Monday, March 10, 2008

The United States Air Force Shoots Down Boeing

by Tom Hinton

Last week I watched the Congressional hearings on why the U.S. Air Force awarded a contract to Northrop Grumman Corporation and EADS North America to build its next-generation of aerial refueling tankers. The contract is estimated at $40 billion, and the deal includes 179 planes to be delivered over the next 15 years.

The Air Forces opted to give the new kid on the block a chance over the more experienced Boeing Company which has been building air tankers for 75 years and recently unveiled its new, state-of-the-art KC-767 which has already been delivered to Italy and will soon be delivered to Japan. What do these countries know that our own United States Air Force doesn’t?

For the record, EADS is part of Airbus, the foreign-owned and heavily subsidized aerospace giant. It is also The Boeing Company’s toughest competitor for military and commercial airplanes. It should also be noted that the initial Air Force contract will create an estimated 20,000 jobs -- including several thousand jobs in Alabama and Kansas -- while costing Boeing and its suppliers approximately 20,000 jobs in the state of Washington and other locations where is has facilities and suppliers who would build the KC-767 air tanker.

The Boeing Company estimates that if the Air Force moves forward with the contract award to Northrop Grumman and EADS -- and Congress approves the bid award -- some 40,000 jobs (current and new positions) will be affected in the United States. The EADS tanker airframe is based on an Airbus A330 commercial jet assembled in France; and, most of the assembly work would be done in Europe according to Northrop Grumman sources.

As I watched the congressional hearings I shook my head in disbelief. The U.S. Air Force’s top acquisition officers, led by Assistant Secretary Sue Payton, Lt. General John Hudson, and Program Manager Terry Kasten and answered the panel’s questions honestly and directly. They staunchly defended the bidding process, the contract review process, and the awarding of the contract based on the proposal criteria. But, they also acknowledged that certain criteria such as jobs and the economic impact to American workers, were not part of the proposal and, therefore, were not evaluated or considered as part of their review. As Assistant Secretary Payton told Congress, “jobs and economics are not part of the proposal criteria or bidding process.”

While I understand the Air Force must follow specific criteria and acquisition laws, it begs the question, why in the world is the U.S. Department of Defense undermining the American economy? This is like giving a child a loaded gun and then advising them not to shoot you! It makes absolutely no sense to the average American who is worried about jobs, industrial capacity, and making ends meet. Now, America's own military is shipping jobs overseas. I could understand their rationale if Boeing was incompetent, but it is not. In fact, Boeing’s Airlift & Tanker program continue to be recognized as a best-in-class company by no one less than the president of the United States who recognized The Boeing Company on two occasions with the Malcolm Baldrige Award, our nation’s highest presidential honor for workplace excellence.

So, let’s examine the impact of this decision and how it all came about. The current air tanker tango began in 2003 when Arizona Senator John McCain complained bitterly about pork barrel politics because the Air Force was about to award The Boeing Company a new air tanker lease contract. Never mind that Boeing had been building and supplying the Air Force with air tankers for over 50 years. McCain said the deal was wrong.

According to the Everett Herald, Senator McCain "nearly single-handedly killed Boeing’s multi-billion dollar deal" to lease 100 Boeing air tankers to the U.S. Air Force. As the Everett Herald explained, “In 2001, McCain's laser-like probe of defense budgets unearthed a $30 billion earmark to pay for leasing 100 KC-767 jets from Boeing -- without first following a competitive bid process. McCain’s criticism stopped the program three years later and caused a round of investigations that led to Boeing paying fines for its contracting practices, and major changes in the Air Force’s procurement and contracting procedures.

Subsequent federal investigations resulted in two Boeing executives, Chief Financial Officer Mike Sears and Darleen Druyun, a former Air Force Acquisitions official and then-vice president of missile-defense systems at Boeing, being fired for illegal actions relating to Air Force contracts. Druyun was also convicted of federal violations for her illegal actions and was fined and sent to prison.

Boeing's board of directors acted quickly after concluding Sears improperly offered Druyun a job in the fall of 2002 because Druyun worked for the Air Force. At the time, Druyun was reviewing the proposal for the Air Force to lease 100 Boeing 767 airborne-refueling tankers. Needless to say, these Boeing officials made a serious mistake and paid the price for their stupidity and illegal actions.

Boeing hired a new CEO and hoped the firings would convince Congress and the Defense Department that the company was acting decisively to right its ship. Then, the Pentagon stripped Boeing of $1 billion worth of satellite launches after another investigation showed the company used trade secrets stolen from Lockheed Martin, its chief competitor, to help win the launches. Instead of getting better, hings got worse for Boeing.

In March, Boeing Satellite Systems acknowledged it made improper technology transfers to China in the wake of two failed satellite launches in 1995 and 1996.

Finally, in 2006, when Boeing’s new chairman W. James McNerney, Jr. appeared before Congress and apologized at a Senate hearing for the company’s illegal and unethical tactics, and promised higher ethical standards, Senator McCain responded with praise for Boeing for "truly reforming and starting fresh."

But, the damage was done and Senator McCain had sent a clear signal to the U.S. Air Force Acquisition office -- no more deals with Boeing. That set the stage for a new round of air tanker bids which last week the Air Force awarded to Northrop Grumman Corporation and EADS North America. While the letter of the law was followed, it appears from circumstantial evidence that the U.S. Air Force had already made up its minds not to do business with Boeing’s Airlift & Tanker program.

In the midst of all these investigations and problems with a few bad apples at Boeing, Senator McCain and his colleagues forgot to ask one important question: “If not Boeing, who else will build the Air Force’s new air tanker?” But, McCain knew the answer was the Europeans and Airbus. He also knew his actions would cost some 20,000 Americans their livelihood. Certainly, McCain's tactics pushed the Air Force too far and caused them to avoid steer clear of doing business with Boeing. That's a serious mistake on the part of the Air Force and Senator McCain.

Rep. Norm Dicks, a powerful figure on the House Appropriations Committee, who represents the Everett, Washington area which his home to many of Boeing’s aerospace workers, predicted a "firestorm of criticism on Capitol Hill" over sending so many jobs overseas. Rep. Dicks added of McCain: "I hope the voters of this state [Washington] remember what John McCain has done to them and their jobs."

Some people suspect that this was “payback time” for The Boeing Company. But, Assistant Secretary of the Air Force Sue Payton said in her testimony that previous contracting issues and illegalities with Boeing had no bearing on the 2008 air tanker award. She indicated that Northrop Grumman Corporation and EADS North America won on the merits of their plane, a modified Airbus A330 that is bigger than the modified KC-767 that Boeing offered. Payton also noted that by law, the Air Force must consider European allies on equal footing with American manufacturers.

Assistant Secretary Payton is referring to laws such as The Buy American Act (41 U.S.C. § 10a–10d) which was passed in 1933, mandating preferences for the purchase of domestically produced goods in direct procurements by the United States government.

The section of The Buy American Act that the U.S. Air Force referenced in terms of the air tanker contract is an outdated provision which stipulates that foreign companies can be considered when “purchasing the material domestically would burden the government with an unreasonable cost (the price differential between the domestic product and an identical foreign-sourced product exceeds a certain percentage of the price offered by the foreign supplier), if the product is not available domestically in sufficient quantity or quality, or if doing so is in the public interest…”

Given the fact that The Boeing Company already has built a new air tanker, The Buy American Act is ridiculous and works to the detriment of America’s economy and declining manufacturing base. While the U.S. Air Force must adhere to the law, Congress should move immediately to strike The Buy American Act and ask the Air Force to re-bid the job so that Boeing has a fair chance -- assuming fairness is even possible given the McCain bias against Boeing now rooted in the U.S. Air Force.

It;s important to note that EADS, is a European entity that is heavily subsidized by foreign governments. The Boeing Company does not enjoy any government subsidies, so the playing field is not level. Already, the competition is unfair. The Boeing Company cannot compete fairly against such rules and antiquated laws that work against the competitive spirit of American businesses.

Another concern was raised by Congressman Dicks, who accused the Air Force of “bait and switch tactics” by telling Boeing that the Air Force wanted a medium-sized tanker, not a larger tanker which Airbus proposed. Then, the Air Force accepted a larger aircraft from Airbus, the modified A330. “Had Boeing known that the Air Force wanted a bigger jet, Boeing would have bid the 777," Rep. Dicks said at the Congressional hearing last week.

Interestingly, while Boeing was building the KC-767 tankers for Italy and Japan, it asked the Air Force if it wanted something bigger in its new air tanker -- like the Boeing-777. The Air Force told Boeing no, But then, the Air Force proceeded to select a tanker based on the airbus A330 specifications which is larger than Boeing’s 767 and almost as large as the 777. This is why Rep. Dicks accused the Air Force of “switch and bate” tactics -- accusing the Air Force of saying one thing to Boeing but doing another in dealing with Northrop Grumman Corporation and EADS North America. It appears the Air Force was not dealing honestly with Boeing because of the pressures from Senator McCain.

In awarding the new air tanker to Northrop Grumman Corporation and EADS North America, other questions have been raised by aviation experts as to whether the Airbus A330 is going to fit into Air Force infrastructure including airplane hangars that currently house KC-135's that use half the space. When the two planes are compared size-wise, the wingspan of the airbus is 42 feet wider than the 767. The airbus plane is also 34 feet longer and seven feet taller at the tail.

"You're going to need massive construction plans to rebuild hangars at airbases all over the world," complained Rep. Dicks.

Secretary of the Air Force Wynn defended the contract decision and told senators the planes were judged on nine key criteria and "across the spectrum, all evaluated, the Northrop Grumman airplane was clearly a better performer." In addition, he said the Boeing proposal was judged to be more risky and more expensive.

But, this statement also raises questions among Aviation experts who noted that the Boeing contract bid was considerably lower than the EADS bid, and the Boeing aircraft is already operational while the airbus KC-45A is still is the design phase.

Also, it has been noted that Boeing’s Airlift & Tanker program has won the prestigious Malcolm Baldrige Award for its quality and overall excellence.

The Air Force has complained that it is still flying Eisenhower-era air tankers built by Boeing and it needs to replace its aging fleet as soon as possible. If this is the case, experts ask, why delay the process when you already have a reliable, state-of-the-art air tanker being built by Boeing?

Finally, what about American jobs being shipped overseas to build a U.S. Air Force air tanker? Does this make any sense given the state of our economy and the need for skilled aerospace workers such as those employed by Boeing?

Responding to criticism of the contract award, Northrop Grumman officials said the KC-45A tanker will produce 2,000 new jobs in Mobile, Ala., and support 25,000 jobs at suppliers nationwide. The EADS/Northrop Grumman team plans to perform its final assembly work in Mobile, although the underlying plane would mostly be built in Europe, and it will use General Electric Co. engines built in North Carolina and Ohio.

While Northrop Grumman Corporation and EADS North America are good companies, this decision has made many Americans angry, and rightfully so. It smacks of politics and unfair competition which is exactly what the U.S. Air Force should be avoiding.

Boeing’s past acquisition mistakes have been corrected and paid for, literally. Boeing has been under new, leadership since 2006, and Boeing’s Airlift & Tanker program is second to none in terms of quality, business practices, and overall management excellence. If the United States Air Force is prohibited from considering economic factors, certainly the United States Congress and White House need to get their heads out of the clouds and step-in to make sense of this decision before Northrop Grumman Corporation and EADS North America fly away with American jobs and taxpayer dollars!

About the Author: Tom Hinton is president of the American Consumer Council. He can be reached at:

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