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Boeing's Defense Deals and Ethical Issues



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Code : GOV0038

Year :
2004

Industry : Aircrafts and Ship Building

Region : USA

Teaching Note: Not Available

Structured Assignment : Not Available

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Introduction: In the midst of a corporate scandal at Boeing’s defense business unit, Phil Condit (Condit), Boeing’s chairman and CEO, resigned on December 1st 2003. Prior to his resignation, Condit fired Boeing’s chief financial officer, Michael Sears (Sears) and vice president Darleen A Druyun (Druyun) for unethical behaviour. Though this was not the first time that Boeing got into trouble on ethical grounds, yet industry analysts believed that this scandal would cost Boeing its biggest defense customer – the Pentagon.

Till mid 1990s,Boeing dominated the commercial aircrafts industry. Its commercial jet business was the main money maker. But to offset the cyclical nature of commercial airline industry, Boeing began to focus on its defense and space business. Also, after the September 11 terrorist attacks, government too, increased its spending on defense contracts. To capitalize, Boeing merged its space, defense, government, intelligence and communications capabilities into one business unit – Integrated Defense Systems. This was a $23 billion business unit with 78,600 employees world wide, headquartered in St. Louis,Missouri. Boeing’s defense unit’s sales rose by 9.4% to $25 billion in 2002 – 42% of total revenues. Boeing’s biggest customer was the Pentagon, whose contracts value rose from $11.57 billion in 1999 to $16.6 billion in 2002. But, the defense deals that were expected to rescue Boeing during the slump in commercial airline business, stirred up the hornet’s nest.

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