Boeing reaches 2 tentative settlements

May 16, 2006|By AMEET SACHDEV | AMEET SACHDEV,CHICAGO TRIBUNE

Boeing Co. has reached a tentative settlement of two separate federal criminal investigations into its defense business, agreeing to pay $615 million to the government, senior Justice Department officials confirmed yesterday.

Boeing would pay $565 million to cover civil claims and $50 million to settle criminal inquiries, according to the company and Justice Department officials who spoke to reporters on a conference call.

The pending deal exacts one of the largest financial penalties ever imposed on a military contractor but allows the company to avoid criminal charges or any admission of wrongdoing, the officials said on condition of anonymity because the settlement has not been finalized. A final agreement is expected within a few weeks, they said.

Without a settlement, Boeing could have faced charges ranging from fraud to conflict of interest to stealing a competitor's secrets, as well as related civil claims brought by the Justice Department. The case involves allegations that Boeing improperly acquired Lockheed Martin Corp. documents relating to rocket programs and recruited a senior Air Force official while she still supervised Boeing contracts worth billions of dollars

The deal will end a pair of grand jury investigations into the nation's No. 2 military contractor.

In a statement released yesterday, Douglas G. Bain, Boeing's senior vice president for law, confirmed the deal and details of the terms.

"Boeing will accept responsibility for the conduct of its employees and make additional commitments regarding ongoing compliance," Bain said.

The settlement closes one of the most tumultuous chapters in the aerospace giant's history, which saw the departure of two chief executives and the conviction of its former chief financial officer. The scandals tarnished one of the icons of American business, best known for building commercial aircraft and fighter planes, such as the F-15, and the C-17 cargo plane.

W. James McNerney Jr., a Boeing director with sterling business credentials, was hired last year from 3M Co. to restore the company's image with its biggest customer, the Department of Defense. Settling the federal probes was one of the new chief executive's top priorities.

"This is a major step forward," said Loren Thompson, chief operating officer of the Lexington Institute, a defense think tank. "Jim McNerney has moved systematically to eliminate all known problems so he can focus on the bottom line."

In the pending settlement, prosecutors have agreed not to move against Boeing or executives so long as the company and senior management don't break the law in the next two years. Boeing also has agreed to increased oversight of the company's compliance with its new ethics rules.

Boeing's legal troubles date to 2003, when the company was suspended from launching military rockets because it had in its possession thousands of proprietary documents from rival Lockheed Martin during bidding on the launch contracts.

The suspension was expected to be temporary, but it lasted almost two years as Boeing became involved in a second scandal over a $24 billion Air Force contract for aerial refueling tankers. That contract was thrown out by Congress in 2004 after a former Air Force procurement official, Darleen Druyun, admitted she had increased the price as a "parting gift" to Boeing, where she went to work after retiring.

Federal prosecutors in Virginia charged Druyun and Boeing's former chief financial officer, Michael Sears, with conducting illegal employment negotiations, and both pleaded guilty. They have completed their prison sentences.

The ethical violations cost long-time CEO Philip Condit his job, as they became a major distraction while Boeing was trying to rebound from a slump in commercial aviation. His replacement, Harry Stonecipher, the former CEO of McDonnell Douglas, was fired in 2004 for having an extramarital affair with a subordinate.

Boeing's payments of $565 million for civil claims and $50 million to settle criminal investigations represent the approximate cost to taxpayers and the government of Boeing's activities, Justice Department officials said.

Ameet Sachdev writes for the Chicago Tribune. Tribune reporter Michael Oneal contributed to this article.

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