Air Force Shoots Down Boeing

The Air Force ruled that Boeing Co. broke the law by stealing a competitor's trade secrets and, as a penalty, took away seven military satellite launches that were to use Boeing rockets.

The Air Force also indefinitely banned Boeing from bidding on future satellite-launching contracts.

The shift of seven satellite launches from Boeing to rival Lockheed Martin Co. is worth about $1 billion, Air Force Undersecretary Peter Teets said Thursday.

"Boeing is responsible and must be held accountable for the actions of its employees," Teets said at a Pentagon news conference. "We cannot tolerate anything but complete honesty in our contracting process."

The suspension will remain in place until the Air Force is satisfied that Boeing has changed its ways and atoned for its misdeeds, Teets said. He said he spoke with Boeing chief executive Phil Condit and was optimistic the company could have the suspension lifted in as little as a few months.

Condit said all of the 78,000 workers in Boeing's Integrated Defense Systems unit would have a "stand-down" on Wednesday to discuss the problem and have more ethics training.

"We are extremely disappointed by the circumstances that prompted our customer's action, but we understand the U.S. Air Force's position that unethical behavior will not be tolerated," Condit said in a statement. "We apologize for our actions. We will continue to work with the Air Force to address the issues that caused this suspension."

Teets said an Air Force investigation concluded that Boeing committed "serious and substantial violations of federal law" by stealing extensive information from Lockheed Martin during competition for a $1.88 billion satellite launching contract in 1998. Worse, Boeing did not reveal the extent of the problem until years later and only gave the Air Force copies of all the Lockheed Martin documents this April, Teets said.

Teets announced the penalties after stock markets closed Thursday. Boeing stock closed down 49 cents Thursday at $32.20. Lockheed Martin shares were down $1.83 to $51.55.

Lockheed Martin is suing Boeing over the document theft.

The Justice Department is investigating the matter and has charged two former Boeing managers with conspiring to steal trade secrets from Lockheed Martin. Boeing took out full-page ads in several newspapers last month to acknowledge the lapse and apologize.

Teets said the Air Force investigation found that former Boeing executives Kenneth Branch, William Erskine and Larry Satchell broke the law and would be barred from participating in any future rocket contracts.

Branch, 64, and Erskine, 43, were charged with conspiracy, theft of trade secrets and violating federal procurement laws in federal court in Los Angeles. Branch, a former Lockheed Martin employee, gave Boeing the thousands of pages of documents that included financial and technical details of Lockheed Martin's planned bid for the satellite launch contract. Boeing fired both men in 1999 after an internal investigation.

Satchell, the Boeing official in charge of making sure its bid came in lower than Lockheed Martin's, was suspended by the company and later retired. He has not been criminally charged.

The Air Force had awarded Boeing 21 launches and Lockheed Martin seven. With Thursday's action, Lockheed Martin doubles its launches to 14. Lockheed Martin also will get three more launches scheduled to be awarded later this year, Teets said.

Although most of the launches are from Cape Canaveral, Fla., Boeing also has a launch pad at Vandenberg Air Force Base in California. Thursday's punishment includes allowing Lockheed Martin to build a $200 million launch pad at Vandenberg to compete with Boeing for West Coast launches.

Teets, a former executive with Lockheed Martin who retired from the company in late 1999, said he was concerned Boeing might decide to get out of the business of launching military satellites. But the company's wrongdoing was so serious it deserved a strong punishment, Teets said.

"While it's fine to compete, it's not fine to compete at any cost, and it's not fine to violate federal laws," Teets said.
By Matt Kelley