Ethical concerns besetting its defense business have kept Boeing Co.’s new chief executive busy repairing the company’s image in Washington, D.C.
In less than two months on the job, Harry Stonecipher has talked to lawmakers and Pentagon officials “trying to deal with this perception that we’re a bunch of crooks,” he said during an earnings conference call on Thursday, when the company reported a 42 percent jump in profit for 2003.
We are “focused on restoring our reputation with our U.S. government customers,” he said.
Despite troubles in the defense unit, the earnings report highlighted how Boeing has come to rely on that business, which supplanted the commercial airlines group as the company’s largest moneymaker.
The Chicago-based aerospace giant’s reputation took a drubbing last fall over a $20 billion-plus lease deal that would have allowed the U.S. Air Force to begin upgrading its aging fleet of tanker aircraft.
The contract ran into stiff opposition after Sen. John McCain (R-Ariz.) called it a taxpayer rip-off and asked for a Pentagon investigation into a possible conflict of interest on the part of an Air Force official who negotiated the deal and later went to work for Boeing.
Late last year Boeing fired Chief Financial Officer Michael Sears and Darleen Druyun, the former Air Force official, for alleged improper discussions about her joining the company.
A week later, Boeing CEO Philip Condit stepped down, saying his exit would help the company put its defense-related scandals behind it.
Stonecipher, Boeing’s former vice chairman who came out of retirement to head the company, said his repair job is far from done, and he will continue to meet with Washington officials.
A spokesman for McCain said the senator looks forward to meeting with Stonecipher.
The tanker debacle was the most public embarrassment for Boeing last year, but it was not the only one.
Earlier in 2003, Boeing was stripped of about $1 billion in rocket launch contracts and banned indefinitely from bidding on future launches after an Air Force probe.
But even if Boeing’s reputation is hurt, its defense business turned in a solid performance.
The unit’s 2003 revenue rose 10 percent, to $27.36 billion, beating the $22.41 billion in sales for the commercial airlines group.
“The irony is that Harry Stonecipher is concerned about defense, but the defense side was the most impressive,” said Richard Aboulafia, an analyst at the Teal Group in Fairfax, Va.
Boeing’s net income rose to $698 million in 2003 from $492 million the previous year.
In the fourth quarter, the company posted net income of $1.1 billion, about $700 million of it due to a $1.1 billion federal income tax refund resulting from a settlement with the Internal Revenue Service.
Excluding the refund, earnings were 50 cents a share, 4 cents better than a survey of analyst estimates by Thomson Financial/First Call.
Boeing shares rose 76 cents Thursday, to $42.30.
Quarterly earnings from operations dropped 27 percent, to $672 million. The decrease came partly because of a 3 percent dip, to $471 million, at Boeing’s commercial airplane unit. Boeing delivered 281 commercial jets in 2003, putting it behind chief rival Airbus for the first time.
Officials said they do not expect deliveries for commercial planes to pick up until 2006. Airbus has said it expects the market to remain soft this year.
Boeing’s defense and space operating earnings rose 8 percent, to $603 million, for the quarter.
Experts say Boeing’s image problem is not likely to pose a long-term threat. Because of consolidation in the U.S. defense industry, the Pentagon has few options besides Boeing.
“It’s more of an irritant than anything else, and it takes an inordinate amount of groveling by Boeing executives until this thing is behind them,” said Paul Nisbet, an aviation analyst with JSA Research in Newport, R.I.
