More Flak for Boeing

Will the Darleen Druyun hiring scandal now ensnare James Albaugh, head of its defense unit? The planemaker insists he's not a target

By Stanley Holmes

Boeing just can't seem to fly clear of its scandals. A published report says James F. Albaugh, the powerful head of the Chicago company's defense unit, has been drawn into an investigation over its hiring of a Pentagon procurement official. Boeing (BA ) strenuously denies the report.

Citing unnamed sources and several Boeing e-mails, The Wall Street Journal on Friday alleged that Albaugh had improper job-related contacts with ex-Air Force official Darleen Druyun while he was negotiating across the table from her. The Journal said Albaugh "was aware of, and participated in, job-related contacts with Ms. Druyun."


  Boeing officials insist that the company e-mails were taken out of context and had already been reviewed months ago by the U.S. Attorney's office. The company says Albaugh isn't the target of an expanded investigation. Boeing Senior Counsel Paul Ehlenbach adds that "Boeing has no indication from the U.S. Attorney's office that the investigation is turning toward Mr. Albaugh or any other Boeing executive."

But Boeing officials also conceded that the government investigation is continuing. The Assistant U.S. Attorney in charge of the investigation, Robert Weickering, couldn't be reached for comment late Friday.

The tension surrounding the latest report underscores how tenuous Boeing's position is with its largest customer, the Pentagon. As chief of Boeing's Integrated Defense Systems (IDS) unit, Albaugh is responsible for more than half of the company's revenues. As BusinessWeek reported in its Sept. 6 issue, Albaugh emerged as a stabilizing force as Boeing was wracked by a series of scandals and had been making progress at restoring its tarnished reputation and getting the Defense Dept. to lift the ban on defense work by its rocket unit.


  On Friday, the Air Force awarded Boeing a $54 million contract to launch four government GPS satellites -- the first rocket-launch contract since the Air Force suspended Boeing in 2003 for possessing unauthorized Lockheed-Martin (LMT ) documents. Albaugh is seen as a leading candidate to succeed CEO Harry C. Stonecipher when he retires in 2006.

That ascent would be cut short, though, if Albaugh is drawn into the Druyun affair. Albaugh, who hasn't been formally charged with any misconduct, has insisted on many occasions that he had no role in hiring the No.2 Air Force procurement official. Druyun and former Boeing CFO Michael Sears were fired last November for concealing illegal employment negotiations during the fall and winter of 2002 while Druyun was still in charge of programs such as a multibillion-dollar deal to buy tanker planes.

Druyun has since pleaded guilty to one count of criminal conspiracy in April. She's expected to be sentenced in September. Sears had planned to enter a plea in August, but the court date was postponed. Jamie Wareham, an attorney for Sears, declined to comment.

With Stan Crock in Washington Holmes is a correspondent in BusinessWeek's Seattle bureau

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