Knife Finally Finds Boeing's Condit - TheStreet

Updated from 9:03 a.m. EST

Boeing

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Chief Executive Phil Condit resigned Monday, a week after the firm fired CFO Mike Sears for recruiting a government official that was in a position to influence Boeing contracts.

On a conference call, incoming president and CEO Harry Stonecipher said that Condit was not involved in the scandal and that there was no connection between his resignation and Sears' dismissal. But Condit acknowledged in a press release that he was stepping down "to put the distractions and controversies of the past year" behind the company.

Deutsche Bank analyst Christopher Mecray said Condit's departure "clearly reflects the board's concern over the series of ethical breaches that have occurred in 2003. The change is perhaps an effort to clear the air and ensure a fresh slate as the company tackles a set of new projects."

Boeing named Lewis Platt, the former CEO of

Hewlett-Packard

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, to be its non-executive chairman. Stonecipher had been Boeing's vice chairman before retiring last year.

Several analysts speculated that Stonecipher's appointment would be temporary given that he is already 67 years old, but the new CEO vowed to stay on as long as his health and the board of directors allowed him to.

During the conference call, participants questioned whether recent events would derail multibillion-dollar deals for U.S. Air Force refueling tankers and other military programs. Stonecipher said he did not think that likely and later added that the proposed new 7E7 jetliner program was still on track.

"We believe that Boeing's defense offerings are vital to the Pentagon's ongoing transformation process," said Standard & Poor's analyst Peter Jacobs. "And so we surmise that the Pentagon will continue to buy BA's F-18's, C-17's and next-generation tankers."

Last week, two senators asked the Defense Department to reconsider a plan to buy aerial tankers from Boeing for $17 billion. John McCain (R., Ariz.) and Peter Fitzgerald (R., Ill.) said it was imperative to "determine what effect this apparent conflict of interest may have had."

The controversy stems from Sears' decision to hire Air Force missile defense expert Darleen Druyun while she was still working for the Pentagon and associated with the bidding process for the 767 tanker program. The Pentagon is looking into allegations that Druyun gave Boeing information about a competing bid on the deal. Druyun was fired by Boeing along with Sears.

Prudential Equity Group analyst Rory Cohen said he is concerned that Condit "may not be the last to go, particularly since the circumstances surrounding Darleen Druyun's hiring remain under the microscope."

This isn't the first time Boeing has come under scrutiny. In July, the Air Force took away seven satellite launch contracts from Boeing worth about $1 billion and prevented the company from bidding on these contracts in the future after it learned that the firm had used trade secrets from

Lockheed Martin

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to win the initial award. Since Sept. 11, Boeing's defense contracts have brought in more revenue than its commercial airplane division.

Earlier in the year, Boeing recorded huge writedowns in its space and military business lines, and the company recently lost its position as the world's largest maker of commercial jets to European consortium Airbus Industrie. On Monday, Boeing lost a Qantas Airways order worth about $1.15 billion. Qantas, which is a key customer for Boeing, will purchase 23 new Airbus planes.

This summer, Boeing lowered its guidance for 2004 earnings and aircraft deliveries. But the stock has climbed almost 18% this year. Shares of Boeing are sitting close to a 52-week high but were recently down 29 cents, or 0.8%, to $38.10.