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Bloomberg News February 25, 2005

Lockheed hire to be reviewed

Air Force to examine former official's case

WASHINGTON - The Air Force said yesterday that it will review Lockheed Martin Corp.'s hiring of an unidentified former Air Force official after a report by the Government Accountability Office questioned Lockheed's handling of post-employment restrictions.

"The Air Force will carefully consider the GAO recommendations and look into the issue raised about the post-employment activities by a former Air Force official as they relate to the small-diameter bomb program," Air Force spokesman Douglas Karas said in an e-mail yesterday. "Upon concluding the investigation, we will report back to the GAO."

The former Air Force official's identify is subject to a GAO protective order, Karas said. The investigative arm of Congress began the probe after Lockheed asked that Boeing Co.'s bomb contract, worth as much as $2.4 billion, be rescinded because it was tainted by a conflict of interest.

On Feb. 18, the GAO recommended a new competition for a portion of the award, which Karas said yesterday would be worth about $1.4 billion.

"We will fully cooperate with any review by the Air Force," Lockheed spokesman Jeff Adams said. "We are confident we fully complied with all applicable post-government employment regulations."

Bethesda, Md.-based Lockheed, the biggest U.S. defense contractor, had protested the awarding of four contracts to Boeing in October after Darleen Druyun, a former Pentagon official, told federal prosecutors that she favored Boeing for another contract.

Pentagon officials said on Feb. 14 that Druyun, who went to work for Boeing in January 2003, might have improperly influenced eight contracts valued at as much as $3.5 billion.

On Feb. 18, former Boeing Chief Financial Officer Michael Sears was sentenced to four months in prison for discussing a job for Druyun as they negotiated a $23 billion refueling-tanker contract.

Druyun was sentenced to nine months in prison Oct. 1, also for violating conflict-of-interest laws.

"If one contemplates the Darleen Druyun matter, and all of the ethics and integrity problems Boeing has had, this could be a problem for Lockheed," said John Pike, an analyst at Globalsecurity.org, an Alexandria, Va.-based defense research group. "There would have to be some concern they might be going down the same trail."

On Feb. 18, the GAO deferred a decision on Lockheed's request that it be reimbursed for costs to prepare its proposal for the bomb contract. In a statement that day, it noted "concerns regarding the handling of post-employment restrictions with respect to a retired senior Air Force official, who is currently employed at Lockheed Martin."

The statement didn't elaborate on the concerns.

Lockheed's shares rose 69 cents to close at $59.24 yesterday on the New York Stock Exchange, where Chicago-based Boeing climbed $1.22 to $53.94.

Copyright 2005, Bloomberg News