker contract that is the focus of multiple investigations. Rumsfeld took a hard line even with fellow Republicans who want information from him about a proposed $23 billion deal for the Air Force to buy and lease 100 Boeing 767 aerial-refueling tankers. Rumsfeld's refusal to give senators all the materials they requested could provoke a rare congressional subpoena. Senators, led by John McCain, R-Ariz., have been demanding that the Air Force hand over internal e-mails and other communications on negotiations with Boeing and efforts to slide the deal through Congress. Critics contend the deal was laden with conflicts of interest and that the planes may not be needed... he Boeing deal, which for a time looked like it was heading for a fast passage through Congress, descended into scandal when it was revealed that the Air Force's chief negotiator with Boeing on the deal, Darleen Druyun, also had negotiated a vice president's job for herself with the aircraft manufacturer. Druyun last month pleaded guilty to federal conspiracy charges, and a grand jury in northern Virginia is investigating. Rumsfeld put a hold on the tanker lease-purchase deal while the Pentagon's inspector general and other agencies and boards looked into various parts of the deal, including whether there was any urgent need to replace the Air Force's aging fleet of KC135 tankers."

Ex-Boeing CFO to plead guilty, CNNMoney.com, July 26, 2004. "A former Boeing executive will plead guilty to a criminal charge related to the hiring of an Air Force official who oversaw a Boeing contract to supply refueling jets to the military, a source familiar with the plea agreement said on Monday. Former Chief Financial Officer Michael Sears will plead guilty to one charge of aiding and abetting the hiring of Darleen Druyun, who worked on Boeing's negotiations to lease 100 767 tankers to the military, the source said. Boeing fired Druyun and Sears in November after learning about circumstances surrounding Druyun's employment. Phil Condit resigned as chairman and chief executive officer a week later and the Pentagon has put the $23.5 billion lease purchase agreement on hold pending more studies. Sears is expected to enter his plea next week or soon after, the source said. He faced charges of "aiding and abetting acts affecting a personal financial interest," according to court documents. Druyun in April pleaded guilty to one count of conspiracy and agreed to cooperate with federal prosecutors. She is due to be sentenced Aug. 6 in Federal District Court. Sears could face a maximum fine of $250,000 and as many as five years in prison. Druyun could also face fines and jail time..."

U.S. probes into Boeing dealings with Air Force official. AP/USAToday.com. Nov 9, 2004.
The Pentagon said Tuesday it has asked the Government Accountability Office to investigate a wide range of Air Force contracts that involved Darleen Druyun, a former senior official who has admitted giving special treatment to Boeing Co.
The review will include all contracts handled by Druyun during nearly a decade as a top acquisition official of the Air Force, a Pentagon spokesman said.
Michael Wynne, the Pentagon's acting undersecretary for acquisition, told reporters that the GAO, Congress's investigative arm, would take over protests filed by Lockheed Martin Corp., BAE Systems PLC and L-3 Communications Holdings Inc.
The Defense Department also has appointed two new task forces to investigate Druyun's dealings since 1992 and to examine current military procedures to determine whether internal policies can prevent future abuses, said Glenn Flood, a Pentagon spokesman.
Druyun was sentenced to nine months in prison last month for discussing a job with Boeing while overseeing a $23 billion lease-purchase deal for the company to supply the Air Force with refueling tankers. The deal has since been nullified.
Druyun also has admitted helping Boeing on other contracts, including a $4 billion deal to provide upgrades to the Air Force's C-130 fleet.
She also said she helped Boeing obtain an inflated deal on a $100 million NATO AWACS contract in 2002. At the same time, she intervened to keep Boeing from firing her daughter, who worked for the company, for poor performance.
Prosecutors said former Boeing chief financial officer Michael Sears improperly contacted Druyun about a possible top-level company job in 2002, when she still was at the Air Force and playing a crucial role in deciding whether Boeing should get the tanker contract.
She joined Boeing in January 2003 as deputy general manager of its Missile Defense Systems unit. She and Sears were fired the following November, after questions arose about her role in the tanker deal.
Sears is expected to plead guilty next week in federal court in Virginia.
Boeing spokesman Doug Kennett said Tuesday the company was as surprised as anyone at Druyun's revelations during her Oct. 1 sentencing.
"They surprised us then, and we've seen no evidence that would corroborate her statement, but we are willing to work with any and all of our customers to review all of these contracts to solve any problems that may exist," Kennett said.
One task force looking at Druyun's actions will be led by the Defense Science Board and will include at least two academics who are experts in ethics, Flood said.
"Hopefully the Defense Science Board will come up with recommendations to make sure we don't go through this again," he said.

Lockheed seeks to revoke Boeing deal: Defense contractor renews bid to kill some Boeing contracts valued at more than $6 billion. Reuters, CNNMoney.com, Nov 12, 2004.
Lockheed Martin Corp. said Friday it had refiled protests seeking to revoke Boeing Co. contracts valued at more than $6 billion, part of the biggest Pentagon procurement scandal in more than a decade.
Originally made to the U.S. Air Force, two protests were refiled on Wednesday with the Government Accountability Office, Congress's audit and investigative arm, said Thomas Jurkowsky, a Lockheed spokesman.
Under U.S. acquisition law, the outcome of the refiled protests must be decided within 100 calendar days, or by Feb. 18. Protests involving two classified programs remain with the Air Force, Jurkowsky said.
Ex-Air Force acquisition official Darleen Druyun sparked the legal action by admitting in court last month that she improperly steered business to Boeing since at least 2000.
She was sentenced to nine months in federal prison Oct. 1 for conspiracy to violate conflict-of-interest laws by negotiating a $250,000-a-year Boeing vice president's job while overseeing the company's Air Force contracts, sparking the biggest Pentagon scandal since the 1980s influence-peddling "Ill Wind" investigation.
The Pentagon's top weapons buyer, Michael Wynne, said this week that he preferred the Government Accountability Office handle the protests to make sure they were decided independently of any Air Force officials linked to Druyun.
One involves an electronics upgrade to the C-130 Hercules transport plane worth more than $4 billion. The other, "omnibus", complaint involves development of a small-diameter bomb valued at up to $2 billion and any other award to Boeing that Lockheed lost where Druyun might have had a say.
L-3 Communications Holdings Inc. refiled Friday a protest that also had been originally sent to the Air Force, said Dan Gordon, head of the GAO's bid protest unit and associate general counsel.
BAE Systems PLC, which was expected to follow suit, also lost out in the C-130 upgrade contract and had protested to the Air Force.
Bethesda, Md.-based Lockheed, the Pentagon's biggest supplier, is confident that the GAO will give its protests "a thorough, meticulous review," Jurkowsky said.
Boeing, the Pentagon's second-ranking supplier, has said it is not aware of having received any preferential treatment from Druyun.

Ex-Boeing finance chief pleads guilty: Air Force official offered job when tanker bid was still undecided. Associated Press/MSNBC, Nov. 15, 2004.
Boeing Co.'s former chief financial officer pleaded guilty Monday to illegally hiring a top Air Force procurement officer who has admitted she gave the company preferential treatment on a $23 billion tanker contract.
Michael Sears, 57, pleaded guilty to a single count of aiding and abetting illegal employment negotiations.
Sears faces up to five years in prison when he is sentenced on Jan. 21, but his lawyer, James Streicker, said that under federal sentencing guidelines Sears most likely faces, at worst, a prison term of zero to six months.
Sears admitted that he offered Darleen Druyun, 56, of Vienna, Va., who was one of the Air Force's top contract officers, to a six-figure executive position at Boeing while she was reviewing whether Boeing should get a $23 billion contract to provide new refueling tankers to the Air Force.
Druyun, who was sentenced in October to nine months in prison, admitted that she provided an inflated price to Boeing on the contract as "a parting gift" and that she had helped Boeing obtain inflated deals on previous contracts, while at the same time she intervened to get her daughter a job at the company and later to keep her from being fired by Boeing for poor performance.
Court records indicate that the daughter served as an intermediary in the summer of 2002 for job negotiations, in which Druyun insisted she wanted a job offer along the lines of chief operating officer _ "something that would blow her out of the water." The daughter also relayed that she would be interested in Boeing because of the company's "honest values."
The $23 billion tanker contract has since been nullified, and the Pentagon has asked Congress to investigate a wide range of contracts in which Druyun was involved.
Druyun at first had insisted that she had provided no substantive help to Boeing even as she violated the government's conflict-of-interest laws, but later admitted that she gave Boeing favorable terms after she took a lie-detector test that was a requirement of her plea bargain.

Pentagon's Druyun thrust herself into role of power, By Renae Merle, Washington Post, Seattle Times, Nov 21, 2004.
In the macho world of the Pentagon, Darleen Druyun was rare: a woman who had scaled the heights of power, controlled billions of dollars in weapons programs and could punish or reward global corporations and the men who ran them.
Once the most-feared woman in the world of military contracting, Druyun, 57, helped direct the Air Force's $30 billion procurement budget nearly three times the size of the Army's.
She was at the peak of her power as a top Air Force weapons buyer in 1999 when she scolded leaders of Lockheed Martin, the world's largest defense contractor, for some of its work on satellites and rockets.
Her tone was blunt: One program had "pitiful" software and a company proposal had a "crappy design." The incident contributed to the early retirement of one Lockheed executive and the company rushed to address Druyun's concerns, according to several people familiar with the situation.
But now it is Druyun who has fallen from grace. In April, she pleaded guilty to a conspiracy charge for negotiating for a job with Boeing while still supervising the company's work for the Air Force. Last month she stunned military and industry leaders by admitting she gave Boeing preferential treatment for years before taking a job with the company.
The Pentagon announced earlier this month that because of Druyun's illegal behavior it has begun investigations into all of her contracting-related actions during her nine years as the Air Force's deputy acquisition chief.
The Defense Department also began the largest review of how it buys weapons since the investigation of influence peddling in the 1980s known as Operation Ill Wind. The fallout could cost the government hundreds of millions of dollars as companies unfairly ruled out of contracts seek restitution for the costs they incurred during the bidding process.
Since she was sentenced to nine months in prison, a portrait of Druyun has emerged from court papers and interviews with her associates of a woman who acquired power beyond her status at the Air Force then walked over subordinates, humbled industry executives and sought personal advantage at government expense.
Druyun is an imposing figure with a sharp and sometimes vulgar tongue, who was right at home in the male-dominated Pentagon world. Her renown as a tough government negotiator and stickler for the rules led her superiors to rely on her judgment, according to industry insiders.
For nearly 40 percent of her time at the Pentagon she had no supervisor at all. Her rise to power coincided with a governmentwide push to build closer relationships with contractors.
"I was surprised that someone who was around (during the Ill Wind investigation) would be in essence doing the same things that Ill Wind was all about," said Joseph Aronica, the lead prosecutor in that investigation, now a lawyer with Duane Morris. "I guess these things in a way are cyclical. She may have thought no one was looking any more."
Druyun did not respond to letters and could not be reached by phone to comment on this article. Her lawyer declined to comment.
Climbing the ladder
Druyun began her career in government work in 1970 when she landed a job as an Air Force contractor negotiator at Warner Robins Air Logistics Center in Georgia. Her father, who had worked at the base for 40 years, was "instrumental" in getting her the job, according to court documents. Druyun's husband, William Druyun, is a retired Air Force official who was a mid-level manager at Falls Church, Va.-based General Dynamics before retiring in September.
For the next 20 years, she bounced between the Air Force, the Office of Management and Budget and National Aeronautics and Space Administration before being named the Air Force's deputy acquisition chief, a position she would hold until her retirement in November 2002.
But no sooner had she climbed the heights of Air Force procurement than she became involved in a controversy over work she had done three years before. She and four other Air Force officials were accused by Pentagon inspector general of improperly funneling $349 million to McDonnell Douglas in 1990 to keep the C-17 transport aircraft program on track.
After a separate Air Force investigation found no wrongdoing, Defense Secretary Les Aspin dismissed one general and disciplined three others, saying the program was poorly managed. Druyun was cleared.
Gen. Merrill "Tony" McPeak, the Air Force chief of staff at the time, said he petitioned Aspin on Druyun's behalf. "I thought she was a strong person, giving strong leadership in the acquisition community, so if I was going to save one person I thought" it should be Druyun, said McPeak, who retired in 1994 and is now president of an aerospace-consulting firm.
Druyun then reinvented herself as a reformer, developing initiatives that aimed to make Air Force weapons procurement more efficient and stressed the importance of a company's past performance in awarding new contracts. The Air Force said the program saved $20 billion.
Power to give or take away
The fortunes of defense contractors rested on Druyun's decisions on competitions, her policy decrees and her awards of bonuses. In 1999, she emerged as the Pentagon's top advocate of the F/A-22, a boon to Lockheed, the fighter jet's manufacturer.
In 2001, Druyun eliminated Raytheon from a $2.5 billion competition to build the small-
diameter bomb, surprising industry handicappers and realigning the competitive landscape.
An official at Druyun's level would not normally decide the outcome of as many competitions as she did or get involved in the nitty-gritty of contract negotiations, according to people in the industry. Those tasks were left to underlings who made the decisions themselves or offered their recommendations.
"Once in a blue moon there will be a mess where you can't resolve an issue and the issue will float up the chain of command," said John Douglas, the former assistant Navy secretary for research, development and acquisition.
Druyun, however, actively discouraged her staff from making recommendations, according to a former defense official. "She began accreting this authority up to her," said the official, who spoke on the condition of anonymity because of the ongoing investigations. "She would say, 'Don't send it up with a recommendation, just send it up with information.' "
The power creep did not escape the notice of her superiors. In one or two cases, "I was surprised she was getting involved, but they were large [contracts] and ... she was a hands-on kind of person," said Jacques Gansler, the Pentagon's acquisition chief from 1997 to 2001. "People above and around her in the Air Force should have been overseeing her."
Freezing out staff
The rough edges of Druyun's personality also emerged. Staff members who seemed unprepared or provided Druyun with inadequate or faulty information would be frozen out of later meetings, according to government and industry officials .
"Those who have feared going to see the 'Dragon Lady' only feared if they didn't have their act together, or were trying to 'cover' an error," retired Air Force Brig. Gen. Lawrence Mitchell said in a letter of support included in court records. "She justifiably had no time for 'BS-ers' or liars."
Gradually, Druyun's allegiances began to shift as her personal and professional lives became entangled. When her daughter's fiance, Michael McKee, was looking for a job in 2000, she contacted a longtime Boeing associate, Michael Sears, the company's chief financial officer, for help, according to court records.
McKee was hired for a position in St. Louis. Druyun also helped her daughter, Heather, land a job at Boeing two months later a position created for her, the records show.
After years fostering a reputation as the defense contractors' toughest adversary, Druyun felt indebted to Boeing. She then made a series of decisions that were rooted in her sense of gratitude, she told the court.
In 2000, she agreed to increase the size of a Boeing contract for C-17 transport planes by $412 million. Two years later, she restructured the company's program to modernize 18 NATO planes used as airborne-command posts, and approved a $100 million payment.
In 2001, Druyun picked Boeing over Lockheed to upgrade the avionics on C-130 transport planes. The decision stunned industry analysts because Lockheed had built the planes and was considered the most probable choice to modernize them.
Industry analysts pointed to the competition as proof that Boeing's strategy to apply commercial technology to the military sector was working and that Lockheed was failing to capture the Air Force's imagination.
But Druyun soon had a new boss: Marvin Sambur, who managed the $1.5 billion defense business of ITT Industries, was appointed Air Force acquisition chief in late 2001.
Sambur said he was surprised to learn that Druyun, not her subordinates, was deciding the outcome of competitions and contract bonuses, which often made up a company's profit margin. Druyun also hoarded information and kept the decision-making process secret, he said. He felt, Sambur said, like summer help.
"At the beginning when I came in here, a lot of people in the meetings would look to her to see if she agreed with what I had to say," Sambur said. "The recognition was ... she's going to be here for a long time and I may be like the other acquisition people who stayed here for a relatively short period of time or didn't have the type of background necessary to run this."
Diminished capacity
Sambur said he began dismantling Druyun's power. First, he stripped her of the ability to decide competitions, then took away her authority to negotiate final contract terms or change requirements.
With her authority diminished, Druyun told Sambur that she intended to retire. Federal regulations restricted what kind of job Druyun could take in the defense industry, but she soon forged a handshake agreement to join the executive ranks of Lockheed, the Pentagon's largest contractor.
Meanwhile, Druyun also met with Lockheed's largest rival, Boeing, about a job, according to court documents. She initially used her daughter Heather as intermediary. In e-mails to Sears, Heather said that her mother insisted on a position with considerable responsibility.
Druyun soon reneged on her agreement with Lockheed, according to court records, and accepted a position at Boeing as a vice president. She had barely moved in when she became the center of controversy again.
In her final months at the Pentagon, Druyun was the chief negotiator of a $20 billion program to lease, then purchase, Boeing 767s converted into refueling tankers. The proposal had attracted the attention of the Senate Commerce Committee chairman, John McCain, R-Ariz., who called it a welfare program for Boeing and criticized the Air Force for its handling of the deal.
Critics said it was more than a coincidence that Druyun, the chief Air Force negotiator, would take a $250,000-a-year job with Boeing. Boeing publicly defended the tanker proposal and its employment of Druyun, but also hired an outside law firm to investigate the hiring.
The firm found that the employment talks had occurred while Druyun was overseeing Boeing contracts a violation of federal law. Druyun was fired in November 2003, and former Boeing Chief Executive Phil Condit resigned a week later.
Druyun pleaded guilty in April, sparing prosecution of her daughter, who was named as an unindicted co-conspirator. Sears, who negotiated Druyun's employment, pleaded guilty last Monday.
Both Sambur and his boss, Air Force Secretary James Roche, announced their resignations last week in an effort to placate McCain and others in Congress who've stymied Air Force promotions over the Druyun scandal.
Druyun would still not reveal the entire truth for several months and only then after failing two polygraph tests. After initially admitting only to a technical violation holding improper employment discussions she acknowledged years of preferential treatment of Boeing. She agreed to a higher price on the tanker deal as a "parting gift" to the firm, she told the court.
"Getting to the truth of matters can sometimes be difficult," Druyun's lawyer, John Dowd, told the judge before she was sentenced. "There is no denying [Darleen] made a serious mistake and there is no denying she had difficulty coming to grips with certain matters."

Bidding Ordered on Tanker Contract: The Air Force's planned acquisition of Boeing 767s for the role was killed by Congress. By Peter Pae, Los Angeles Times, Nov 23, 2004.
The Pentagon said Monday that it would require the Air Force to open to competitive bidding any new contract to replace or upgrade its aging fleet of aerial refueling tankers, long a lucrative source of revenue for Boeing Co.
"Let me be clear: After we have selected an appropriate alternative, we intend to require competition," Deputy Defense Secretary Paul D. Wolfowitz said in a letter to Sen. John W. Warner (R-Va.), chairman of the Senate Armed Services Committee. The letter was released Monday
Congress last month killed a 2002 deal, valued at $23.5 billion, to lease and buy 100 tankers from Boeing after a former top Air Force acquisition official admitted providing favorable terms to Boeing while she was negotiating a job with the aerospace company.
Wolfowitz's decision marks the latest fallout from one of the biggest Pentagon ethics scandals in decades. This month the former Boeing executive who hired the Air Force procurement official in charge of the tanker deal pleaded guilty to a conflict-of-interest charge.
Analysts said the new competition would bolster the prospects for Boeing's chief rival, European Aeronautic Defense & Space Co. Netherlands-based EADS owns 80% of European aircraft maker Airbus. In 2002 the Air Force awarded the tanker contract to Boeing over EADS.
"We've always said if there is a competition, we'll be there," EADS spokesman Guy Hicks said Monday.
Boeing spokesman Douglas Kennett said the company "respects the [Defense] Department's position and looks forward to the competition."
Despite the Boeing scandal, there remains some support in Congress to award any tanker contract to an American defense company.
But Ralph Crosby, head of EADS' North American operations, has been aggressively campaigning for a new, open competition for the lucrative tanker project. EADS has proposed modifying Airbus' A330 passenger jet for refueling purposes.
In an interview with The Times this month, Crosby said it would now make sense economically for the Air Force to split the contract and buy tankers from both Boeing and EADS.
To try to make an Airbus tanker deal politically palatable, EADS has pledged to build a $600-million plant in the United States for final assembly work and to guarantee that at least half the parts would be made by American companies.
EADS also would try to team with a U.S. company in any tanker bid. Last week Lockheed Martin Corp. and Northrop Grumman Corp. said they would consider partnering with EADS, after initially balking.
The Pentagon is reviewing two studies about its aerial refueling requirements before deciding whether the tanker fleet requires new planes or simply refurbished aircraft.
At the moment, the Air Force pays Boeing about $100 million a year to maintain the aerial tankers, some of which were built during the Eisenhower administration. The modified 767s are used to refuel military fighter and transport planes.
Richard Aboulafia, an analyst with aviation research firm Teal Group Inc., believes that the Air Force may decide, for financial reasons, to refurbish the existing tanker fleet.
"It's conceivable that the Air Force may decide it doesn't need to replace the tankers with new planes," he said.
One reason the Air Force wanted to lease some aerial tankers was to avoid having to take funds from its primary procurement budget. But Congress has rejected any leasing options, and the Air Force faces the prospect of siphoning money from prized procurement programs such as the F-22 fighter to pay for new tankers.
"I can't see them taking $3 billion out of the procurement budget each year to start a new tanker program," Aboulafia said. "That's almost unimaginable."
If there is tanker competition, analysts expect a new round of bidding to begin early next year.
Wolfowitz's letter was sent Friday, the same day that Sen. John McCain (R-Ariz.), a chief critic of the tanker deal, railed against it in a 42-minute speech on the Senate floor.
Shortly after McCain made his speech, he and Warner asked for an investigation of all who had a role in awarding the Boeing contract, not just those who may have acted criminally.
McCain disclosed e-mails of retiring Air Force Secretary James G. Roche, who belittled critics of the deal, pressured Boeing to lobby harder for the contract and criticized EADS' Crosby, a onetime colleague when they worked at Northrop.
The e-mails do not point to any criminal wrongdoing, said Keith Ashdown, vice president of Taxpayers for Common Sense, a Washington-based government watchdog group, but they show how senior Air Force officials seemed to have shown some bias while overseeing a $37-billion annual procurement budget.
"Roche and others acted irresponsibly," Ashdown said. He said the Roche e-mails would make any new tanker competition "hyper-accountable," noting: "It makes it more likely that there will be a real and not just paper competition."
Boeing shares rose 20 cents to $53.97 on the New York Stock Exchange.

Embarrassing Don: Air Force e-mails released by Sen. John McCain throw light on the 767 tanker scandal and "Go Boeing!" and other impartial Pentagon e-mail. and Racket Science: Lockheed says in a civil suit that Boeing's competitive behavior constitutes racketeering. Is a criminal probe next? By Rick Anderson, Seattle Weekly, Dec 1-7, 2004.

Boeing probe intensifies over secret Lockheed papers, By David Bowermaster, Seattle Times, Jan 9, 2005_.
"When Boeing fired a 60-year-old engineer named Ken Branch in 1999, he was cited for possessing proprietary Lockheed Martin rocket data in violation of company policy.
Boeing and Lockheed were rival contenders for an enormous Air Force rocket program that both considered key to their future military and space prospects. And Branch, who had previously worked for Lockheed, apparently brought the documents with him when he joined the competition. Despite the intense rivalry over the rocket program, Boeing promptly alerted Lockheed and the Air Force that it had found the documents in Branch's files a total of seven pages.
That disclosure seemed like an impressive act of corporate honesty until three years later, when Boeing attorneys let slip that the document trove found in Branch's cubicle actually contained 3,000 pages of Lockheed papers.
When the Air Force later asked Boeing for a complete accounting, the tally mushroomed to 25,000 pages.
Troubled by Boeing's constantly changing story and the massive quantity of purloined Lockheed trade secrets unearthed by subsequent reviews more than 66,000 pages to date, held by at least five different Boeing workers the Justice Department and Lockheed are investigating exactly how Branch came to join Boeing, how much information he may have taken with him and how it was used.
And because of the document scandal, the Pentagon in 2003 stripped Boeing of launches worth $1 billion and suspended its rocket division from bidding for new government business. But the worst may be yet to come.
Ongoing criminal and civil inquiries have spread into many corners of Boeing's $27 billion Integrated Defense Systems unit. Current and former Boeing executives could face indictments, and Boeing could owe Lockheed billions of dollars in damages.
Additionally, the probes have intersected with the ever-expanding investigations of Darleen Druyun, the former Air Force acquisitions officer who is serving a nine-month prison sentence for improperly negotiating a job with Boeing.
Branch's story is an intriguing tale of corporate spies, whistle-blowers, big-dollar defense contracts and alleged cover-ups..."

Eight more Air Force contracts will be investigated, By Robert Burns, Associated Press / Seattle Times, Feb 14, 2005. "The Pentagon is investigating eight additional Air Force contracts, at least four of them involving Boeing, to determine whether they were manipulated or influenced illegally by Darleen Druyun, a former Air Force official who was convicted last year of giving Boeing special treatment on a tanker lease deal. The eight contracts range in value from $42 million to $1.5 billion and their total value is about $3 billion, according to a summary provided by the Pentagon today. Michael Wynne, the acting chief of Pentagon acquisition programs, told reporters that the eight contracts were identified as suspicious from among 407 reviewed by a team of military and civilian contracting experts. They referred the eight to the Pentagon's inspector general..."

Pentagon Finishes Report on Buying Practices, By Leslie Wayne, New York Times, June 3, 2005.
The Pentagon said yesterday that it had completed a major investigative report into buying practices by the Air Force and into a $23 billion deal with Boeing that collapsed amid a procurement scandal.
The 256-page report, which has not yet been publicly released, goes beyond looking at the activities of Darleen A. Druyun, a former Pentagon acquisitions official who has been jailed on conflict of interest charges, and examines the actions of a broader array of Air Force and Pentagon officials responsible for oversight of the Air Force's acquisition policy.
Among those whose actions are reviewed is Edward C. Aldridge, a former top Pentagon weapons buyer who, on his last day in that position, approved a plan for the Air Force to lease Boeing 767's for use as refueling tankers. Others reviewed in the report, which was written by the Pentagon's inspector general, are former Air Force Secretary James Roche and a former Air Force acquisition official, Marvin Sambur, who was Ms. Druyun's supervisor.
The report was requested late last year by the Senate Armed Service Committee, which will release it at hearings scheduled for Tuesday.
Ms. Druyun is serving a nine-month prison term for steering Air Force business to Boeing while she was negotiating with the company for jobs for herself and members of her family. A former Boeing executive, Michael M. Sears, who negotiated the hiring of Ms. Druyun, was sentenced to a four-month prison term this year.
"The report makes several recommendations involving changes and revisions" in Air Force buying policies, said the Pentagon inspector general's office in a statement.
Keith Ashdown, a military specialist with Taxpayers for Common Sense, a group that studies government spending and has followed the procurement scandal, said "This report will really look at who was culpable or who fell down on the job."
"There's always been this theory that Darleen Druyun was a lone gunman," Mr. Ashdown said. "But this report will take a fuller look at the whole acquisitions process, and that is a big thing. It really will be an unprecedented peek into the inner workings of the military industrial complex."
The report arrives as Boeing is trying to regain a contract for refueling tankers that it lost just before the deal was to be completed by Congress. The Air Force has said it is open to other options for modernizing the service's tanker fleet, including using equipment from Airbus, Boeing's rival.
The Air Force is still waiting for several other studies to be completed on the best way to modernize the fleet. In the meantime, Boeing and Airbus have been waging lobbying and publicity campaigns, seeking to gain an advantage.

Pentagon report details Air Force tanker campaign, By R. Jeffrey Smith, Washington Post, June 7, 2005.
For the past three years, the Air Force has described its $30 billion proposal to convert passenger planes into military refueling tankers and lease them from Boeing as an efficient way to obtain aircraft the military urgently needs.
But a very different account of the deal is shown in an August 2002 internal e-mail exchange among four senior Pentagon officials.
"We all know that this is a bailout for Boeing," Ronald Garant, an official of the Pentagon comptroller's office, said in a message to two others in his office and then-Deputy Undersecretary of Defense Wayne Schroeder.
"Why don't we just bite the bullet," he asked, and handle the deal like the procurement of a 1970s-era aircraft: by squeezing the company to provide a better tanker at a decent cost?
"We didn't need those aircraft either, but we didn't screw the taxpayer in the process," Garant added, referring to widespread sentiment at the Pentagon that the proposed lease of Boeing 767s would cost too much for a plane with major shortcomings.
Garant's candid advice, which top Air Force officials did not follow, is disclosed for the first time in a new 256-page report by the Pentagon's inspector general. The report is slated for release today at a Senate Armed Services Committee hearing.
After interviewing 88 people and reading hundreds of thousands of pages of e-mails, the inspector general's office concluded that four top Air Force officials and one of Defense Secretary Donald Rumsfeld's former top aides, Undersecretary of Defense Edward C. "Pete" Aldridge, violated Pentagon and government-wide procurement rules, failing to use "best business practices," ignoring a legal requirement for weapons testing and failing to ensure the tankers would meet the military's requirements.
The report connects Rumsfeld to policy-making on the lease, recounting a statement by former Air Force Secretary James Roche that Rumsfeld had called him in Newport, R.I., in July 2003 to say "he did not want me to budge on the tanker lease proposal," despite criticism.
Air Force spokesman Douglas Karas said he could not comment on the report in detail until it has been officially released. A Boeing spokesman said the company could not comment on a report it has not read.
The Pentagon ultimately killed the lease deal. Its officials have noted the department is conducting special oversight of Air Force weapons-buying.
The report is the most damning of the three reviews of the tanker deal completed by the inspector general since early 2004. It includes, for example, a statement from an unnamed cost analyst that "numbers were contorted a lot of different ways to sell the program."
The Air Force has long maintained that any defects in the lease proposal were attributable solely to Air Force principal deputy assistant secretary Darlene Druyun, who is serving a nine-month sentence in federal prison for illegally negotiating a lucrative job with Boeing as she supervised the lease negotiations.
The inspector general's report makes it clear that the Air Force's aggressive pursuit of the lease over a three-year period was actually a team effort, and that shortly after Druyun agreed to the concept in a September 2001 meeting attended by top Boeing officials, other top officials fell into lock step with her.

Pentagon apologizes for Boeing deal, By Stephen J. Hedges, Chicago Tribune, June 8, 2005.
Contrite senior defense officials offered apologies and suggested procurement reforms to a Senate committee Tuesday after a new report said the Pentagon violated federal procedures in pursuing a $23.5 billion contract to lease aerial refueling tankers from Chicago-based Boeing Co.
The report by the Pentagon's inspector general could lead to "the complete restructuring in the way the department accomplishes acquisition for all of its goods and services," Deputy Defense Secretary Gordon England told a skeptical Armed Services Committee.
The report adds names and detail to facts about the controversial tanker lease, which Congress abandoned last year and which has led to the convictions of two Boeing executives, one of them a former top Air Force official.
But some Democratic senators complained that parts of the report were heavily blacked out, especially when it cited e-mails and statements by top White House officials, who helped push the tanker deal past other administration and Pentagon skeptics in May 2003.
"Critical gaps in this report have placed a cloud over it, indeed, over the inspector general's office," Sen. Carl Levin of Michigan, the committee's ranking Democrat, told Pentagon Inspector General Joseph Schmitz. "In my view the report fails to discuss critical issues, omits critical material and redacts key portions of the report in a manner that raises serious questions."
Schmitz said he blacked out 45 references to the Bush administration in his report under an agreement with White House lawyers. His investigators spoke with 88 individuals, he said, but did not interview "White House officials, members of Congress or officials of the Boeing Co., because the objective of the review" was focused on the Pentagon.
White House spokesman Scott McClellan said Schmitz's staff had access to administration communications, but that they were blacked out in the final report because Schmitz does not have jurisdiction over the White House.
"They only have jurisdiction over their particular agency," McClellan said. "We worked to help facilitate the investigation by the inspector general, but this is a jurisdictional matter."
Also notably absent from the report were comments from Defense Secretary Donald Rumsfeld and Paul Wolfowitz, who until last month was deputy defense secretary. Both were interviewed by Pentagon investigators, Schmitz said, but their accounts of the tanker negotiations from 2002 until 2004, when the deal was halted, were not deemed noteworthy.
Key official skipped
Schmitz told Sen. John Warner (R-Va.), the committee chairman, "Generally speaking, we interviewed them and we did not find anything relevant to report to tell the story about the 767," the model number of the Boeing plane in the tanker deal.
"You found nothing in your interviews with the secretary of defense and the deputy secretary of defense that was relevant to this report?" Warner asked in a surprised tone.
Schmitz said he would review the interview transcripts of Rumsfeld and Wolfowitz, now World Bank president.
Senators also expressed alarm that Schmitz and his staff did not interview Edward Aldridge, who was undersecretary of defense for acquisitions in May 2003, when the tanker deal won administration approval, and whose role was criticized in the report.
Schmitz replied that Aldridge, now a board member of the Lockheed Martin Corp., did not respond to phone messages or certified letters sent by Schmitz's staff.
Aldridge also did not respond to a phone message left Tuesday by the Tribune at Lockheed Martin headquarters.
At least one defense watchdog group said the new report merits a closer examination of Aldridge's role.
"It is ... disappointing that the inspector general did not take more time to interview Edward Aldridge," said Keith Ashdown, vice president of Taxpayers for Common Sense. "Mr. Aldridge is the most senior official implicated in the tanker hubbub. A few phone calls and certified letters are not enough."
The extent of Aldridge's involvement has been unclear since the idea for the sale of Boeing 767 aircraft converted to fly as refueling tankers was hatched by the company in early 2001. Boeing was looking to extend the production life of its 767, a goal that gained urgency after the Sept. 11 terrorist attacks, which devastated the U.S. airline industry.
The Air Force, anxious to replace its fleet of about 600 tankers--some more than 40 years old--but strapped for cash, helped devise the lease arrangement. But the lease, rather than an outright purchase of the 100 tankers, would have cost taxpayers an additional $560 million, Schmitz found in an April 2004 audit. The Air Force intended to buy the tankers at the end of the lease, and eventually order more planes from Boeing
Two serving time
The deal was initially structured with Boeing officials by Darleen Druyun, a top Air Force procurement official who later took a job with Boeing. Druyun is serving a 9-month federal prison sentence for her role in steering the contract to Boeing and failing to properly disclose her job discussions with the company. Boeing fired Druyun and Chief Financial Officer Michael Sears, who arranged for her job, in November 2003. Sears pleaded guilty to violating a federal conflict of interest law and was sentenced in February to 4 months in prison.
Druyun was hardly alone in pushing for a Boeing tanker deal. James Roche, then Air Force secretary, and Marvin Sambur, the Air Force's assistant secretary for acquisitions, also enthusiastically backed it.
"By not following established acquisition procedures," the report said, "the decision makers did not apply best business practices, adhere to prudent acquisition procedures, comply with statutory provisions for testing and satisfy warfighter needs at a fair and reasonable price."
Those officials continued to promote the tanker contract, the report stated, despite skepticism from the White House Office of Management and Budget and some Pentagon officials outside the Air Force. The tanker lease moved forward when the White House gave its OK----and OMB dropped its objections--in the spring of 2003.
Questions about Druyun's role in the deal and her connections to Boeing, though, led to a broader investigation and eventually prosecutions and cancellation of the lease agreement.
Schmitz told the committee that no federal criminal laws about the proposed deal were broken because a formal contract with Boeing was never signed.
The report's findings drew an apology at the hearing from acting Air Force Secretary Michael Dominguez and Gen. John Jumper, the Air Force chief of staff. England, the deputy defense secretary, told senators that the report should lead to changes in the way the U.S. military handles contracts.
"The entire acquisition structure needs to be re-examined and in great detail," England said.
A Boeing spokesman said Tuesday that the company had no comment on the report.

 MILITARY MERGERS (see also Subsidies section for taxpayer payments for mergers)

There were 15 major military contractors in 1990; there are now three majors: Boeing (including McDonnell Douglas), Lockheed Martin, and Raytheon.

McBoeing will have two-thirds of the Pentagon's annual $100 billion in contracts (see Military section above for recent contracts) (Anderson, Apr 2, 1997).

Boeing lawyer warns of company's legal peril. By Dominic Gates and Alicia Mundy. Seattle Times, Jan 31, 2006.

Former Boeing CFO Michael Sears, left, walks with his attorney Jim Streicker from the U.S. District Court in Alexandria, Va., last February. Sears, 57, was sentenced to four months for aiding and abetting illegal employment negotiations.

At Boeing's annual leadership retreat earlier this month, the company's top lawyer delivered a devastating worst-case assessment of the potential damage that still looms from the company's recent ethics scandals.

General Counsel Doug Bain's unflinchingly direct speech offers an extraordinary look at the inner workings of a powerful company as it struggles to recover from scandal, retrieve its reputation and ensure ethical behavior in future. [click here for transcript of speech by Boeing's Doug Bain]

"Was there a culture of win at any cost?' Bain asked his audience, some 260 top Boeing executives gathered in Orlando, Fla. "We now know what that cost is."

Bain tallied the severe sanctions he said are possible from two major scandals on Boeing's defense side and for alleged breaches of export laws. Boeing faces possible indictment by U.S. attorneys on both coasts, and the Department of Justice's assessment of damages exceeds $5 billion, he said. In addition, Boeing could be barred from government defense contracts or denied export licenses for both military and commercial sales, he said.

Bain also said 15 company vice presidents have been pushed out for various ethical lapses in recent years. "I found that to be an astronomically high number," he said.

The chilling litany seemed designed to get the attention of any Boeing executive remotely inclined to zone out during all the talk about ethics.

"There are some within the prosecutors' offices that believe that Boeing is rotten to the core," Bain said, according to a copy of the speech provided to The Seattle Times by a company insider. "They talk to us about pervasive misconduct and they describe it in geographic terms of spanning Cape Canaveral to Huntington Beach to Orlando to St. Louis to Chicago. They talk about it in terms of levels within the company that go from nonmanagement engineers to the chief financial officer."

Bain's remarks appear to contradict the widely held expectation that the government sometime this year will agree to a global settlement of the major scandals with Boeing paying a fine in the hundreds of millions of dollars, and escaping further indictments. But people familiar with Boeing's position cautioned that a settlement on such terms is still expected.

Boeing spokesman John Dern said Bain was trying to shock his listeners into paying careful attention to ethics not predicting legal outcomes.

"Bain's talk was intended to be provocative," said Dern. "There was a feeling it was vitally important for people to understand the worst-case potential for what could happen to the company."

Bain, who became general counsel in 1999 and is also a Boeing senior vice president, told the audience that his talk reflected "the perspective of the prosecutors and what they have told us," rather than Boeing's position on the legal issues.

He appeared to take the "scared straight" approach, personalizing the scandals for his executive audience. "These are not ZIP codes," Bain said, as he rattled off the federal prisoner numbers of Darleen Druyun, formerly a top Air Force procurement officer and then a Boeing executive, and Mike Sears, former Boeing chief financial officer.

Repeatedly he asked whether ultimate responsibility resided at the top with his audience.

"Our jobs as the leaders of this enterprise is to establish a culture that ensures there is no next time," Bain said. "The bottom line is, we just cannot stand another major scandal."

"Dr. Death"

Among Bain's audience was Boeing Chief Executive Jim McNerney, who was aware in advance that the speech would be a downer.

"Good morning," Bain began. "As I walked up here, I think I heard Jim McNerney mutter, 'Here comes Dr. Death.' "

Bain said McNerney had asked for "a candid assessment of our major scandals and how we got there." Bain proceeded to deliver.

He launched into summaries of Boeing's two major scandals and their repercussions.

"The U.S. attorney in Los Angeles is looking at indicting Boeing for violations of the Economic Espionage Act, the Procurement Integrity Act, the False Claims Act and the Major Frauds Act," he said.

"The U.S. attorney in Alexandria, Va., is looking at indicting us for violation of the Conflict of Interest Laws. And both are looking to throw in a few conspiracy and aiding-and-abetting charges, for good measure.

"When we first met with the Department of Justice to see if we could resolve this, it's their view that Boeing's actions have tainted the [Air Force space rocket] EELV contract, the NASA 19-pack contract [a 2002 contract for up to 19 Delta rocket launches], and 27 Darleen Druyun-related contracts. Their estimate of damage is $5 billion to $10 billion."

The Los Angeles attorney's office is investigating the Lockheed Martin documents scandal. In 1997, McDonnell Douglas, which merged with Boeing later that year, hired away an engineer from Lockheed for its Delta space-rocket program. The engineer brought with him thousands of pages of documents containing proprietary pricing information that allegedly helped Boeing underbid its rival and win the biggest share of an Air Force rocket contract.

The Virginia attorney's office is dealing with the Pentagon procurement scandal. In 2002, then-CFO Sears offered a job to Druyun while she was acquisitions officer at the Air Force. She later admitted favoring Boeing on contracts as payback for personal favors, including the hiring of her daughter and son-in-law.

"How come in the year 2000 nobody said, 'Should we really be hiring the relatives of our chief procurement officer of the largest customer we have on the defense side?' " Bain asked.

The first scandal led to Boeing being stripped of the launches it had won, worth about $1 billion, and suspension from further rocket contracts for 20 months. Three employees have been indicted on felonies.

The second sent both Sears and Druyun to jail, forced the resignation of then-CEO Phil Condit and jeopardized major defense contracts, including the Air Force tanker program that would have secured up to 8,000 jobs in Everett.

"If this never happened, we'd be selling tankers to the U.S. government and Italy would not be our only customer," Bain said.

Bain also displayed a list of five areas of State Department concern over Boeing's export of various sensitive technologies. These have cost the company $50 million in fines, he said, not counting an ongoing investigation of charges that Boeing Commercial Airplanes illegally exported a restricted gyroscope embedded inside 737 jets.

"The State Department's view of Boeing is, we just don't get it," Bain said.

Settlement talks

Boeing spokesman Dern said global-settlement talks on the two defense scandals are continuing. He added that the $5 billion to $10 billion figures mentioned by Bain "have never been proposed by the government as part of any discussions" of a settlement.

A lawyer experienced in defending companies in criminal cases agreed that a much lower settlement is likely.

"That's funny money," said Victoria Toensing, a partner in Washington, D.C.-based diGenova & Toensing. "The government tries to make it the worst of what it could have been. They use it as leverage."

Boeing already has lost well in excess of $1 billion in revenue through canceled and suspended contracts stemming from the two defense scandals. A person close to the negotiations, who requested anonymity, said the anticipated size of a settlement is on the order of $500 million.

The largest prior settlement of a procurement scandal by a defense contractor was in 1991 when Unisys agreed to pay $190 million.

Spokesmen for both U.S. attorneys offices declined comment.

Toensing also said the Department of Justice (DOJ) has become more cautious about indicting companies since the 2002 indictment of accounting firm Arthur Andersen put the company out of business.

Still, Bain, speaking to his inside audience, vividly focused on the legal threats and possible penalties pending.

Those also include "a presumed denial of export licenses ... both on the commercial and the government side," as well as loss of security clearances, a possible resuspension on bidding for space contracts or even total debarment from all government contracts on the defense side, he said.

"We have been trying to resolve these things," Bain said, referring to the ongoing settlement talks. "We have not been successful yet. It is my hope we will be."

Bain repeatedly urged his audience to look inward.

He said 900 of the formal ethics cases brought to the company's Office of Ethics and Business Conduct in 2005 were found to have substance.

He cited an employee survey in which 26 percent of those surveyed said they had observed abusive or intimidating behavior by management.

And of the 15 Boeing vice presidents terminated for ethics violations over the past few years, Bain said two had been ousted for committing crimes and the rest for offenses ranging from expense-account fraud to sexual harassment.

Boeing spokesman Dern said the large number of internal ethics complaints reflects well on Boeing's compliance system.

"We are working hard to promote a culture where people feel like they can raise issues formally and they trust the system," he said. The result is "an ethics system that is working every day and uncovering issues."

As for the employee survey suggesting a high level of management intimidation, "Those are troubling numbers," Dern said. "And numbers that we are working to lower."

At the end of his speech, Bain had one upbeat line.

"I really feel that we've turned the corner and that there's a renewed emphasis and energy on doing the right thing," he said.

Still, as Bain apparently intended, the questions he'd raised and left unanswered hung in the air.

"Do we have a culture of silence? ... "

"Where was management throughout this?

"Is the problem the rank and file? Or is the problem us?"

-----------

Boeing's pending federal cases

Sears/Druyun

In 2002, Boeing Chief Financial Officer Mike Sears offered a job to Darleen Druyun, chief acquisitions officer at the Air Force, while she was overseeing work on Boeing contracts.

At her sentencing hearing in 2004, Druyun said she favored Boeing on multiple contracts because of favors granted by the company, including hiring her daughter and son-in-law.

The scandal sent Sears and Druyun to jail, forced the resignation of then-CEO Phil Condit and jeopardized major defense contracts, including the Air Force tanker program that would have secured up to 8,000 jobs in Everett.

Lockheed rocket documents

In 1997, McDonnell Douglas hired an engineer away from Lockheed Martin to work on the Delta IV rocket program. He brought with him proprietary documents, including financial details on Lockheed's planned bid for an Air Force space-rocket competition. Boeing merged with McDonnell Douglas later that year.

After the documents were discovered, three Boeing employees were indicted. The Pentagon stripped Boeing of seven rocket launches and suspended Boeing's rocket division from new government business for 20 months.

In May 2005, Boeing and Lockheed Martin announced a plan still pending government approval to merge their space-rocket businesses, including an agreement to drop litigation over the stolen rocket-contract information.

QRS-11 gyrochip

Between 2000 and 2003, Boeing exported commercial jets with a QRS-11 gyrochip in the instrument flight boxes, even though the chip was classified by the State Department as an export-restricted defense item because it can be used to stabilize and steer guided missiles.

The State Department last year prepared civil charges alleging 94 violations of the Arms Control Act. Boeing faces a potential fine of as much as $47 million.

###

Boeing pays $15 million fine. By Dominic Gates. Seattle Times, April 8, 2006

Boeing has paid the largest fine ever levied on a company for violation of the Arms Export Control Act, settling a dispute with the State Department over the unlicensed foreign sales of commercial airplanes carrying a small gyrochip with military applications.

In addition to a $15 million fine, a consent decree signed March 28 imposes oversight requirements on Boeing because three previous settlements of similar alleged violations didn't result in full compliance with export controls.

Still, Boeing may consider itself lucky. The maximum fine was $43 million.

And because Boeing "has acknowledged the seriousness of the violations ... expresses regret for these activities and its willingness to make amends," the State Department decided that the ultimate sanction of "debarment," or banned from government contracts, "is not appropriate."

In a January speech at a private retreat in Orlando, Fla., for top Boeing executives, senior vice president and general counsel Douglas Bain described export control as the "biggest issue we face" and listed the QRS-11 charges among the company's unresolved legal problems.

According to the State Department charges, between 2000 and 2003 Boeing shipped overseas 94 commercial jets with the QRS-11 gyrochip embedded in the flight boxes, including 19 to China. Export of listed defense items to China is specifically proscribed.

The State Department had determined in 1993 that the chip, used in the guidance system of the Maverick missile, "has significant military utility." That put the devices on a list of products that require a license for foreign sales.

Boeing continued the exports even after the State Department told the company to stop. Boeing ignored those orders after its lawyers advised that the State Department "did not have jurisdiction" to regulate the exports.

"In hindsight, we should have handled it differently," said Boeing spokesman Tim Neale. "We would handle it differently today."

The settlement includes an acknowledgment by Boeing that the State Department has authority to decide which technologies are designated as defense items under export control.

The 2-ounce, 1-inch-diameter QRS-11 chip, made by a unit of BEI Technologies in Concord, Calif., sells for less than $2,000. Boeing executives argued that a military enemy seeking the chip would have alternatives to buying a $60 million jet and taking apart the flight box.

Reaches a head

The dispute between Boeing and the State Department reached a head in the fall of 2003, when two 737 jets were released to China only after President Bush signed a last-minute waiver after a request from then-Chief Executive Phil Condit.

That produced a political settlement the following January in line with Boeing's view of the issue: QRS-11 chips remained on the list of military items but were reclassified as commercial items when integrated into commercial-jet flight boxes.

After that, export of the chips inside Boeing commercial jets was no longer an issue. The case remained alive because of Boeing's previous "blatant disregard" of the State Department. In addition to unauthorized export, State charged Boeing with misrepresentation of facts and false statements.

Other incidents

Boeing has violated arms-export-control rules on three previous occasions.

In 1998, Boeing was fined $10 million because it shared sensitive technologies without an export license with its Russian, Ukrainian, Norwegian and German partners in the Sea Launch space rocket joint venture.

In 2001, Boeing was fined $4.3 million for technology transfer without an export license to Australia, Malaysia, Turkey and Singapore on its Wedgetail 737 Airborne Early Warning and Control aircraft program.

In 2003, Loral and Hughes Space and Communication were fined $32 million for illegal export of satellite technology to China. By then that Hughes division had been acquired by Boeing, though the violations happened before the acquisition.

In the March consent decree, the State Department points out that more than $9 million of those previous fines were returned to Boeing to fund remedial compliance measures that would avoid future violations.

Because that didn't work, the new settlement requires Boeing to appoint an independent external officer to oversee companywide export-control compliance for two years, as well as a senior manager internally. And it must retain an outside firm to audit implementation.

###

Boeing reportedly nearing settlement with DOJ. Associated Press/Seatttle Times, April 25, 2006

Boeing Co. is nearing a final settlement with federal prosecutors to resolve investigations into its acquisition of proprietary documents from Lockheed Martin Corp. in the 1990s and the recruitment of a senior Air Force contracting official in 2002, a published report said Tuesday.

The Wall Street Journal, citing anonymous people familiar with the details, said a comprehensive settlement is being held up over the amount of fines and penalties Boeing would pay to end the cases but the foundation for a compromise appears to be in place.

Boeing would avoid pleading guilty to any specific charges in both cases while admitting wrongdoing under a deferred prosecution agreement, according to the Journal.

The company has signaled it may be willing to pay about $500 million, while some Justice Department officials are still seeking about $750 million, the newspaper said. Final negotiations are said to be heating up, with a resolution expected in the next few weeks.

Boeing declined to comment on the specifics of the negotiations. "The company has stayed engaged with the Justice Department and the U.S. attorney's offices in a constructive way as we continue to work through the issues," spokesman John Dern told The Associated Press.

A Justice Department spokesman did not immediately return a telephone call seeking comment.

A settlement would resolve long-standing allegations that Boeing improperly obtained thousands of pages of secret documents from Lockheed Martin on rocket programs that enabled it to win government contracts and, separately, recruited Air Force official Darleen Druyun while she was still overseeing contracts involving prospective Boeing deals.

Druyun served nine months in prison last year for violating federal conflict-of-interest laws. Michael Sears, formerly chief financial officer at Boeing, spent four months in federal prison in 2005 for illegally recruiting her.

Boeing shares fell 68 cents to $85.42 in midday trading on the New York Stock Exchange, a day after touching an all-time high of $87.25.

###

Subsidy rule added to tanker bid. By Alicia Mundy. Seattle Times, April 26, 2006

Boeing got a sweet surprise Tuesday in the fine print of the Air Force announcement that formally resumed the Defense Department's quest for new refueling tankers.

As one of the conditions for bidding this year on the multibillion-dollar contract, the team competing with Boeing Northrop Grumman and its partner European Aeronautic Defence & Space, or EADS is required to disclose any government subsidies.

Subsidies and "launch aid" for commercial airplanes made by EADS, the parent company of Airbus, are the subject of a thorny dispute between the United States and Europe in the World Trade Organization (WTO).

The Air Force's Request For Information (RFI) asks firms that want to build refueling tankers to explain how "launch aid," loans on preferential terms and penalties by the WTO would affect them. The RFI's language ties the commercial-subsidy issue to the defense-procurement area.

Military-procurement analysts said such language in an RFI was probably unprecedented. EADS and Northrop officials had not expected it, according to sources at both companies.

But Rep. Norm Dicks was anticipating it. Dicks, D-Bremerton, has pressed everybody from the secretary of defense on down about whether the Air Force would address the subsidy issue, culminating in long discussions with defense staff over the Easter recess.

"They still were not certain what they would say in the RFI last week," Dicks said. "But it looks like they understood the problem," he added.

"They ask the question I have been asking: If Airbus is intending to compete for Pentagon business, how does the Defense Department account for the unfair subsidies the European governments have given the consortium?" Dicks said.

"This RFI should make everyone happy, because it sets up a very fair competition."

Northrop and EADS may not feel that way.

Northrop-EADS spokesman Wendell Bugg said it was too early to determine the impact of the subsidy-disclosure request. In a statement, Northrop said, "We are in the process of analyzing [the Air Force request] in depth and welcome the opportunity to provide a response."

Boeing lauded the Air Force request, noting, "Boeing will be ready to compete and strongly believes all competitors should play by the same set of rules."

The request does not guarantee that either Boeing or Northrop-EADS will walk away with billions in orders for new tankers. It also poses the possibility of putting new engines on the existing tanker fleet.

But a request for information "casts the widest net possible to get a full plate of ideas from industry," Dicks said.

The tanker program has been on hold for two years after a scandal surrounding the $23 billion leasing deal initially struck with Boeing.

Boeing and EADS are the only two makers of passenger aircraft large enough to be converted into tankers. EADS, based in Paris and Munich, owns 80 percent of Airbus. EADS' U.S. partner, Northrop, would complete conversion of the planes into tankers.

The United States has a complaint against Airbus with the WTO, alleging European governments have provided up to one-third of the cost of Airbus commercial projects, with the loans paid back with interest only if the aircraft is a commercial success.

The Air Force RFI asks potential bidders to disclose how they might be affected by "application of retaliatory duties that may be imposed pursuant to the aircraft litigation at the World Trade Organization."

The Air Force request in this competition "is designed to respond to U.S. politicians' concerns about the impact of subsidies and aid on this particular contract," said Richard Aboulafia, a military-aircraft analyst with the Teal Group, a Fairfax, Va., consulting company. "They are doing due diligence" in light of the ongoing WTO dispute, he said.

U.S. lawmakers, including Duncan Hunter of California, chairman of the House Armed Services Committee, have repeatedly said the subsidies would give EADS an unfair advantage in any tanker contest.

The Air Force requested companies interested in the tanker program disclose "business arrangements that involve a financial contribution from a government including a receipt of subsidies," grants and other financing received to launch new aircraft lines.

The request "is part encouragement, part warning, part recognition of the political environment," said Christopher Bolkcom, a military-aircraft analyst for the nonpartisan Congressional Research Service. "The Air Force appears to be keeping its options open," he said.

Material from Bloomberg News is included in this report.

Boeing reportedly nearing deal in criminal probes

NEW YORK Boeing and federal prosecutors have reached a preliminary agreement to resolve a pair of high-profile criminal investigations, but the company is balking at calls by some Justice Department officials for roughly $750 million in fines and penalties as part of a comprehensive settlement, according to people familiar with the details.

Based on the talks so far, Boeing would avoid pleading guilty to any specific charges in both cases while admitting wrongdoing under what is known as a deferred-prosecution agreement, these people said. The company has signaled it may be willing to pay about $500 million to simultaneously settle related civil claims, they said. The government is seeking significantly more, but negotiations aimed at a compromise are heating up, they said.

A comprehensive settlement would resolve long-standing allegations that Boeing improperly acquired thousands of pages of Lockheed Martin's proprietary documents dealing with rocket programs and illegally recruited a senior U.S. Air Force acquisition official while she still had oversight of billions of dollars in other Boeing contracts.

Justice Department spokesmen declined comment.

###

Boeing suit to enrich lawyers. By Dominic Gates. Seattle Times, May 4, 2006

A lawsuit filed by shareholders over Boeing's procurement scandals has yielded a proposed payment of nearly $12 million for their lawyers, but little else.

The suit against Boeing, its top officers and board of directors alleged the individuals had been reckless and negligent in overseeing company operations, leading to scandals such as the use of stolen Lockheed Martin documents in a bid for a 1998 Air Force rocket-launch contract, and the illegal offer of a job in 2002 to an Air Force procurement officer who oversaw a refueling-tanker contract.

But the proposed settlement may raise some eyebrows. It would require Boeing to spend an extra $29 million over five years to enhance director and management oversight of its ethics and compliance procedures.

Such changes were already under way, thanks to Boeing's internal investigation, and to new federal laws, such as Sarbanes-Oxley, that affected corporate governance.

Apart from that, the settlement's only other result would be to pay up to $11.9 million to the national law firms that litigated the case, including Labaton, Sucharow & Rudoff; Lasky & Rifkind; and Milberg Weiss Bershad & Schulman.

"It's nice business for the attorneys," said John Coffee, professor of corporate law and director of the Center on Corporate Governance at Columbia Law School.

Court documents state that the lawyer fees were agreed upon through mediation but give no specifics.

Individual shareholders would receive no award from the settlement. In so-called "derivative" lawsuits such as this, shareholders don't seek money for themselves, but rather damages on behalf of the company from defendants they believe hurt the company.

The lawyers' fees would be paid by Boeing's insurance policy for its directors and officers.

Boeing stockholders, including many local employees, recently received notice of the proposed settlement and have until June to file objections. If the circuit court in Cook County, Ill., finalizes the settlement at a hearing June 21, all future shareholder claims of a similar nature will be barred.

Boeing declined to discuss the case, citing terms of the settlement. But in a statement at the end of March, it said, "The settlement is not an admission of wrongdoing by any officer or director. The company entered into the settlement to avoid the further expense and distraction of litigation."

Various federal investigations into the same procurement scandals are expected to end soon with a global settlement between Boeing and the government.

A lawyer close to the case said he expected an agreement in about two weeks, with Boeing paying a fine on the order of $700 million. "We're still arguing over money," the lawyer said.

Next to that, the shareholder suit counts as small potatoes.

"Derivative lawsuits are viewed by most public corporations as nuisance suits that justify some tinkering changes but not major structural reform," said Coffee of Columbia Law School. "This settlement is likely to be greatly overshadowed by the more substantive reforms you'll see in the government's proceedings."

After the scandals initially became public, Boeing embarked upon a major revamp of its ethics procedures and procurement oversight. As early as July 2003, Boeing commissioned an independent report from former U.S. Sen. Warren Rudman.

That report, released the following November, included a raft of recommendations Boeing quickly implemented to strengthen ethics oversight and compliance.

In addition, following corporate financial scandals at Enron, WorldCom and other companies, the Sarbanes-Oxley Act of 2002 made the boards and executive management of all corporations explicitly accountable for company and financial oversight.

Coffee said the reforms mandated in the shareholder settlement may just be "rearranging the deck chairs," because "between Sarbanes-Oxley, the New York Stock Exchange rules and the earlier Rudman report, I would expect you would have already addressed most of the corporate-governance practices."

Boeing's imminent global settlement with the government may mandate even stricter governance and oversight provisions. Coffee said the plaintiffs' lawyers may have settled now, in advance of that outcome, because it would be more difficult afterward to argue their settlement had achieved anything.

Because Boeing is registered as a corporation in Delaware, Coffee said it would be more usual to bring a shareholder suit there. If that were the case, the lawyers' fees might have been more modest.

"Cook County is a different world than Delaware," Coffee said.

"In Delaware, you'd get more scrutiny of whether the plaintiffs' attorneys had achieved much, and that would go into the measurement of the appropriate attorney's fees."

One of the plaintiffs' lawyers, who asked not to be named because the proposed settlement restricts what he can say, insisted the lawsuit has resulted in "a wholesale change in the manner in which [Boeing] will do business."

Reached at home in Connecticut, Paul Gardner, one of the plaintiffs, recalled a loss on Boeing stock in 2003. He said he became involved in the suit after mentioning to a lawyer his concern Boeing was not being straightforward with shareholders.

"I'd forgotten about the whole thing," Gardner said. "I don't remember much about it."

###

Price of Boeing scandals: $615 million U.S. penalty. Seattle Times, May 15, 2006

Boeing has agreed to pay $615 million to settle the federal investigations into contracting scandals at the company, The Wall Street Journal reported online Sunday night.

Details in The Journal story were confirmed to The Seattle Times by a person familiar with the proposed settlement. A Boeing spokesperson declined to comment.

Boeing will pay what The Journal termed "the largest financial penalty ever imposed on a military contractor for weapons-program improprieties," but it will not face criminal charges or make any admission of wrongdoing.

The deal would bring to a close government investigations the company has faced on two fronts.

One involves contracts tainted by the illegal recruitment of Air Force procurement official Darleen Druyun, which led to the 2003 firing of both Druyun and Boeing Chief Financial Officer Michael Sears and the resignation of CEO Phil Condit. Druyun and Sears served prison time.

The other scandal involved Lockheed Martin documents improperly acquired by Boeing when the companies were competing for government rocket launches in the late 1990s.

In the pending settlement, The Journal said, prosecutors have agreed not to move against Boeing or executives as long as the company and senior management don't break the law in the next two years.

The agreement doesn't cover certain midlevel employees of Boeing's rocket-making unit.

The Journal story said Boeing and the Justice Department have agreed on major points of the settlement, though the details have not been formally approved yet.

Boeing, The Journal said, will acknowledge improper behavior by a few employees but won't acknowledge that prosecutors have evidence to justify seeking felony charges against the company. And the final agreement will not use the phrase "criminal penalty," but rather "monetary penalty."

Aside from ending a set of investigations that loomed over Boeing's federal contracting efforts, the settlement will make it more difficult for Lockheed to pursue its separate civil claims against Boeing.

Any admission of wrongdoing on Boeing's part would have benefited Lockheed's case, which is pending. And the federal settlement means the government won't be filing any more documents that could be useful to Lockheed's case.

###

Senators look into Boeing, U.S. settlement. By Alicia Mundy. Seattle Times, July 19, 2006

Three influential senators have questions about Boeing's recent $615 million federal settlement of its procurement scandals, and they want answers from Boeing Chief Executive James McNerney.

Sens. John Warner, John McCain and Charles Grassley have joined forces, and Warner, R-Va., chairman of the Senate Armed Services Committee, has called an Aug. 1 hearing on the settlement. McNerney will be asked to testify, as will Deputy Attorney General Paul McNulty, who helped negotiate the deal while he was the U.S. attorney in Virginia.

The company agreed to pay $565 million in civil penalties and $50 million for criminal fines, and the government agreed not to file any charges against the company in two major contracting scandals.

One scandal centered on dealings with former Air Force procurement official Darleen Druyun, who steered billions of dollars in contracts to Boeing. The other involved engineers who brought proprietary Lockheed Martin rocket data to Boeing.

The settlement, finalized June 30, ended a three-year investigation of Boeing by the Justice Department but seems to have begun another round of scrutiny in Congress.

Grassley, R-Iowa, chairman of the Senate Finance Committee, is concerned about whether Boeing will be able to deduct its civil fines from its income taxes. He pressed Attorney General Alberto Gonzales about it Tuesday during a Senate hearing.

On June 29, Grassley, Warner and McCain said in a letter to Gonzales that allowing tax deductibility would leave the American taxpayer to subsidize Boeing's misconduct.

The Justice Department responded last week that it would remain neutral on the tax issue.

Grassley complained Tuesday that if Boeing could deduct its $565 million civil fine from its taxes, that would lower the company's bill by 35 percent.

Grassley scolded Gonzales, saying: "It is actually worse that DOJ doesn't even know what the tax treatment is of the Boeing settlement. It tells me that DOJ lawyers gave away 35 percent of the store without even knowing it."

Meanwhile, McCain, R-Ariz., who has long been critical of the company, wants to know how the settlement with the Justice Department was negotiated. Published reports indicated some department lawyers wanted harsher treatment for the company and higher fines.

Boeing spokesman Tim Neale said the agreement with the department does not preclude Boeing from deducting its civil fine from its taxes.

"It is something that the company will decide in a couple of weeks. We are seeking the advice of tax lawyers," he said.

Boeing is due to release its second-quarter earning report next Wednesday, which will likely address the tax issue.

Neale said McNerney had not yet received his invitation to appear before the Senate, noting that much of the company leadership is at this week's Farnborough Air Show in England.

Charles Tiefer, a government-contracts law professor at the University of Baltimore, said, "It would be unfortunate if Boeing got to write off a sizable part of the $565 million. Such favorable tax treatment is reserved for 'ordinary and necessary' business expenses, not one of the largest rip-offs of the American people in recent years."

Tiefer pointed out that many settlements with the government contain clauses that prohibit use of fines as tax write-offs.

The exclusion of such a phrase in Boeing's agreement will be one of the issues to be raised at the Senate hearing.

###

SUBSIDIES

Washington State exempts Boeing from various taxes and environmental regulations. (Wilson, Mar 3, 1993).

Pentagon R&D subsidies: Boeing has fought the $300 million per year subsidies from European countries to Airbus -- but U.S. military contractors including Boeing get $1 billion per year in research and development assistance (Zepezauer, 1994).

Clinton and Gore brokered a Boeing-China deal. The battle over subsidies in the airplane industry became one of the last barriers to the passage of the GATT treaty. The recent fight over China's human rights record and its trading status as a "most favored nation" was lost when Clinton and Gore personally guaranteed a huge Boeing airplane deal with China. International trade balances have become more important than taxation without representation, national security, or human rights.

Diversion of McDonnell Douglas B-1 bomber metal fabrication equipment to Chinese Silkworm missile factory after Clinton eased restrictions on trade with China in 1994 (Anderson, July 30, 1998). Chinese government appreciates Boeing's efforts to get China's most-favored nation trading status renewed (Seattle Times. Jan 31, 1997).

US pays military contractor to merge: Boeing's 1997 $14 billion purchase of McDonnell Douglas was subsidized by the Pentagon's payment for executive bonuses, layoffs, and other "restructuring costs" under 1993 "Payoffs for Layoffs" legislation passed with military contractor political contributions ($10 million in 1996). Boeing gave $800,000 in PAC and soft money contributions in 1996; McDonnell Douglas gave $500,000) (Anderson, Apr 2, 1997).

Boeing reimbursements could exceed $500 million. Bernie Sanders (socialist-VA) introduced the Boeing-McDonnell Douglas Corporate Welfare Elimination Act of 1997 (HR 648), which passed in the House, lost in the Senate, and resulted in tightening of reimbursement rules (Anderson, Apr 2, 1997).

By early 1997, mergers by 21 military contractor mergers had been reimbursed $830 million, with $3 billion pending). Lockheed-Martin Marietta merger: received $162 million in taxpayer reimbursements; has applied for $855 million more; merger included $92 million in bonuses ("triggered compensation"), $31 million of which came from taxpayers (Anderson, Apr 2, 1997).

Export sales tax breaks ruled illegal by WTO: "Boeing and Microsoft, respectively, are among the corporations most affected by a ruling, issued last Monday by a WTO dispute panel in Geneva, that a tax break the U.S. government gives to U.S.-based corporations for export sales violates free-trade rules. The ruling will be the costliest yet for the United States in a WTO- litigated challenge. The break is worth many billions of dollars a year to U.S.-based corporations. According to its annual reports, Boeing's benefits from the law amounted to $130 million in 1998, $230 million in 1999, and $291 million in 2000. In case you're counting, that's $650 million in corporate welfare to one company in three years. Naturally, the ruling does not mean Boeing or other beneficiaries will have to pay the money back--just that they can't collect further benefits in the future." (Geov Parrish, Bill, Phil, and the WTO, Seattle Weekly, Jan 23, 2002).

In 2003 Washington State gave Boeing a $3.2 billion tax break if it would "save" 800 jobs by building its new 7E7 airliner in Washington. Details of the deal are being kept secret, but they apparently include $3.2 billion in tax breaks over 20 years, $4.2 billion in transportation improvements across the state, $24 million to establish recruitment, training, and employment programs and a work force center for Boeing and suppliers, $15.5 million for improvements at the Port of Everett satellite rail-barge facility, reforms to the state's unemployment insurance and injured workers' compensation systems, and an aerospace manufacturing degree program at state community and technical colleges, and a pPledge to provide more tax help and incentives, as well as assistance on permits and workforce training. Sources:

Boeing 7$7: The costs of keeping the company happy just keep going up. Seattle Weekly, June 4, 2003.

Boeing Wins: The state's $3.2 billion offer 'preserves' 800 dream jobs assembling the Dreamliner. Seattle Weekly, Dec 23, 2003.

Tax Cracks: $64 Billion Falls Through the Tax Cracks. Seattle Weekly, Feb 18, 2004.

Gregoire under fire over no-bid contract. By Ralph Thomas, Seattle Times, March 4, 2004. "Early in December, after Preston Gates & Ellis spent about $1,000 hosting a campaign fund-raiser for Attorney General Christine Gregoire, lawyers from the firm donated $8,000 to her Democratic bid for governor. Less than two weeks after the event, Gregoire's office awarded a no-bid, $25,000 contract to Preston Gates & Ellis for a fast legal opinion on the state's Boeing 7E7 agreement. Gregoire's political foes are accusing her of using state money to reward campaign supporters, but Gregoire's office says there is no connection between the contributions and the contract..."

Two-Timing Consultant. Seattle Weekly, March 17-23, 2004, p. 11.

Disinterest in Conflict. Seattle Weekly, March 24-30, 2004, p. 16.

 

MOVING OVERSEAS

Boeing Parts, Work Go Overseas. By Dominic Gates, Seattle Times, June 1, 2004. "Determined to exit the business of making small, simple aircraft parts, Boeing is moving aggressively to shift overseas some work from its major parts-fabrication plant in Auburn. Rather than finding a cheaper supplier already capable of doing the work, Boeing is creating the capability. Last week, a new parts-manufacturing plant opened in South Africa equipped with 3-axis milling machines shipped from a Boeing machine shop in Kent closed since 2002. By year end, Boeing plans to ship to Turkey four room-sized, 4-axis milling machines from Auburn. Other smaller production tools from Auburn are earmarked for Romania... "The decision to move that work and concentrate on our core focus was made independently of where the work would ultimately move," Cornelius said, "It would have gone out of here anyway."..
Payback for airplane sales. All three outsourcing moves, according to internal documents, are supporting proprietary "Industrial Participation" agreements also called "off-sets" between Boeing and the three governments concerned. Such deals, struck with some foreign customers at the time of a Boeing sale, lay out a contractual obligation: Boeing has to bring business to that country, normally set at a precise percentage of the value of the original sales deal. Typically, the off-set's value is 30 percent or more. An off-set agreement doesn't necessarily oblige Boeing to send work out. Often it can meet the requirement by offering flight training or other services, or just setting up a match with another U.S. company that wants to do business in that country. As of Dec. 31, 2002, according to the company's annual report, Boeing had outstanding off-set obligations through 2013 totaling about $8.2 billion. A World Trade Organization side agreement signed by 30 nations the Agreement on Trade in Civil Aircraft specifically prohibits off-set agreements for the sale of civil airliners. Signatory nations are barred from "attaching inducements of any kind to the sale or purchase of civil aircraft."...
Romania - for the sale of 737s to Romanian national airline Tarom, five ordered in 1992 and four ordered in 1999. South Africa - for the sale of five 737s to South African Airways, ordered in 2000. Turkey - for the sale of 26 737s to Turkish Airlines, ordered in 1997, as well as a 2002 order for four 737-based Airborne Warning and Control System (AWACS) airplanes for the Turkish military.

 

OTHER NEWS

Boeing Pension Data Sought. The SEC is looking into how the aerospace giant and five other major companies account for their retirement plans. By Peter Pae, Los Angeles Times, Oct 22, 2004.
Boeing Co. said Thursday that it was among six large manufacturing companies that have been asked by the Securities and Exchange Commission for information about accounting practices for a multibillion-dollar pension fund.
The SEC inquiry isn't focused on payments to retirees but on how the companies account for their complex pension and retiree health plans and whether changes in assumed rates of returns can inflate earnings.
In addition to Boeing, the world's largest aircraft maker, the federal regulatory agency has asked General Motor Corp. and Ford Motor Co. for documents about the way they estimate their pension liabilities.
The SEC has also sought information from truck builder Navistar International Corp., auto parts maker Delphi Corp. and Northwest Airlines Corp.
The requests, which aren't connected to an investigation into any wrongdoing, are part of a new strategy to "preempt" problems and prevent an Enron-like accounting abuse, according to an SEC official who asked not to be identified...

Boeing settles for $72 million. By Josh Goodman, Seattle Times, Nov 12, 2005
For 17,960 current and former female employees of Boeing, this end-of-year bonus is bittersweet.
According to documents filed Thursday in federal court in Seattle, Boeing has agreed to pay $72.5 million to plaintiffs in a class-action sex-discrimination lawsuit settled in July 2004. If plaintiffs' motion for speedy payment is granted, checks could be in the mail by Christmas.
The payout roughly equal to the list price of a single 737-800 airplane was the maximum permitted by the settlement agreement last year. The plaintiffs' lawyers said that reflected the degree of hostility felt by women in the male-dominated Boeing workplace.
"It's revealing that over 60 percent of female employees filed claims in most class-action suits a 30 percent response rate is typical," said Mike Helgren, the lead attorney for the plaintiffs.
As part of the settlement, Boeing did not admit to any wrongdoing, but agreed to make changes in its hiring, pay and promotion practices, and in how it investigates employee complaints.
"We've moved ahead on numerous fronts in making improvements to our work environment," said John Dern, a Boeing spokesman in Chicago.
In all, some 20,338 current and former female employees out of a potential 29,000 said they were discriminated against at Boeing's various Puget Sound-area plants between 1997 and 2000, after which the aviation giant undertook efforts to boost pay for female employees.
Of those claims, some 2,378 claims were thrown out for failing to meet a May 3, 2005, deadline and other filing irregularities.
If the court doesn't speed up the payment, Boeing has until Jan. 14 to pay the settlement amount to a court administrator, who will then issue checks to class members according to seniority and position. The exact amounts to be disbursed are under seal, but range from a minimum of $500 to $26,000, according to Helgren. The average pre-tax payout is $3,000 per employee.
Deducted from the total settlement will be some $15 million in attorney and legal fees.
Beck v. Boeing, as the lawsuit filed in 2000 is known, alleged a pattern of discrimination at Boeing.
According to company documents obtained by the plaintiffs, women typically earned $1,000-$2,000 a year less than men for similar jobs, a disparity magnified over time by the company's policy of calculating pay raises based on an employee's salary.
Another discrimination lawsuit is scheduled to begin in federal court on Dec. 5. Williams v. Boeing was filed on behalf of 15,000 African-American employees.
That case was originally settled in 1999 for $11.3 million, but the 9th U.S. Circuit Court of Appeals granted plaintiffs' request for a retrial because of a dispute over the fairness of the award.

 

BIBLIOGRAPHY ON BOEING

Acohido, Byron. 1994. What did Saudi deal cost Boeing? Seattle Times, May 7, 1994, pp. D1, D3.

Anderson, Rick. 1994. Fingering Boeing: aerospace: the feds made Boeing pay $75 million of overbilling the Pentagon. Some think the company got off too easy. Seattle Weekly, May 18, 1994, pp. 9-10.

Anderson, Rick. 1996. Bribe or Commission?: Boeing: A Losing Bidder Accuses Boeing of Bribing Officials to Sell BahamasAir Planes in 1989. Seattle Weekly, Jan. 24, 1996, pp. 10-11.

Anderson, Rick. 1996. Awkward partner: bribery investigation: Boeing's sales consultant in a BahamasAir transaction had been convicted of peddling stolen bonds. Seattle Weekly, Mar 20, 1996, pp. 10-11. (Includes 1986-1996 chronology of the deal).

Anderson, Rick. 1996. More Questions: Business Ethics: A Bribery Investigation of a Bahamian Plane Sale by Boeing Widens to Include a SEC Probe. Seattle Weekly, Aug. 7, 1996, p. 16-17. (Royal Canadian Mounted Police, FBI, Scotland Yard, and U.S. SEC probe bribery violating a 1970s anti-corruption agreement between Boeing and the U.S. government).

Anderson, Rick. 1997. McBoeing's sweetener: aerospace: some in Congress are fighting the Pentagon's $500 million bonus plan for the Boeing [McDonnell Douglas] merger. Seattle Weekly, Apr. 2, 1997, pp. 14-15.

Anderson, Rick. 1998. Beijing's Boeing missile connection. Seattle Weekly, July 30, 1998, p. 22. (Diversion of McDonnell Douglas B-1 bomber metal fabrication equipment to Chinese Silkworm missile factory after Clinton eased restrictions on trade with China in 1994; Chinese and U.S. officials exerted pressure on M-D, which wanted a $1 billion contract for Chinese commercial planes, to sell the equipment to China for a low $5 million. Deal was brokered by U.S. Commerce Secretary Ron Brown. Boeing is working to transfer the machinery to commercial production at CATIC (China National Aero-Technology Import-Export Corporation). Major Democratic funders, including Loral CEO Bernard Schwartz, are also involved in technology transfers to China).

Anderson, Rick. 1998. Boeing's discount jets: customers can pick up flawed "factory seconds" at bargain prices. Have you flown a "blem" lately? Seattle Weekly, Aug 19, 1998, p. 11-12.

Anderson, Rick. 1998. Boeing: business the island way. Seattle Weekly, June 13, 1998. (Boeing bribery of Bahamas officials to make sale of De Havilland jets to BahamasAir; 1993 investigation by U.S. government and Scotland Yard concluded Boeing paid consultant Duncan Rapier $1.4 million to pass a bribe; Rapier was arrested for trying to sell bonds stolen form the IRA).

Anderson, Rick. When Pork Flies: With help from friends, Boeing continues to push the envelope of taxpayer largesse. Seattle Weekly, May 21, 2003.

Anderson, Rick. Let Go of Boeing: Locke is doing 'whatever it takes' to land the 7E7. But how bad would it be if he failed? Ask Renton. Seattle Weekly, June 25, 2003.

Anderson, Rick. Ethics Ain't Rocket Science: And so Boeing sends its workers to school for a day. Seattle Weekly, Aug 6, 2003.

A New Ethical Era for the Sleazy B? Don't count on it. By Rick Anderson. Seattle Weekly, Dec 3-9, 2003.

Associated Press. 1992. Boeing denies profiting at clean-ups. Olympian, Oct 30, 1992. (U.S. GAO report for U.S. House Committee on Government Operations chairman John Conyers show Boeing and other military contractors profit from federal reimbursement for hazardous waste site clean-up. From 1954 to 1977, Boeing dumped military waste at Western Processing and Queen City Farm sites in Washington State).

Berger, Knute. Boeing 7$7: The costs of keeping the company happy just keep going up. Seattle Weekly, June 4, 2003.

Berger, Knute. The House of Boeing: Truths about power are revealed in Olympia's black humor. Seattle Weekly, June 18, 2003.

Berger, Knute. Pentagon Pals: It's time to call Boeing and others to account for influence peddling. Seattle Weekly, Dec 10, 2003.

Biddle, Wayne. 1991. Barons of the Sky.

Boren, Rebecca. 1994. Assessing the Boeing tax lawsuit. Seattle Post-Intelligencer, June 28, 1994, pp. B5, B9. (Boeing sues King County to recover $7 million in back taxes, and to receive permanent tax decrease by cutting the assessed value of its county properties).

Brewster, David. 1993. A post-Boeing economy: weekly wash: how many Boeing shocks does to take to cure this region of its codependency? Seattle Weekly, Feb 3, 1994, pp. 7-8.

Brewster, David. 1993. Emergency landing: Boeing: as Boeing sheds thousands of jobs, its own miscalculations start to appear in the national press. Seattle Weekly, Feb 24, 1993, p. 11.

Ficken, Robert E. 1987. The Forested Land: A History of Lumbering in Western Washington (Seattle: University of Washington Press, 1987, p. 101 and 170).

Lien, Carsten. Olympic Battleground: the Power Politics of Timber Preservation (San Francisco, CA: Sierra Club Books, 1991, p. 161-163, 181, 257, and 265).

McCann, John Charles. 1994. Blood in the Water. International Association of Machinists and The Evergreen State College Labor Center.

Pascall, Glenn. 1995. Gold-plated weaponry: defense: for a cash-poor Pentagon, Boeing may offer a post-Star Wars strategy. Seattle Weekly, Apr 19, 1995, pp. 15-16.

Seattle Times. 1997. China's Li praises Boeing for its help on MFN issues. Jan 31, 1997, p. D1. (Chinese government appreciates Boeing's efforts to get China's most-favored nation trading status renewed).

Seattle Times. 1997. Feds uncover Boeing Wichita bid-rig scheme. Jan 25, 1997, p. C1. (Boeing buyer received kickbacks from parts sales in sting operation).

Taylor, Chuck. Bad News Boeing: Since Phil Condit took over, it's been one thing after another. And the bigger Boeing's grown, the more unmanageable it's become. Seattle Weekly, Dec 3, 2003.

U.S. Arms Control and Disarmament Agency. Reemployment Experiences of Defense Workers: A Statistical Analysis of the Boeing, Martin, and Republic Layoffs.

West, Karen. 1992. Boeing accused of profiting from its toxic waste cleanup. Seattle Post-Intelligencer, Oct 29, 1992, pp. B1, B8. (U.S. GAO report for U.S. Rep. John Conyers (D-MI).

West, Karen. 1993. Boeing will burn 30 tons of secrets. Seattle Post-Intelligencer, Feb 6, 1993. (Boeing ordered to burn ten years' worth of tapes, disks, and videos from classified DoD contracts at Spokane incinerator. Boeing ships 300 tons of classified or company sensitive paper per month to a Kent facility. "This is just everyday business to us").

Wilson, Duff and David Schaefer. 1990. Budget wars: high-tech arsenal may help Boeing. Seattle Times, Feb 4, 1990, pp. E1, E3.

Wilson, John Arthur. 1993. Bubba and Boeing: aerospace: Boeing's new buddy promises to be helpful -- and to squeeze some Republican votes in the process. Seattle Weekly, Mar 3, 1993, p. 12.

Wilson, John Arthur. 1993. Gunning for Boeing: taxes: tackling the ultimate no-no. Seattle Weekly, Mar 3, 1993, pp. 12-13. (Washington State Rep. Art Wang wants to remove tax breaks for Boeing).

Worth, Mark. 1993. Stealth polluter: Boeing's dirty little secrets. Washington Free Press, April 1993. (Detailed expose showing that "as commercial and military jets roll off its assembly lines and toxic waste pours from its plants, the Boeing Company has mastered the use of power -- sometimes through threats -- to crush proposed environmental laws, stymie public criticism, muscle regulators, withhold damning information, bridle the media and embellish its 'commitment to the environment' through spin control").

Zepezauer, Mark and Arthur Naiman, 1996. Take the Rich Off Welfare. Tucson, AZ: Odonian Press.

CONGRESSIONAL HEARINGS AND ACTS RELATED TO BOEING

1918 aviation procurement scandals.

1926 Aviation Act.

1934 U.S. House, Naval Affairs Committee, Aeronautics Subcommittee, Feb 1934. ("Delaney" and "Merchants of Death" hearings. Carl Vinson traced profits and profiteering, and competitive bidding schemes).

1936 U.S. Senate Report 944, Special Committee to Investigate the Munitions Industry, 74th Cong, 2d Sess, parts 3-7, part 39 hearings. (The Nye report).