Lockheed Sues Boeing in an Escalating Feud
Lockheed Martin Corp., the world’s largest defense contractor, sued Boeing Co. and three former Boeing employees Tuesday, alleging that its archrival stole proprietary documents and used them to win a multibillion-dollar rocket contract.
In a major escalation of an unusually bitter five-year feud, the lawsuit accuses Boeing and the former workers of illicitly using documents obtained from Lockheed during the high-stakes competition for a new generation of rockets used to launch military satellites.
“We can’t turn the cheek on this one,” Lockheed spokesman Tom Jurkowsky said. “We’re talking about industrial espionage.”
The lawsuit was filed in federal court in Orlando, Fla., a day after Boeing ran ads in major newspapers responding to criticism about the company’s conduct and ethics during the bidding for the Pentagon’s so-called Evolved Expendable Launch Vehicle, or EELV, program.
In the full-page ads, Boeing Chairman Phil Condit acknowledged for the first time that several employees “behaved unethically” in the Lockheed rocket competition, but he asserted that the incident was isolated and defended his company’s honesty and integrity.
Last month, Boeing revealed that it was under investigation by the Justice Department and Air Force over allegations that the company illegally used documents from Lockheed to win the lucrative satellite rocket deal. The inquiry could result in Boeing being suspended or banned from certain military work.
Boeing spokesman Dan Beck said that its lawyers hadn’t read the lawsuit and that they couldn’t comment on it. “I would reiterate the key points that Condit made” in the advertisement, Beck said. “We don’t tolerate unethical behavior, and the action of three employees should not define Boeing’s conduct in terms of ethics and integrity.”
Boeing, based in Chicago, is the world’s largest commercial aircraft maker and the nation’s third-largest defense contractor, with about 35,000 employees in Southern California. The subject of the lawsuit and the federal investigation involve employees who worked at Boeing’s Huntington Beach operations.
In the lawsuit, Bethesda, Md.-based Lockheed says Boeing and its former workers “actively participated in the misappropriation” of Lockheed documents.
Boeing “covered up their activity by misrepresenting to Lockheed Martin and the Air Force that the individuals and documents involved were limited in number and that no Lockheed Martin proprietary information was used by Boeing” in the competition, the lawsuit says.
In 1997, Kenneth Branch, a former Lockheed rocket engineer, went to work for Boeing. Investigators believe that his hiring may have given Boeing an unfair competitive advantage because Branch brought with him thousands of pages of documents, including cost rundowns of Lockheed’s rocket, potential profit margins and a detailed analysis of operations, Lockheed executives said.
Boeing later fired Branch and a supervisor, William Erskine, for violating company policy against possessing a competitor’s sensitive information.
Lockheed’s Jurkowsky said the company became concerned when it kept receiving more documents than Boeing initially indicated it had when it agreed to turn over any papers Branch may have taken.
In all, Boeing turned over 37,000 pages of documents, Lockheed said.
Boeing gave up the documents after a civil court case filed by Branch and Erskine in a wrongful-termination suit. Branch and Erskine said that they had tacit consent from their bosses at Boeing when they used the Lockheed Martin documents.
In 1998, after an intense competition, the Air Force gave Boeing a contract to build 19 of 28 rockets, leaving the rest for Lockheed. The Air Force later gave Boeing a contract for two additional rockets.
Lockheed says in the suit that in addition to Boeing unfairly winning the bulk of the contract, the award gave its rival a leg up on future contracts for both military and commercial launches, estimated to be worth $40 billion over the next 20 years.
If Lockheed wins its case, the company could try to recover the estimated $1 billion it spent on developing the rocket, plus any lost profit had it won the majority of rocket contracts. With launch vehicle makers typically making profit margins of 10% to 12%, Lockheed could argue that it lost profit worth nearly $400 million, analysts said.
The lawsuit surprised aerospace industry observers.
“I don’t remember anything like this,” said Paul H. Nisbet, a veteran aerospace analyst. “There is a lot of suing going on between firms and their suppliers, but it’s unusual between two big aerospace firms.”
Jon B. Kutler, president of aerospace investment bank Quarterdeck Investment Partners Ltd., said lawsuits like Lockheed’s are rare because years of consolidation have left only a few major players in the defense business competing for fewer programs.
Because rivals could be competitors on one project and suppliers and even partners on other programs, “you try to work it out,” Kutler said. “It usually doesn’t rise to this level.”
After surging on an analyst’s upgrade earlier in the day, Boeing shares dropped back slightly in the afternoon as Lockheed announced the lawsuit.
Boeing shares were up $1.14 to $34.31. Shares of Lockheed were unchanged at $46.50. Both trade on the New York Stock Exchange.
