The United States Air Force took back contracts worth more than $1 billion in rocket business from Boeing (NYSE:BA) after determining that employees at the company stole reams of proprietary documents from rival Lockheed Martin (NYSE:LMT).
The incident occurred back in 1998, when Lockheed was the dominant rocket supplier, then heading into a competition with Boeing in which it won just 7 of 28 scheduled launches. Boeing had sought desperately to become a larger player in the business and its victory shocked many in the industry.
We should note that the recent action by the Air Force in no way impacts the criminal investigations by the Justice Department, nor will it forestall Lockheed's lawsuit against Boeing, which alleges a conspiracy to steal trade secrets. But one would imagine that this quote from Air Force space official Peter Teets will be front and center: "[Boeing] committed serious and substantial violations of the law."
Ouch. Boeing, for its part has apologized, has fired the individuals responsible for the theft, and has pledged to cooperate with the investigation.
Curiously, Boeing shares have not really budged. This might be why: Boeing may indeed face severe sanctions and monetary penalties from further adjudication, but its rocket business has been a consistent money loser. In some ways this may actually improve Boeing's overall profitability. Or so you could argue.
At the same time, Boeing's overall strategy in its defense divisions has been to serve as an integrator of components from various military projects -- including enormous amounts of material that does not originate at Boeing. Should the company lose its patina as a highly trusted partner for the Pentagon, this part of its business could be in big, big trouble.
Clearly, with the commercial aircraft business in the doldrums, this could not come at a worse time for Boeing. The company is trying to ensure that its military business fills the gap, but with the Air Force at minimum placing restrictions on further business dealings, this is shaping up to be a crucial juncture in the history of one of America's most treasured companies.
