Boeing Chief Resigns Amid Defense Contract Ethics Scandal

Condit, 62, acknowledged in a statement that the past year of controversies at Boeing had prompted his unexpected departure.

“Boeing is advancing on several of the most important programs in its history and I offered my resignation as a way to put the distractions and controversies of the past year behind us, and to place the focus on our performance,” Condit said.

The company’s board of directors unanimously accepted Condit’s resignation after deciding “a new structure for the leadership of the company is needed,” Boeing announced Monday, adding the decision was made several days ago.

Former McDonnell Douglas CEO Harry Stonecipher, who retired as Boeing’s vice chairman last year, succeeds Condit as CEO and president of the world’s largest aerospace company. Stonecipher, 67, previously worked under Condit as Boeing’s president and chief operating officer following its 1997 purchase of McDonnell Douglas.

The board named Lewis Platt, 62, a former chairman and CEO of Hewlett-Packard, as the company’s non-executive chairman. Both positions are effective immediately.

“The board appreciates that Phil acted with characteristic dignity and selflessness in recognizing that his resignation was for the good of the company,” said Platt, who has been a member of Boeing’s board of directors for four years.

Condit’s unexpected resignation comes less than a week after Boeing fired Chief Financial Officer Michael Sears, widely considered Condit’s heir and right-hand-man, over a hiring and defense contract scandal.

Boeing said it dismissed Sears for speaking with a senior Air Force procurement official, Darleen Druyun, about future employment with the company while she was still working for the Air Force and evaluating a Boeing contract. Boeing also dismissed Druyun, who had been hired earlier this year as vice president and deputy general manager for the company’s Missile Defense Systems unit. Sears has denied any wrongdoing; Druyun was not available for comment Monday.

Defense Department investigators are examining whether Druyun inappropriately gave Boeing information to win a $21 billion contract for the Air Force to acquire 100 Boeing 767 planes for use as midair refueling tankers. 

Though the Pentagon had delayed the heavily criticized contract, President Bush last week signed an appropriations bill authorizing the Air Force to lease 20 Boeing tankers and buy 80 more.

Platt said Condit’s resignation had nothing to do with the controversial Air Force contract, though several industry analysts interpreted the move as Boeing’s attempt to repair its damaged reputation.

“They needed to send the very strongest signal they could to Congress, U.S. Department of Defense, investors,” Richard Aboulafia of Teal Group, a Virginia-based aerospace and defense consultancy firm, told Reuters Monday.

Eric Hugel, analyst for New York investment bank Stephens Inc., told Reuters it was unclear if Condit resigned or was dismissed, but added that Sears’ dismissal for unethical conduct was the last straw in a series of missteps for Condit and Boeing, the second-largest U.S. military contractor after Lockheed Martin Corp.

Additional defense contract scandals have plagued the Chicago-based company this year. In July, the Air Force indefinitely suspended Boeing from competing for military rocket contracts after it discovered Boeing used thousands of documents from rival Lockheed Martin to help land the initial award.

“Boeing is taking this whole corporate governance thing very seriously,” Banc of America defense analyst Nick Fothergill told Reuters. “They’re proving to their prime customer — the government — that they have really taken this [scandal] in the most serious way possible by firing the CFO and the CEO resigning.”

On top of ethics controversies, Boeing has suffered financial losses in nearly all of its core business units from a post-Sept. 11 downturn in commercial aircraft deliveries. This year Boeing lost its eminent standing as the world’s largest maker of commercial jets to European rival Airbus Industrie.

In one of his first statements as CEO, Stonecipher Monday morning sought to reassure investors that Condit’s resignation would not prevent Boeing from reclaiming the top market position in commercial jet sales.

“We need to strengthen our reputation with our customers, employees, investors and the communities in which we operate. Lew and I, and the entire board, are determined that the events of the last year no longer obscure the company?s strengths or distract us from what we need to do. Boeing is a great company with tremendous capabilities to define the future in each of our markets and deliver consistent, profitable growth,” said Stonecipher.

Boeing shares rose 5 cents to $38.44 in afternoon trading on the New York Stock Exchange. The stock has increased by more than 52 percent since mid-March.