Boeing’s Misconduct Is Detailed in Memo

Times Staff Writer

An internal Air Force memo suggests a broad pattern of improprieties by Boeing Co. when it bid on Pentagon contracts, apparently contradicting the aerospace giant’s assertions that such problems were isolated and that it corrected them quickly.

According to the memo, Boeing misled federal investigators and lied about the number of documents that Boeing employees stole from rival Lockheed Martin Corp. to win a lucrative rocket contract.

The Air Force hit Boeing last summer with one of the harshest penalties ever imposed on a defense contractor when it took away about $1 billion in rocket contracts and indefinitely suspended the company from bidding on future rocket deals.

The 10-page memo offers details on the rocket contract scandal, saying that thousands of pages of Lockheed Martin documents gave Boeing an unfair advantage to develop a new generation of rockets known as Evolved Expendable Launch Vehicles, or EELV. The memo says that “an independent team of pricing experts determined” that the documents helped Boeing calculate Lockheed’s bid within 2.4% of the offer.


The memo also reveals for the first time how the Air Force in 1999 considered suspending Boeing for having in its possession proprietary papers from Raytheon Corp. when the two rivals were competing for a missile defense program contract.

“Boeing’s misuse of a competitor’s proprietary documents ... is not unique to the EELV program,” Steven A. Shaw, the Pentagon’s deputy general counsel, says in the memo.

It is included in a recent court filing in a civil lawsuit filed by Lockheed against Boeing in federal court in Orlando.

As Boeing was on the verge of winning the rocket contract, the memo says another Boeing “capture team” was busy reviewing, analyzing and copying the proprietary documents laying out Raytheon’s proposal for a missile defense system.


They were inadvertently left at Boeing’s Downey facility by an Army official in 1998. A Boeing software engineer discovered the file, but instead of destroying it “or returning it to Raytheon or the Army,” it was copied and analyzed, according to the memo.

At least one Boeing employee was involved in both the Lockheed and Raytheon incidents, according to the memo. It doesn’t identify the employee.

Boeing’s apparent failure to abide by its assurances to report and deal with improper activities angered Air Force officials and compounded the penalty in the Lockheed EELV case, said a source familiar with the Air Force discussions.

A Boeing spokesman declined to comment Thursday on the Air Force memo because he had not seen it. Boeing stands by its position that the theft of Lockheed documents involved only “a handful of its employees” and that Boeing has aggressively implemented an overhaul of its ethics policies, said the spokesman, Dan Beck.

“We took the suspension very seriously, and since then Boeing has continued to cooperate fully with the Air Force,” Beck said.

Lockheed spokesman Jeff Adams said that “the documents related to this case ... speak for themselves.”

The rocket scandal was the first of two that rocked Boeing last year, leading to the resignation of longtime Chief Executive Phil Condit.

Last fall, the Pentagon and Congress began investigating whether Boeing Chief Financial Officer Mike Sears improperly offered a job to a Pentagon official as she was negotiating a $24-billion deal to lease and buy 100 aerial refueling tankers from Boeing. The company hired the official, Darleen Druyun, after she left the Department of the Air Force.


Sears and Druyun were fired in November. This week, Druyun pleaded guilty to one count of conspiracy.

Boeing CEO Harry Stonecipher said this month that a tentative agreement had been reached with the Air Force to restore Boeing’s status as a rocket contractor and that he expected the Air Force to make a formal announcement within a “few weeks.”

An Air Force official said Thursday that she was unaware of an agreement or any possible announcement in the foreseeable future related to the rocket program.

The Lockheed case has long plagued Boeing, which has consistently blamed a few rogue employees for wrongly obtaining Lockheed documents.

The Air Force memo says that at least one Boeing senior executive possessed a Lockheed document and that another executive may have encouraged their pilfering.

In addition, the memo says, Boeing’s management continually misled the Air Force and provided “false statements.”

Early on, the Air Force said Boeing led it to believe the company had only two sets of Lockheed documents. Later, Boeing acknowledged having two boxes. But Boeing actually had eight boxes, according to the memo.

In his July 24, 2003, memo, Shaw concludes that Boeing had 24,500 pages of Lockheed documents. In a court filing last month, Lockheed said it had received an additional 18,000 pages of documents from Boeing.


“To date, Boeing has returned to Lockheed Martin over 42,000 pages of material,” a Lockheed lawyer wrote. “These documents have been in Boeing’s possession for years, even as Boeing represented to Lockheed Martin that it had disclosed all of the Lockheed Martin documents it had in its possession, even though it was clearly not the case.”