by John M. Curtis
(310) 204-8700

Copyright December 6, 2003
All Rights Reserved.

aced with another embarrassing scandal, Boeing Co. Chairman and Chief Executive Phillip M. Condit tendered his resignation, hoping to salvage the reputation of the world's biggest aerospace company. Just as the stock market limps back to health on the eve of an election year, the world's most prestigious passenger-jet maker sent shockwaves through Wall Street. Condit's resignation “. . . was needed to restore the company's reputation,” wrote the board, reluctantly acknowledging that Boeing crossed the line attempting to nail down an $18-billion Pentagon contract for aerial refueling. Boeing's then chief financial officer Michael Sears hired Darleen A.Druyun, a top Pentagon procurement official, violating company policy. Though Sears denies the charges, the Pentagon produced enough evidence for Boeing to fire both Sears and Druyun—and ask for Condit's resignation.

      Losing the Pentagon's air-tanker contract could have catastrophic consequences on Boeing's defense division, accounting for over 50% of the company's income. Boeing currently employs 36,000 workers in Southern California, from Palmdale to Irvine. Before the latest scandal, the Pentagon found that two Boeing employees illegally obtained proprietary documents from its chief rival Lockheed Martin, out bidding its competitor for a lucrative rocket-launching contract. Boeing faces indefinite suspension from Pentagon rocket contracts, already losing about $1-billion. Since moving to Chicago in 2001, Condit played fast-and-loose, putting Boeing's defense business behind the 8-ball. Condit “created a culture where this type of activity was routine,” said Steve Ellis, vice president of programs for Taxpayers for Common Sense, blaming Condit for creating a permissive atmosphere.

      Condit, now 62, came up through the ranks, joining Boeing as an aerodynamics engineer in 1965, eventually attaining CEO in 1996. Much like Dick Grasso, the former CEO of the New York Stock Exchange, Condit rose from obscurity to the helm of the nation's flagship aerospace company. Like Grasso, and Disney's Michael Eisner, Condit chose supportive board members, reluctant to question or second-guess his decisions. Yet on Condit's watch, European rival Airbus rapidly ascended to supremacy in the commercial passenger-jet business, surpassing Boeing for the first time in commercial jet sales. Announcing an end to the 757—Boeing's popular jumbo jet—signaled a change of direction, putting more emphasis on its defense business. “The company has had more than its share of disappointments over the course of the last year and a half,” said Wolfgang Demisch, a veteran aerospace analyst.

      Letting Airbus blow past Boeing was reason enough for Condit's ouster. Preferring the arcane dealings with Pentagon, Condit expanded Boeing's defense business, letting its commercial aviation division take a backseat. Since Sept. 911, the airline business has been in a tailspin, with worldwide orders for passenger jets falling by the wayside. Despite the downturn, Boeing took the easy way out, capitalizing on increased defense spending since Sept. 11. Instead of taking the lead against Airbus, Boeing chased easy Pentagon dollars, buying off a key Pentagon official to win the lucrative tanker deal. Under Condit's watch in 2003, Boeing's $27 billion Pentagon revenue stood to exceed its $23 billion commercial passenger-jet business. “It was time for Condit to go,” said Loren Thomson, chief operating officer for Lexington Institute, an Arlington, Va, defense think tank.

      While there's nothing wrong with going after Pentagon contracts, Condit allowed Boeing to lose its competitive edge with Europe's Airbus. When American Airline's A300 Airbus, Flight 587 crashed over Queens, N.Y. Nov. 12, 2001, the National Transportation and Safety Board determined that “composite materials” contributed to the incident. Unlike Boeing, Airbus uses space-age plastic laminates to attach engines to wings, making planes more vulnerable to cracking and structural fatigue. Boeing had the perfect opportunity to highlight its superior construction and safety record but chose to stay out of the fray. In the wake of Sept. 11, Boeing directed its energy toward Pentagon contracts, not innovation in design and construction. When the Concorde ended service Oct. 24, Boeing could have seized the moment, promising a new generation in commercial aviation.

      Taking the easy way out, Condit chose fast money with the Pentagon over Boeing's preeminence in commercial aviation. Though a good quick-fix in the wake of Sept. 11, it didn't improve Boeing's historic position as the world's leading maker of passenger-jets. Like the National Aeronautics and Space Administration, Boeing was content to rest on its laurels instead of breaking new ground. Fearing a slide in earnings and market share, Condit went too far trying to nail down government contracts. When Condit brought former Pentagon procurement officer Darlene A. Druyun into the fold, Boeing crossed the line. “I ultimately concluded it was the best decision for the good of the company,” said Condit, publicly announcing his early retirement. Before Boeing's new CEO Harry C. Stonecipher, former head of McDonnell Douglas, gets off on the wrong foot, he should learn from Condit's mistakes.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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