When Boeing Co. chief executive Harry C. Stonecipher took the helm in December, he proclaimed that his top priority was restoring the aerospace giant's reputation after revelations that employees had obtained a competitor's bidding documents and another executive had illegally hired a top Air Force official.
Nearly a year later that is still his goal, but the challenge has grown. Investigations into the firm's contracts have widened since Darleen A. Druyun, the former Air Force official, admitted earlier this month that she gave Boeing preferential treatment for years before accepting a job at the Chicago-based company. And an Air Force deal worth more than $20 billion to lease and buy reconfigured Boeing 767s for refueling tankers has been shelved.
The scandals have not hampered Boeing's business performance or diminished Wall Street's love of the company. Boeing's bottom line continues to fatten -- even as its image is tarnished -- thanks in part to the consolidation of the defense industry, which has left the Pentagon with few choices for buying weapons, industry analysts said.
Boeing reinforced the point yesterday by reporting a 78 percent increase in third-quarter net income to $456 million (56 cents a share), compared with $256 million (32 cents) during the same period last year. That included gains in the quarter for the sale of part of the company's finance unit and for an unrelated state tax settlement. The company also reported a charge related to the early retirement of debt.
Revenue increased 8 percent, to $13 billion, from $12 billion last year as the company's defense business, which includes the F-18 fighter and missile defense, continued to offset slow growth in the commercial unit.
In the defense unit, revenue in the network systems business -- which includes a more than $100 billion Army modernization program -- increased 39 percent during the quarter to $3.2 billion, from $2.3 billion last year. The weak spot remained Boeing's space business, which more than doubled its loss to $153 million, from $58 million last year, on a 14 percent decline in revenue to $822 million.
On the commercial side, the company boosted its profit despite shrinking revenue and a struggling market. Revenue fell 8 percent during the quarter to $4.6 billion, compared with $5 billion last year. Operating earnings were $168 million during the quarter, compared with $35 million last year.
"From the standpoint of winning business and earning profits, they are in respectable shape," said Richard L. Aboulafia, vice president of analysis and aviation issues for Teal Group Corp. "To be perfectly cynical, the best way to deal with [the scandals] is to get out there and execute and make money. They have shown very well that investors won't abandon them as long as they make money."
That's evident from Boeing's stock price. The company's shares gained 12 cents yesterday to close at $50.10 on the New York Stock Exchange. The stock was trading in the $37 range when Boeing fired Druyun in late 2003. Philip M. Condit resigned as chief executive and chairman a week later.
So far, the financial impact of the scandals has been limited to legal fees, the loss of the lease-buy tanker contract, and a $1 billion loss in the rocket-launch business after an Air Force investigation determined that Boeing employees had obtained proprietary information from Lockheed Martin Corp., based in Bethesda, during the competition for the contract.
"We don't expect any impact" from the investigations into Boeing employees' actions, Stonecipher said yesterday after the company reported its results. "If anybody finds anything that needs to be cured, we'll cure it. But we don't expect them to find anything." He said the company is still likely to build the refueling planes for the Air Force, avoiding a nearly $300 million charge.
Still, the public relations battle rages on. Questions linger about how many executives inside the company knew about efforts to hire Druyun. And Lockheed Martin and BAE Systems North America Inc. have filed protests with the Air Force over a $4 billion contract to upgrade electronics on C-130 military transport planes awarded to Boeing in 2001. Druyun admitted that her decision to award the contract to Boeing may have been tainted by the company's hiring of her daughter and son-in-law.
The Air Force has also asked the inspector general to review Druyun's decisions on contracts involving Boeing. The investigation is expected to cover the nearly 10 years she served as the Air Force's deputy acquisition chief.
Company officials have said they are cooperating in all investigations. But "we don't have any evidence [the contracts] were tainted," said James F. Albaugh, the head of Boeing's defense unit.
Boeing should try to resolve these issues quickly, industry analysts said. "The speed with which any large company accused of impropriety on a major weapons program moves to address the issue publicly and transparently ultimately drives the most successful resolution of the matter," said James McAleese, a defense industry consultant.
The company seems to be addressing the scandal correctly, "in terms of what they're doing and what they're saying," said Paul A. Argenti, corporate communications professor at Dartmouth University. "The problem is, can we really believe what they're saying? That's what happens when you lose your credibility."