updated 3/9/2004 6:26:53 PM ET 2004-03-09T23:26:53

Independent investigators commissioned by Boeing Co. during a defense contract scandal said Tuesday they found no further wrongdoing but concluded that the company often ignores its own ethics policies on hiring government officials.

The examiners, led by former U.S. Sen. Warren Rudman, issued a report recommending changes to address what they called gaps in Boeing’s procedures and more safeguards and oversight to prevent hirings such as that of Air Force contracting official Darleen Druyun last year.

Druyun was fired in November along with Boeing chief financial officer Mike Sears, who allegedly negotiated to hire her in 2002 at a time when she was a key Pentagon official reviewing a proposal for a multibillion-dollar air tanker-leasing contract between Boeing and the Air Force.

“Prior to the Darleen Druyun incident, our sense is that Boeing’s hiring of government and former government officials was not perceived within the company as a high-risk area,” said the investigators, who included Rudman’s colleagues at the law firm Paul, Weiss, Rifkind, Wharton and Garrison.

“As a consequence, although the company had written policies and procedures addressing both disqualification and post-employment restrictions, those policies and procedures were often not followed in practice,” the report said.

The report was based on a three-month review that included dozens of interviews with Boeing employees hired from the government and an extensive review of company personnel files.

The fact that the report did not cite further ethical malfeasance could help Boeing in its effort to fight what CEO Harry Stonecipher recently characterized as “this perception that we’re a bunch of crooks.” The investigators also complimented Boeing for being “unusually receptive” and for moving to adopt the changes it recommended even before the report was concluded.

“We are tightening up central oversight, improving record-keeping, monitoring the records of people as they move through the system, increasing our audits of the records and results, and improving training in all of these areas,” Boeing chairman Lew Platt said.

However, the more important investigations into circumstances surrounding the tanker contract are being carried out by Pentagon examiners at the behest of Defense Secretary Donald Rumsfeld. Those probes, the results of which aren’t expected before May, will determine the fate of the tanker deal. The contract was suspended in December before it could be implemented amid questions over how Boeing landed it.

The president and CEO of Boeing’s defense and space unit, Jim Albaugh, told analysts at a meeting in New York on Tuesday that the company remains optimistic the contract will be reinstated.

“The fact is that there’s an urgent need for (refueling) tankers” and the government supports the plan to have Boeing lease and sell 100 converted 767 jets to the Air Force for that purpose, he said.

Aerospace analyst Paul Nisbet of JSA Research agreed.

“If the results from the investigations are relatively benign, nothing really earth-shaking, then I think there’s no question it’s going to go through,” he said. “It would have to be something pretty nasty and well beyond what we’ve heard so far for that not to happen.”

But Byron Callan of Merrill Lynch said it could be “nip and tuck” as to whether the government approves the contract or nixes it and decides to postpone replacing the aging tankers.

Boeing’s growing defense business should continue flourishing regardless, the company and analysts said. Albaugh said its revenues should grow 10 percent by 2005 to account for 60 percent of the company’s annual total.

With a $41 billion backlog in orders, Albaugh said the defense business has enough work in hand to increase revenues by 6.5 percent annually over the next five years even without winning any new programs.

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