Boeing: Corporate Rap Sheet

Boeing

By Philip Mattera

Boeing is both a powerhouse of the commercial aircraft industry—its jets are among the best known industrial products made in the United States—and a leading military contractor. It also has one of the most checkered ethical records of any large corporation. A slew of contracting scandals in the 2000s forced the company’s chief executive to resign and prompted Congress to strip the company of a $20 billion Pentagon deal (though it later managed to get that award reinstated). Boeing also has a history of contentious relations with its main U.S. unions and was accused of retaliating against them by moving a new assembly line for its Dreamliner aircraft to the union-unfriendly state of South Carolina, which rewarded the company with a subsidy package estimated to be worth more than $900 million. In 2013 the company negotiated a much larger package from Washington State (along with union contract concessions) in exchange for keeping production of its next-generation airliner in the Seattle area.

 

Government Contracting

In 1989 Boeing pleaded guilty and paid a penalty of more than $5 million in connection with charges that it illegally obtained classified Pentagon planning documents.   

In April 1994 Boeing paid $75 million to settle charges that it systematically overcharged and mischarged the federal government on military contracts over the course of more than a decade.

In November 1997 Boeing subsidiary McDonnell Douglas agreed to pay $2 million to settle allegations that it overcharged the Pentagon in a contract to repair aircraft manufacturing equipment.

In August 2000 Boeing agreed to pay up to $54 million to resolve two whistleblower lawsuits charging that the company placed defective gears in CH-47D Chinook helicopters and then sold the aircraft to the U.S. Army.

In November 2000 Boeing and United Space Alliance agreed to pay a total of $825,000 and give up their rights to $1.2 million in unpaid invoices to settle allegations of overbilling NASA for work overseen between 1986 and 1992 by Rockwell Space Operations (later purchased by Boeing).

In July 2003 the U.S. Air Force stripped Boeing of $1 billion in potential revenue as a penalty for obtained documents stolen from its rival Lockheed Martin during a contract competition for military satellites.

In November 2003 Boeing dismissed its chief financial officer when it came to light that he had offered a job to an Air Force procurement official while she was in negotiations with the company on a $20 billion contract to supply aerial refueling tankers.

Also fired was the former procurement official, Darleen Druyun, who had accepted the job offer. The scandal also led to the resignation of Boeing’s chief executive. In 2004 Druyun was sentenced to nine months in federal prison after admitting that she had lied to prosecutors about approving inflated prices on contracts awarded to Boeing to enhance her job prospects with the company. Boeing’s former chief financial officer also pleaded guilty to a conflict-of-interest charge.

In the wake of the Druyun scandal, Congress barred the Pentagon from pursuing the aerial tanker deal with Boeing, and in March 2008 it was awarded to a partnership of Northrop Grumman and Airbus parent EADS. Three months later, however, the competition was reopened and ended up back with Boeing.

In June 2006 Boeing agreed to pay a record $615 million to settle federal civil and criminal charges that it improperly used competitors’ information to procure contracts for launch services worth billions of dollars from the U.S. Air Force and NASA.

In August 2009 Boeing agreed to pay $25 million to settle allegations that it performed defective work on the entire KC-10 Extender fleet, a mainstay of the Air Force’s aerial refueling fleet used in Iraq and Afghanistan.

In October 2010 Boeing agreed to pay $4 million to settle a civil lawsuit alleging that it unlawfully inflated the price it charged the Air Force to produce the Towed Decoy System for the B-1 bomber.

In January 2012 Boeing agreed to pay more than $4.3 million to resolve charges that it improperly billed the Pentagon for the remanufacture of Chinook helicopters at its plant in Ridley Park, Pennsylvania.

 

Environment and Product Safety

For decades, Boeing generated hazardous wastes at its production facilities in Washington State. In 1990 a federal jury found that the company did not knowingly dump toxic material in dump sites in the 1950s and 1960s but concluded that the company had done so in the following decade. Boeing thus was found partially responsible for the clean-up of two heavily contaminated sites in Washington.

In 1990 the company settled a class action lawsuit brought on behalf of 700 people who had allegedly been hired by Boeing for jobs that involved exposure to electromagnetic pulse radiation and were monitored for health effects without their knowledge. The lead plaintiffs' counsel charged that the 700 persons were used as human research subjects without their consent. The settlement, in which Boeing admitted no wrongdoing, involved payment of $500,000 in cash and an annuity to the family of one employee who claimed that he developed leukemia as a result of the exposure. The company also agreed to pay for regular medical examinations over ten years for the other class members, who reserved the right to bring claims for compensation if they develop adverse health effects.

In 1991 the U.S. Environmental Protection Agency fined the company $620,475 for improper storage of hazardous wastes and deficiencies in its training practices regarding toxics. That same year the company was sued by a group of employees who charged that Boeing had concealed the dangers of a substance (Ferro CPH2284P) they were exposed to on the job.

In December 2010 Boeing was one of the parties that agreed to provide $3.25 million in funding to help clean up TCE contamination at the Moses Lake Wellfield Superfund site in Washington State.

Product Safety. Because of its years of dominance in the commercial aircraft market, Boeing was frequently at the center of controversies over air safety. For example, after a Japan Air Lines 747 crashed during a domestic flight in 1985, killing 520 people, Boeing admitted that it had performed faulty repairs on the plane’s rear safety bulkhead. For more than a decade after that, there were repeated reports of defects in the company’s planes.

In 1989 the U.S. Federal Aviation Administration ordered inspections of engine monitoring and fire alarm systems on more than 700 Boeing 737s—all of those built since the end of 1980—after one of those jets crashed in Britain as a result of malfunctions in two engines.

In 1989 the FAA proposed a then-record fine of $200,000 against Boeing for failing to promptly report the discovery that fire extinguishers on two 757s were faulty.

In 1994 the Seattle Times, after reviewing 20 years of reports submitted to the FAA, concluded that more than 2,700 Boeing 737s then in service were flying with a defective part that could cause the plane’s rudder to move unpredictably, possibly turning the aircraft in the opposite direction being steered by the pilot.

In 1997 the FAA ordered an immediate change in the fuel pumps in all 747s and proposed a change in the wiring of older planes of that model.

In 1998 the FAA grounded more than 170 older 737s after finding damage to fuel-pump wiring in some of the planes.

In 1999 the FAA proposed a penalty of $392,000 against Boeing for failing to notify regulators of a safety defect in the fuel valves of its 757 jets.

In 2002 the FAA ordered U.S. airlines to inspect more than 1,400 planes manufactured by Boeing see if they were equipped with an improperly wired fuel pump that could cause an explosion in the rare event that fuel went below minimal levels.

In July 2012 the FAA proposed a civil penalty of $13.57 million against Boeing for failing to meet a deadline to submit service instructions that would enable airlines to reduce the risk of fuel tank explosion on its 747 and 757 jets.

In January 2013, after several incidents in which lithium-ion batteries in 787s caught fire, the FAA ordered the grounding of all U.S.-based Dreamliners. A federal official accused the company of having submitted flawed safety test results on the batteries.

 

Labor

Like all the major aerospace companies, Boeing was less than enthusiastic about the unionization of its employees. The International Association of Machinists did, however, eventually succeed in winning collective bargaining rights for many of the company's production workers.

The bargaining power of the Machinists has fluctuated with the erratic condition of the aircraft market. During the uncertainties of the early 1980s Boeing, along with competitors, got a lot tougher at the bargaining table. In 1983 the Machinists signed a contract with Boeing that substituted lump-sum payments for wage increases and instituted a two-tier pay structure. The pact prompted other companies to demand concessions. The industry was booming in 1986, but Boeing again got the Machinists to take lump sums instead of increases in base pay.

In 1989, while the company was flooded with orders and falling behind in filling them, the Machinists went on strike to pressure the company to make up for the six years without an increase in the base wage. The workers--many of whom welcomed the strike as a respite from exhausting amounts of mandatory overtime--stayed out for 48 days and then accepted a settlement that included both lump-sum payments and moderate increases in base pay.

In January 1993 members of the Seattle Professional Engineering Employees Association (SPEEA, which now stands for Society of Professional Engineering Employees in Aerospace) staged a one-day strike to protest Boeing’s contract offer—the first walkout by the union representing 28,000 technical employees at the company.

In 1995 the Machinists struck Boeing for ten weeks in a contract dispute over health benefits and job-security issues linked to the company’s growing practice of outsourcing. The union managed to beat back  management’s most aggressive demands. The company again sought major concessions and then backed down during the 1999 round of negotiations, thereby averting a strike. The following year, however, SPEEA members walked off the job for 40 days.

In 1999 the U.S. Labor Department accused Boeing of impeding an investigation into racial discrimination at the company. Boeing later agreed to pay $4.5 million to settle claims of both racial and gender discrimination involving more than 4,000 women and 1,600 minority employees in six locations. The settlement with the U.S. Labor Department was the first in which a firm committed to a company-wide program to eliminate discriminatory pay disparities.

Nonetheless, the company was hit with a class action sex discrimination lawsuit that was settled in 2004 when the company agreed to pay up to $72.5 million in damages and to revamp many of its personnel practices. The settlement was preceded by reports that Boeing had suppressed evidence in the case.

During the 2002 contract talks, a majority of Machinists union members rejected the company’s offer, seeing it as offering inadequate job security, but the required two-thirds did not vote in favor of a strike. The Machinists did, however, walk out in 2005 in protest of the large number of contract concessions the company was seeking. The strike ended after four weeks, with the company withdrawing its most significant demands regarding employee healthcare costs, but the new pact contained no general wage increase. The Machinists walked out again in 2008 and remained on strike for more than seven weeks until Boeing agreed to put some limits on outsourcing.

In October 2009 Boeing outraged its unionized employees when it announced that plans to open a second assembly line for its 787 Dreamliner jet in South Carolina, where it would likely be run non-union. A Business Week article at the time was headlined BOEING’S FLIGHT FROM UNION LABOR. 

In April 2011 the National Labor Relations Board, at the request of the Machinists, filed a complaint alleging that Boeing’s Dreamliner move to South Carolina represented an illegal form of retaliation against its union workers for past activism. The charge, which sparked a political firestorm, was settled the following November when the union and the company made a deal under which the South Carolina project would proceed but Boeing promised that work on its 737 MAX plane would be performed in the union’s Seattle stronghold.

In November 2013 members of the Machinists union rejected a demand by the company that they give up their  traditional pension plan and make other contract concessions as a condition for locating work on the new 777X jetliner in the company's traditional manufacturing center near Seattle. After the company began shopping the project to other states, many of which were willing to offer generous subsidies, the Machinists voted again and narrowly approved the concessions.

 

Export Controls

In October 1998 Boeing agreed to pay $10 million to settle U.S. State Department allegations that it improperly disclosed sensitive information to Russian and Ukrainian partners in a commercial space venture known as Sea Launch.

In October 1999 Boeing subsidiary McDonnell Douglas was hit with a federal indictment charging that it lied on an application for exports licenses for machine tools, concealing evidence that equipment would be used by its Chinese customer for prohibited military purposes. In 2001 the company was fined the maximum of $2.12 million by the Commerce Department.

In April 2001 Boeing was fined $3.8 million by the U.S. State Department for violating export controls during its negotiations with Australia on the sale of a new airborne radar system.

In March 2003 Boeing and Hughes Electronics agreed to pay $32 million to settle U.S. State Department charges that they illegally provided China with sensitive space technology in the 1990s.

 

Taxes and Subsidies

Boeing has been an aggressive seeker of subsidies both in cases when it was relocating facilities and when it was staying put. In March 2001, after 75 years of being based in Seattle, Boeing held a press conference in Washington, DC to reveal that it planned to move its headquarters to another part of the country. Boeing reportedly wanted a neutral place, without any major company operations, to make the announcement. This was apparently part of a plan by Boeing to reinvent itself as a global high-technology company.

After making the announcement, Boeing launched an unusually public auction among three metropolitan areas – Chicago, Denver and Dallas-Ft. Worth – that had already been selected as finalists. The three areas launched frantic, high-profile campaigns to win the prize. Each city enlisted public officials and celebrities to sing its praises, and, of course, each one put together a generous package of subsidies. The most generous of the three was the deal put together by Chicago and the State of Illinois, which had a total value estimated at $56 million. The amount is all the more amazing in light of the fact that Boeing's new headquarters was expected to bring only about 500 jobs to the Windy City.

The loss of Boeing's headquarters sent chills through Seattle; leaders there feared that the company was thinking of relocating its production facilities as well. That fear of disinvestment likely softened up Washington state for the company's next auction. In 2003, Boeing launched a 20-state bidding war for its next-generation passenger jet, the 7E7 “Dreamliner” project. Recognizing that the company was looking to win major concessions to keep its assembly operations in Seattle, the engineers’ union denounced the auction as “corporate extortion of the communities and people who have long supported Boeing.”

Boeing wanted a lot more (financial) support, and the state's elected officials were eager to provide it. Governor Gary Locke got his way, and Boeing ended up with a package of research & development tax credits and cuts in Business & Occupation taxes (the state’s substitute for a corporate income tax), sales taxes and property taxes that together were estimated to be worth $3.2 billion over 20 years. As a result, the aerospace industry, which had been the state’s biggest source of business tax revenue, would see much of its tax liability disappear. The state also raised gasoline taxes to fund transportation improvements, overhauled the unemployment insurance system to reduce costs for employers and tightened up on workers compensation claims. Boeing responded favorably to all this, selecting its long-time assembly operation in the Seattle suburb of Everett as the production site for the Dreamliner. It later emerged that the state also gave Boeing $32 million for training costs plus other “sweeteners.”The strategy was successful, though there were lingering suspicions that Boeing never seriously considered leaving the Seattle area.

In 2003, the Kansas legislature offered Boeing a half-billion dollars in bond financing to build part of the 7E7 at its Wichita facility. Boeing would then be allowed to pay off $200 million in interest by collecting personal income taxes collected from its 7E7 workers. Boeing agreed to the terms, but in 2005 sold its civilian Wichita operations to Onex Corporation, a Canadian private equity company.

South Carolina was one of the “losers” in the 2003 competition staged by Boeing for its initial production facilities for the 7E7 Dreamliner. But in October 2009 Boeing announced that it would spend at least $750 million on a new 7E7 production line and create thousands of jobs. The state's subsidy package was initially estimated at $450 million, a large part of which reflected generous property tax abatements. In January 2010 the Charleston Post and Courier published an analysis of the package that concluded it could be worth more than $900 million.

The fact that Boeing became the recipient of a huge amount of government assistance throughout the U.S. has not prevented the company from expressing righteous indignation over the government aid received by its European competitor Airbus. Boeing has tried to argue that its subsidies are different, but the World Trade Organization ruled in 2010 that they are not legitimate (and upheld that ruling in 2012).

In November 2013 the Washington State legislature approved a 16-year extension of aerospace industry tax breaks worth an estimated $8.7 billion to Boeing (mostly) and its suppliers to get the company to commit to building its new 777X plane in the Puget Sound area. As noted above, members of the Machinists union initially rejected a demand by the company that they give up their  traditional pension plan and make other contract concessions as another condition of siting the work locally. After the company created an auction for the project and many other states offered lucrative subsidy packages, the Machinists held a new vote and narrowly accepted the concessions.

According to the Good Jobs First Subsidy Tracker, Boeing has received more state and local economic development subsidies than any other company.

 

Watchdog Groups and Campaigns

Arms and Security Project

Campaign Against Arms Trade

International Association of Machinists

Project On Government Oversight

SPEEA

War Resisters’ International

 

Key Books and Reports

American Arms Supermarket by Michael Klare (University of Texas, 1984)

Barons of the Sky by Wayne Biddle (Simon & Schuster, 1991).

Boeing versus Airbus by John Newhouse (Knopf, 2007).

Boeing's Cash Cow: A Corporate Strategy's Impact on Middle Class America by Jack Norman (Institute for Wisconsin's Future, April 2010).

Legend and Legacy: The Story of Boeing and Its People by Robert J. Sterling (St. Martin’s Press, 1992).

Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex by William D. Hartung (Nation Books, 2010).

The Arms Bazaar by Anthony Sampson (Viking Press, 1977)

The Iron Triangle: The Politics of Defense Contracting by Gordon Adams (Council on Economic Priorities, 1981)

The Politics of Contracting (Project On Government Oversight, June 2004).

The Sporty Game by John Newhouse (Alfred A. Knopf, 1982).

 Twenty-First-Century Jet: The Making and Marketing of the Boeing 777 by Karl Sabbagh (Scribner, 1996).

 

Last updated May 28, 2014.