Boeing Co. is in talks with the State Department about alleged violations of arms control laws related to the sale of 96 civilian aircraft and spare parts to China from 2000 to 2003, company and State Department officials said yesterday.
The company said the talks concern the sales of planes that contain a "gyrochip" that helps with stability of the aircraft but can also be applied to missiles. The State Department may fine Boeing as much as $47 million, according to the Seattle Times, which reported the alleged violations Wednesday.
"Boeing has been in discussions with the State Department for many months concerning past deliveries of aircraft and spare parts with the" gyrochip, the company said in a statement released yesterday. The company declined to comment further.
Kurtis Cooper, a State Department spokesman, confirmed the inquiry, saying the department is in negotiations with Boeing "regarding potential violations" of the export laws, and, "If and when these negotiations result in a settlement, the documents related to the charges, including the terms of that settlement, will be made public." He declined to comment further.
The issue complicates Boeing's efforts to mend relations with the U.S. military after a procurement scandal last year that resulted in prison terms for two former company executives and another in which Boeing admitted employees had obtained a competitor's proprietary data during a competition.
The controversies caused Boeing to lose a $30 billion deal to lease refueling tankers to the Air Force. Now, Boeing could lose the tanker program to its European rival, Airbus SAS parent European Aeronautic Defence and Space Co., which is aggressively campaigning for the contract and recently announced plans to build a new facility in Mobile, Ala.
The aerospace industry has complained for years that export control regulations are cumbersome and ill-suited for the current marketplace, where commercial and defense technology is increasingly interchangeable. The rules often delay deals and put U.S. firms at a competitive disadvantage in foreign competitions, company officials have argued.
"You probably get this chip in an Xbox. It's absurd and inconsequential," said Richard Aboulafia an aerospace analyst for the Teal Group. Aboulafia said the gyrochips are standard equipment on any commercial aircraft sold by Boeing or Airbus. "China is not buying these jets just to buy the chips," he said.
Earlier this year, DirecTV Group Inc. agreed to pay a $5 million fine for selling equipment that can be used for voice and data transmission systems to China, India, South Korea, Turkey and South Africa. The sales violated export control regulations and a 2003 agreement restricting the company's sale of commercial technology, according to the settlement.
In 2003, Boeing and Hughes Electronics Corp. agreed pay $32 million to settle civil charges that they illegally transferred sensitive U.S. space technology to China during the 1990s in violation of export control regulations. The firms had fought the charges for seven years. Under that settlement, the companies agreed to hire an outside special compliance officer.