Boeing Co.'s chairman and chief executive, Philip M. Condit, who orchestrated the company's plunge into defense and space projects and presided during a series of alleged ethics violations, resigned yesterday amid mounting skepticism from Congress and the Pentagon.
Condit's departure follows last week's firing of Boeing's chief financial officer, Michael M. Sears, for what the company said was unethical conduct in the hiring of an Air Force procurement official this year. The official, who was dismissed from Boeing last week, had played a role in securing a controversial Air Force contract to lease and buy Boeing refueling tankers. Boeing also was slapped this year with an expensive ethics violation by the Pentagon for possessing proprietary Lockheed Martin Corp. documents during the bidding for a rocket launch contract.
"In the end, I concluded that the controversies and distractions of the past year were obscuring the great accomplishments and performance of this company," Condit, 62, said in a conference call with analysts. "My fear was we would get bogged down. I believe the best way for the company to stay on track is to step aside and bring in new leadership."
Harry Stonecipher, 67, a former Boeing president and chief operating officer, was named to replace Condit. Board member Lewis E. Platt, former chief executive of Hewlett-Packard Co., will serve as non-executive chairman.
Condit, who is not a target of any ethical investigations, has overseen a decline in Boeing's fortunes. Its stock price is virtually unchanged from the day he took over as chief executive in 1996, and the company has lost significant ground to European rival Airbus SAS, which this year for the first time will take the lead in worldwide sales of commercial aircraft.
Condit's sudden departure ends an intense seven-year period in which he sought to turn the aircraft maker into a defense and space giant. Condit moved the company's headquarters from Seattle to Chicago to soften its image as solely an aircraft manufacturer. During his tenure, the company embarked on an acquisition campaign, buying such large firms as McDonnell Douglas Corp., and aggressively pursued Pentagon contracts.
The diversification drive brought mixed results. Boeing spent more than $6 billion to secure a leading position in the burgeoning satellite market only to discover that it had overpaid and that satellite-based communications would not live up to the promise. Its purchase of McDonnell Douglas in 1997 was aimed in part at helping it win the competition for the Joint Strike Fighter, the largest military contract ever awarded, but it lost to Lockheed Martin.
Boeing did emerge as the unlikely winner of a contract valued at more than $15 billion to develop the Future Combat System, which is to link soldiers by satellite to ground command centers and pilots.
But aggressiveness also brought its share of troubles. In July the Air Force suspended Boeing's space unit from winning new contracts and stripped the company of $1 billion in other contracts after an Air Force probe revealed that Boeing employees had stolen proprietary Lockheed Martin documents. Then Sears was ousted for recruiting Darleen A. Druyun, the Air Force procurement official. The revelation prompted the Pentagon to review whether the recruitment influenced the $18 billion tanker contract.
"This is really the culmination of years of ambivalence by Boeing's board concerning Condit's effectiveness," said Loren Thompson, a defense industry analyst.
Condit offered his resignation a week and a half ago as the company grappled with how to respond to Sears's actions. The board decided before Thanksgiving to accept his resignation and spent the holiday weekend preparing the announcement. "My view was if in fact me stepping aside would help the company move forward, that was what I would do," Condit said.
Condit began his nearly 40-year career at Boeing as an aerodynamics engineer and became chief executive in 1996, earning a reputation for a soft-spoken style.
Stonecipher, known as a hard-charging, brash executive with a focus on the bottom line, joined Boeing in 1997 as part of the McDonnell Douglas acquisition. He served for five years as president and chief operating officer before retiring last year.
Stonecipher said that he does not plan any changes in the company's strategy but that he will pay close attention to the details.
"We think we have the right strategy. That strategy is balance between our commercial airplane business and defense business," Stonecipher said. "Our number one priority is to restore our reputation with that huge customer, called the U.S. government."
Among Stonecipher's initial tasks will be repairing Boeing's reputation. The U.S. attorney in Los Angeles is investigating whether any laws were broken when Boeing was found to be in possession of stolen Lockheed Martin documents. The Pentagon is looking into whether Sears's contact with Druyun tainted the tanker deal.
On Friday, Sens. John McCain (R-Ariz.) and Peter Fitzgerald (R-Ill.) called on Secretary of Defense Donald H. Rumsfeld to hold off approval of the tanker contract until the Pentagon inspector general completes an investigation of Druyun's conduct during the tanker negotiations. Boeing recently received a subpoena related to the inspector general's investigation.
The tankers are still needed and will probably survive the current controversy, Stonecipher said.