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Air Force Slams Boeing Over Launch Contract Irregularities

By | July 25, 2003

      The U.S. Air Force has determined that Boeing [NYSE: BA] committed serious violations of federal law based on a governmental review of allegations about wrongdoing by the company during the 1998 Evolved Expendable Launch Vehicle (EELV) contract selection process. “Our inquiry into Boeing found that they were in possession of thousands of pages of Lockheed Martin [NYSE: LMT] proprietary EELV documents during the 1998 source selection,” said Under Secretary of the Air Force Peter B. Teets. As a result, the Air Force will suspend three Boeing Integrated Defense System business units and three former Boeing employees from eligibility for new government contracts.

      In addition, the Air Force has notified Boeing of its intent to reallocate launches under its existing EELV contract, which was awarded in October 1998. This could cost Boeing $1 billion in revenue, according to press reports. The Air Force said it will reduce the total number of Boeing Delta IV launches under the EELV program from 19 to 12. The Air Force will increase the total number of Lockheed Martin Atlas V launches from 7 to 14. Further, the Air Force will permit Lockheed Martin to develop a West Coast launch capability at Vandenberg AFB by upgrading an existing launch facility. In addition, the Air Force disqualified Boeing from the award of three additional launches and plans to give Lockheed Martin those three launches to conduct from Vandenberg AFB.

      In response to the Air Force decision, Boeing Chairman and CEO Phil Condit said: “We are extremely disappointed by the circumstances that prompted our customer’s action, but we understand the U.S. Air Force’s position that unethical behavior will not be tolerated. We apologize for our actions. We will continue to work with the Air Force to address the issues that caused this suspension.”

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