Boeing CEO Resigns Over Affair With Subordinate

Harry C. Stonecipher, 68, returned to Boeing on the heels of scandal. (M. Spencer Green--AP)

"In my very first conversation with him, he stepped up and said that, yes, he was having a relationship," Platt said. "And Harry was very open and very honest throughout this investigation."

Platt said he then informed the board, which was holding a regularly scheduled meeting. The board ordered an investigation, which included interviews with Stonecipher and the woman by an outside attorney. It found that the pair started the affair shortly after the first of the year and that it lasted only a few weeks, company officials said.

The board met several times over the weekend before unanimously deciding to ask for Stonecipher's resignation Sunday, the company said.

Boeing was long the world's leading maker of commercial airliners but has been unseated by European rival Airbus SAS in recent years. In the meantime, the company's defense business has gained strength, making up 57 percent of the company's $52.46 billion in 2004 revenue.

But it was the defense business that had been mired in scandal recently. Two years ago, an Air Force investigation found that Boeing used rival Lockheed Martin Corp.'s proprietary data during a rocket-launch competition. That was followed by the collapse of a deal worth more than $20 billion to lease then sell military refueling tankers after Boeing admitted it illegally hired Air Force procurement official Darleen A. Druyun, who helped negotiate the deal. Then-chief executive Philip M. Condit resigned in December 2003 over the issues.

Boeing's board then tapped one of its own, Stonecipher, who served as the company's chief operating officer until 2001, to lead a rehabilitation effort. The son of a Tennessee coal miner had been head of McDonnell Douglas Corp., which Boeing bought in 1997. Stonecipher left retirement and the golf courses of Florida and began mending fences in Congress and at the Pentagon. He told Wall Street he was on a mission to convince U.S. officials that the company was not full of a "bunch of crooks."

The sometimes gruff executive also oversaw the company's launch of its first new aircraft in a decade, the 787, and pushed the Bush administration to file a complaint with the World Trade Organization accusing European governments of illegally subsidizing Airbus.

Just last Friday, Boeing achieved the most tangible evidence of its turnaround when the Air Force lifted a 20-month suspension from bidding for new government rocket-launching business that had been imposed after Boeing won a competition using documents stolen from Lockheed.

"He did a good job of working to restore Boeing's reputation and refurbishing ethical standards at the company, and that's what Boeing needed," said Philip Finnegan, director of corporate analysis at the Teal Group, a research firm. "Obviously there is going to be an immediate impression of continued disarray at Boeing."

The company's stock traded heavily yesterday, closing at $58.30 a share, down 8 cents.

Company officials said Stonecipher's departure should not be a setback. "I don't think we're going to backslide at all," Bell said. "In fact, I think it accelerates the point that no matter who you are," the rules apply.

In an interview last year, Stonecipher was asked how long ethical scandals would follow the company. He said the main thing the company could do is have a process in place to address the issues as they appear.

Addressing the scandal involving Druyun and Sears, he said: "They're both really smart people. They know the rules. . . . Really smart people do dumb things sometimes."

Staff researcher Richard Drezen contributed to this report.