Boeing stripped of rocket contracts - East Valley Tribune: News

Boeing stripped of rocket contracts

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Posted: Friday, July 25, 2003 6:52 am | Updated: 1:01 pm, Thu Oct 6, 2011.

The U.S. Air Force on Thursday slammed Boeing Co. with one of the harshest punishments ever imposed on a defense contractor, taking away at least $1 billion worth of rocket contracts and suspending the aerospace giant from future rocket work.

The Air Force said it was punishing Boeing for what it called ‘‘serious violations of federal law’’ by illicitly obtaining thousands of pages of trade secrets from rival Lockheed Martin Corp.

Air Force Undersecretary Peter Teets said the amount of Lockheed Martin documents in Boeing’s possession — more than 25,000 pages — was ‘‘extraordinary.’’

Teets stopped short of saying whether Boeing had used the documents to beat out Lockheed for the lion’s share of rocket contracts in a 1998 competition. But he said that the ‘‘quality of information was sufficient to provide great insight into Lockheed Martin’s proprietary cost and pricing.’’

‘‘Boeing is responsible and must be held accountable for the actions of its employees,’’ Teets said at a Pentagon news conference. ‘‘We cannot tolerate anything less than complete honesty in our procurement process, and we believe this suspension and launch reallocation is necessary.’’

Defense analysts and lawyers said the sanctions were the harshest ever levied against a major defense contractor, and Teets himself said he could not recall any company receiving such a stiff punishment.

‘‘This remedy basically denies Boeing the ability to become the industry leader in the launch business for the foreseeable future,’’ said Loren Thompson, a longtime defense analyst and professor at Georgetown University.

The Air Force said it would take away seven rocket contracts, worth about $1 billion, from Boeing and give them to Lockheed, leaving Boeing with 12 contracts and giving Lockheed 14. In the initial competition, Lockheed had only seven contracts.

In addition, the Air Force said it would suspend the three Boeing units, responsible for developing, building and servicing the Delta IV rockets from seeking future contracts. Teets told reporters the suspension could be lifted in as little as 60 to 90 days if the Air Force ‘‘determines that corrective actions are in place.’’

The Air Force said it also will help Lockheed Martin build a West Coast launch facility for its Atlas V rocket at Vandenburg Air Force Base near Lompoc, Calif., at an estimated cost of $200 million. Most of the rockets, which are used to boost military satellites into space, are launched from Cape Canaveral, Fla.

Boeing has insisted that the Lockheed documents did not give it an edge in winning contracts. ‘‘The pricing that we did in 1998 wasn’t influenced by these documents,’’ James Albaugh, head of Boeing’s space and defense business, said in an interview Wednesday, citing the conclusions of an outside law firm and a forensic accounting firm.

Even so, Boeing Chairman Philip Condit struck a conciliatory tone Thursday and said former U.S. Sen. Graham Rudman will help review the company’s ethics rules.

‘‘We apologize for our action,’’ Condit said in a statement. ‘‘We are extremely disappointed by the circumstances that prompted our customer’s action, but we understand the U.S. Air Force’s position that unethical behavior will not be tolerated.’’

The Air Force investigation found that the Lockheed documents had been brought to Boeing by Kenneth Branch, an ex-Lockheed engineer who worked on that company’s rocket proposal. Branch was hired in 1997 by McDonnell Douglas Corp., which was later acquired by Boeing.

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