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Boeing Moves Forward After Government Fine

RENEE MONTAGNE, host;

The Boeing Company and the Justice Department have reached a tentative settlement to close two criminal cases. The agreement would get the aircraft maker back in the good graces of Washington, and appears to set a record for penalties paid by a Pentagon contractor.

NPR's Peter Overby reports.

PETER OVERBY reporting:

There's no Guinness book entry to defense industry fines, but Boeing's does seem to qualify. It's $615 million. Senior Justice Department officials say they can't remember any bigger penalty for fraud by a defense contractor, and at the Project on Government Oversight, or POGO, a watchdog group in Washington, Scott Amey says it's nearly five times larger than anything in their database. He has an important caveat.

Mr. SCOTT AMEY (General Counsel, Project on Government Oversight): Unfortunately, a lot of these settlements are done without the light of day. So it may not be the largest out there, but it's the largest that we found.

OVERBY: Boeing had to clean up after two costly procurement scandals. First, employees in Boeing's rocket division obtained and used proprietary data from competitor Lockheed Martin. That gave Boeing an unfair advantage in contracts with the Air Force and NASA. And second, Boeing hired Darlene Druyan, the top Air Force procurement official, right after she helped Boeing secure a one of a kind deal to build tanker aircraft and lease them to the Air Force.

Druyan went to prison and so did Michael Sears, the Boeing's Chief Financial Officer. Boeing's CEO, Phil Condit, resigned. The tanker deal was killed. Now, the agreement with DOJ would have Boeing accept responsibility for wrongdoing by its employees, but the corporation itself won't face any criminal charges. In fact, Boeing is already back in the hunt for a new Air Force tanker contract, and it's in partnership with Lockheed Martin on space vehicles. POGO's Scott Amey says the tentative agreement highlights anti-trust problems in the defense industry, as Washington has allowed or even encouraged corporate mergers.

Mr. AMEY: The government has pretty much placed itself in a position where it has to continually buy goods and services from contractors that violate federal law and federal regulations. The government's created its own monster, and it can only blame itself.

OVERBY: The agreement puts Boeing under Justice Department oversight for two years. A department spokesman said that the agreement is expected to be signed in the next few weeks. But it's good news right now for Boeing, which has been cleaning house at the top. The new CEO, Jim McNerney, took command last July. In December, Ken Duberstein was named lead director on the board. He was President Ronald Reagan's last chief of staff, and has become one of the best-connected Republican lobbyists in Washington.

Last Friday, Boeing hired a new general counsel, J. Michael Luttig, a federal appellate judge who has been on the Republican short list for a Supreme Court seat. And Monday's settlement with DOJ should further bolster Boeing's standing on Wall Street.

Mr. MARK DAVIS (Senior Aerospace and Defense Analyst, FTN Midwest Securities): How this was going to eventually shake out was a concern among investors.

OVERBY: That's Mark Davis, Senior Aerospace and Defense Analyst for FTN Midwest Securities in Cleveland. He notes that Boeing holds its annual analyst's day tomorrow in St. Louis.

Mr. DAVIS: Clearly, whenever you're having these types of events, it never hurts to have news like this come out. Bottom line, it is nice to be able to say that these things are on their way or have been put behind Boeing, and that investors can now be focused on the core operations of the business.

OVERBY: A business whose stock price fell about 1 percent yesterday. But even a record setting fine is a small problem compared to criminal prosecution. So Davis and other analysts say Wall Street should smile again on Boeing soon enough.

Peter Overby, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

Peter Overby has covered Washington power, money, and influence since a foresighted NPR editor created the beat in 1994.

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