JTF editorial - Today's lesson: closed circuit logic

Janes ^ | December 5, 2003 | Jim Smith, JTF Editor

[inPhase]

The resignation on 1 December of Boeing's top honcho Phil Condit has been pegged to a number of issues, including improprieties connected with military procurement and a downturn in deliveries at the company's Commercial Airplanes Group. Punters have suggested that Condit's resignation may have been triggered by the sacking of Chief Financial Officer (CFO) Michael Sears. Sears was fired for discussing the prospect of employment at Boeing with a top Pentagon procurement officer, Darleen Druyun, who was working on a massive government procurement for which Boeing was bidding.

Druyun subsequently joined Boeing. She also found the wind/got the royal order of the boot - depending on which side of the pond you live.

The National Legal and Policy Center (NLPC), an ethics watchdog group which was an early critic of Boeing's ethical problems, praised Condit's resignation. NLPC had filed a complaint with the Defense Department Inspector General on 6 October alleging improper ties between Boeing and Druyun who was then in US Air Force acquisitions. The complaint disclosed that Druyun's daughter was hired by Boeing under suspicious circumstances and that a Boeing executive offered to buy the Druyun home while she was still overseeing billions of dollars in Boeing contracts. Druyun was subsequently hired as a vice president at Boeing. The complaint explicitly raised the question of when Boeing offered Druyun the job. Condit began his career at Boeing as an engineer in 1965, and had been chief executive since 1996 and chairman since 1997.

While the commercial aircraft business is down, Boeing's fortunes have been bolstered by the conflicts in Afghanistan and Iraq, which have helped boost revenue and profit in the company's defence business. Boeing makes the F-15 Eagle and F/A-18 Hornet multirole fighters, the C-17 Globemaster III transport and Apache and Chinook helicopters.

In the third quarter, Boeing's civil aircraft unit posted a $35 million profit on $5 billion in revenue. At the same time, the much smaller military aircraft and weapon systems group, part of Boeing's Integrated Defense Systems unit, posted a $351 million profit on sales of $3 billion.

However, the military procurement controversy has hurt Boeing. The defence department has asked for a pause in the programme to acquire 100 Boeing KC-767A inflight refuelling tankers. In a letter to the Senate Armed Services Committee, Deputy Defense Secretary Paul Wolfowitz said he has asked for a delay in the programme as he seeks more information on any alleged improper negotiations between the air force and Boeing.

The biggest single issue in Condit's departure may be the tanker deal for Boeing. US defence officials are looking into whether Druyun violated federal procurement laws and rules of ethical conduct by giving Boeing financial information about a competing Airbus SA bid for the multibillion-dollar tanker deal.

The tanker order has been a rat's nest for Boeing. The company has come under attack from influential legislators, especially Senator John McCain. Much of the objection centres on Boeing's proposal to lease some of the tankers to the government.

But Boeing is a business. If the government sees the more costly leasing option as a means of acquiring the aircraft without huge cash outlays, Boeing would be stupid to turn thumbs down on the deal. After all, airlines are faced with the same choices and about 30% of the world's commercial aircraft are leased.

In spite of the controversy, most analysts have not changed their ratings outlook for Boeing.

Condit has been at Boeing for 38 years. Most marriages don't last half that long, although some hangovers do. If Condit were dishonest, it wouldn't have taken 38 years to come to light.

There is, however, no smoking gun that ties Condit to Druyun's hiring or to any improprieties.

America is filled with conspiracy nuts.

Speculation about Condit's resignation is a classic example of the faulty post hoc ergo propter hoc causal-effectual relationship.

I know all about this. The idea was discussed in one of the few logic classes I didn't sleep through. I was jacked up on coffee that day. I awakened early on the Friday that the subject was addressed. I thought it was Saturday and I was champing at the bit to get the first round at Tierney's Tavern. I like fresh beer.

The post hoc has been traditionally interpreted as 'after this, therefore because of this'. This fallacy is committed when it is concluded that one event causes another simply because the proposed cause occurred before the proposed effect. More formally, the fallacy involves concluding that A causes or caused B because A occurs before B and there is not sufficient evidence to actually warrant such a claim. It is evident in many cases that the mere fact that A occurs before B in no way indicates a causal relationship.

At any rate, although he won't get severance pay, Condit will walk away with an annual pension of $1.7 million - about twice what the average journalist earns, excluding bail money. So don't get the idea that you'll soon be saying, "I'll take extra pickles on my burger, Phil."

It is unfair to make a generalisation that chief executives are privy to all that goes on with underlings as they seek to make their numbers. As Voltaire said, "ALL general statements are false - including this one." Maybe Condit just wanted out.

[inPhase]

Some interesting facts.

"In the third quarter, Boeing's civil aircraft unit posted a $35 million profit on $5 billion in revenue. At the same time, the much smaller military aircraft and weapon systems group, part of Boeing's Integrated Defense Systems unit, posted a $351 million profit on sales of $3 billion. "

and

"Druyun who was then in US Air Force acquisitions. The complaint disclosed that Druyun's daughter was hired by Boeing under suspicious circumstances and that a Boeing executive offered to buy the Druyun home while she was still overseeing billions of dollars in Boeing contracts. Druyun was subsequently hired as a vice president at Boeing"