How Boeing Got Lost

Phi

l Condit spent his first 30 years at Boeing building iconic American aircraft: the 747, the 757 and the 777. He spent his last seven years as CEO, largely ignoring that business. Instead he steered the company into new areas, chased lucrative U.S. government contracts and moved its headquarters from Seattle to Chicago to be closer to its new clients. Those shifts diluted Boeing's reputation as an aircraftmaker and flung the company deeper into the mysterious, often seamy business of bidding for — competing isn't exactly the right word — government work. And it unraveled Condit himself. With allegations of Boeing's strategic and ethical lapses growing by the day, Condit abruptly resigned last week. The company's board replaced him with a veteran of the government-contracting game: retired Boeing president Harry Stonecipher, who showed an airline captain's knack for understatement when he acknowledged to reporters, "We've missed a few steps along the way."

It was a jarring turn of events for the company that is still the most recognized symbol of American industrial might. Boeing employs 157,441 people in 38 states and 70 countries. This year it is expected to earn $50 billion in revenues (a 14% slip from 2001) and will remain the largest U.S. exporter. Having made its name in airliners, it now builds everything from onboard Internet systems for airplanes to components of the space shuttle.

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But Condit's departure is a clear sign that the company has veered off course in its evolution from the focused manufacturer that Bill Boeing started in his red wooden factory 87 years ago. This year, for the first time ever, Boeing is expected to deliver fewer commercial airplanes than its aggressive European rival, Airbus (285 to Airbus' 300). At the same time, the company is suffering back-to-back ethical scandals in its work for the government. First came allegations that Boeing improperly got hold of thousands of pages of documents from rival Lockheed Martin in a competition for $1 billion of space-launch business for the Air Force. Then just days before Condit's resignation, Boeing fired its chief financial officer, Michael Sears, for "unethical conduct" in his conversations with an Air Force official handling a $20 billion contract for 100 Boeing refueling tankers. The deal is on hold while the Pentagon's inspector general investigates.

With a rise through Boeing's ranks fueled by his brilliance as an engineer, Condit proved less adept at managing the sprawling corporation and handling his messy private life. Married four times, he had become known in the company as a womanizer, often with Boeing employees, according to a report in BusinessWeek. (Condit has declined to comment.) The board's choice of Stonecipher as CEO showed either a lack of confidence in homegrown talent — the board surprisingly passed over Alan Mulally, 58, a dynamic and squeaky-clean Midwesterner who heads the commercial-jet unit — or a preference for a hard-nosed, decisive CEO. After meeting as frequently as twice a day to wrestle with the succession, the board broke its own age-limit rule of 65 to give the job to the 67-year-old Stonecipher, who had been chief of McDonnell Douglas when Boeing bought it in 1997. In his five years as Boeing's No. 2, he established himself as an aggressive cost cutter and gruff negotiator in his dealings with unions.

Stonecipher's first challenge is to regain the trust of Boeing's biggest customer — the U.S. government — and its congressional overseers. Senator John McCain, who almost single-handedly delayed and modified the tanker deal because he felt it was a "rip-off," now gives credit to Boeing for removing executives and trying to fix its problems. "They are trying to radically change the way they do business," says McCain. But he warns that if it is proved that the Air Force unfairly favored Boeing, the contract should be reopened for new bidders.

Stonecipher's second mission is to oversee what is probably the pivotal project in Boeing's future: the launch of its first commercial airplane in almost a decade. On Dec. 15, Boeing is expected to announce it is going ahead with its 200-passenger 7E7 jetliner. If the new plane fails, however, Boeing risks being squeezed out of the civilian-airplane marketplace. Maybe that's why Stonecipher's first move last week was to travel to Seattle and pose for photos in the 7E7 mock-up. While the new airliners may be just part of its business now, the company name is riding on them.