Boeing Agrees to Pay $615 Million Settlement

By Renae Merle
Washington Post Staff Writer
Tuesday, May 16, 2006

Boeing Co. has reached a tentative $615 million settlement to end federal investigations into its illegal hiring of a high-ranking Air Force official and the use of a rival's proprietary documents to win government work, the Justice Department said yesterday.

The settlement would represent the largest penalty ever paid by a defense contractor, but for Chicago-based Boeing it would also end three years of investigations and uncertainty that have haunted the aerospace and defense giant. Under the deal, Boeing avoids criminal and civil charges.

Though it will not have to acknowledge any corporate wrongdoing, "Boeing has agreed to accept responsibility for the conduct of its employees in these matters," according to a Justice Department statement.

The agreement would also put Boeing on a sort of probation. If the company fails to comply with the terms of the agreement over the next two years, including reporting misconduct, Boeing could face criminal prosecution for the original incidents and an additional fine of up to $10 million, senior Justice Department officials said. That could also be triggered if an "executive management employee" commits any of a series of federal crimes covered by the agreement.

The deal is expected to be completed and signed in the next few weeks.

Boeing's ethics troubles began when it admitted in 2003 that several employees had thousands of pages of rival Lockheed Martin Corp.'s proprietary documents during a 1990s competition to launch government satellites. Bethesda-based Lockheed accused Boeing of using the stolen documents to cheat. The Air Force barred the company from competing for such work for a year, the longest suspension of a large defense contractor.

The Justice Department settlement would cover that case as well the one that quickly followed: Later in 2003, Boeing' fired its then-chief financial officer, Michael Sears, for illegally negotiating a job for Air Force official Darleen A. Druyun while she was overseeing billions of dollars of the company's work. Druyun later said that for years she had favored the company in her decisions.

Sears and Druyun pleaded guilty and served several months in prison. That case led to a wide-ranging review of Boeing contracts overseen by Druyun and the loss of a $20 billion contract to sell refueling planes to the Air Force.

The cases have caused years of turmoil at the firm. In addition to the firing of Sears, Boeing's former chief executive Philip M. Condit resigned in December 2003 and was replaced by Harry Stonecipher. Stonecipher was forced to resign a year later after admitting to an affair with an employee and was replaced last year by W. James McNerney Jr., the former head of 3M Co.

The deal would mark a high point for McNerney, who has begun a quiet campaign to restore Boeing's image. While his predecessor Stonecipher was more vocal, saying at one point that his job was to convince people that Boeing is not full of a "bunch of crooks," McNerney has been more subtle. He recently lured J. Michael Luttig, the federal appeals court judge who was on President Bush's short list for the Supreme Court, as general counsel, and late last year introduced a new executive compensation system that added ethics to the measurements of performance.

Serious negotiations between Boeing and federal prosecutors began last year and intensified as the government faced a possible deadline to file charges, sources have said. The tentative settlement, which includes $50 million to cover civil charges and $565 million to resolve potential civil claims, is lower than the $750 million many in the Justice Department advocated, according to a source familiar with the negotiations. Boeing had $2.57 billion in profit last year and more than $5 billion in cash.

Doug Bain, a Boeing senior vice president, confirmed the tentative settlement in a statement and said an agreement should be signed in a few weeks.

"You can't minimize the size of the settlement. It's a big deal," said Danielle Brian, executive director of the Project on Government Oversight, a Washington watchdog group. "We're really glad the government is upping the ante for misconduct, but our jury's out on whether this is going to make it painful enough for Boeing or any other government contractor to avoid misconduct."

Staff researcher Richard Drezen contributed to this report.

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