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Democrats for Boeing

The truth about the tanker deal.

Mar 24, 2008, Vol. 13, No. 27 • By CHRISTIAN LOWE
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It was one of those insider deals that give the defense industry a bad name, conjuring up images of smoke-filled negotiations between the brass and corporate fat cats in plush leather chairs. By the time it was over, two fat cats were in jail, a top Pentagon official had been forced to resign, a corporate CEO had lost his job, and the reputation of an iconic company that had served American troops for decades had suffered irreparable damage.

Then it turned out it wasn't entirely over. In a twist of fate that only election year politics could weave, the same nefarious deal is now being eulogized as a wasted opportunity, and the man largely responsible for scuttling it--the Republican nominee for president--is being vilified as a cold-blooded globalizer who cost America 40,000 jobs.

It's hard to believe so much controversy has surrounded such an unremarkable plane. For upwards of 50 years, the Air Force has maintained a fleet of over 500 tanker aircraft that act as airborne gas stations--originally, for squadrons of Cold War-era B-52s headed for targets in the Soviet Union. The Boeing KC-135 Stratotanker and McDonnell Douglas (now owned by Boeing) KC-10 Extender were militarized versions of the 707 and DC-10 passenger planes. Because the tanker fleet was based on built-to-last commercial designs, the Air Force was able to buy a lot of planes for a relatively low cost and keep them flying longer than if it had used a purely military design.

The ability to refuel in midair is one of America's "asymmetrical" advantages in war--and peace. The stunning victory during Desert Storm was in large part due to the use of overwhelming airpower. It wouldn't have been possible without a lot of aerial tankers flying day and night. In that war, over 300 tankers flew 16,865 missions delivering 800 million pounds of gas in over 51,000 midair refuelings. Same goes for the aerial wars over Serbia and Kosovo, Operation Enduring Freedom, and Operation Iraqi Freedom--lots of tankers, lots of sorties, and lots of flight time.

Which means lots of wear and tear. The Air Force saw the writing on the wall in the late 1990s and convinced Congress to provide some money to replace the KC-10s and KC-135s. And that's when the double-dealing started.

What the Air Force eventually presented to Congress was a deal to lease 100 militarized versions of the commercially successful Boeing 767 jetliner for about $30 billion rather than conduct a competition and buy new planes. Around 2011, the service would pay off the lease and keep the aircraft--the ultimate "rent-to-own" scheme.

The Air Force argued that this was the only way to get tankers quickly; if Congress forced a design competition and the construction of a whole new plane the process could take decades. The Government Accountability Office and the Pentagon's own internal investigations disagreed, arguing taxpayers would overpay Boeing about $6 billion under the lease/buy arrangement. On the face of it, this looked like a bad deal.

Despite the convoluted nature of the setup--or perhaps because of it--Congress budgeted money to start the lease in 2001, pending the approval of the Senate and House Armed Services Committees. That's when a sharp-eyed staffer for John McCain raised a red flag, alerting the senator to what appeared to be an insider deal. McCain demanded hearings, eventually strong-arming the Air Force into a more thorough examination of the alternatives for replacing the much-needed tankers and forcing the service to adhere to acquisition laws. Then, the bottom dropped out.

After a series of internal inquiries--and some fantastic investigative reporting by the defense trade press--it emerged that the Boeing tanker lease deal was rotten to the core. It had been negotiated by then-Air Force acquisitions chief Darleen Druyun, who inked the agreement after receiving a promise from Boeing to hire her as a senior executive after she left the Air Force. Druyun and the Boeing official who negotiated the employment deal with her, Michael Sears, were both eventually convicted and sent to prison, and Boeing chief Phil Condit was forced to resign along with Air Force secretary James Roche.

So the Air Force scrapped its tanker-lease scheme and conducted an open competition for a new tanker. The result was announced on February 29: A consortium of Northrop Grumman and European Aeronautic Defense and Space Co. had beaten Boeing for the $40 billion contract to build nearly 200 new tankers. That meant the primary builder of America's next tanker fleet would be the European company Airbus, which had offered a militarized version of its successful A330 commercial airliner. The award set off a protectionist furor in Congress--mostly in the House--involving all the predictable players.

On March 5, the powerful chairman of the House Appropriations Committee's defense panel, John Murtha, summoned Air Force officials to explain their decision to award the contract to Airbus. The hearing was a circus of accusations and I-told-you-so's, with mostly Democratic lawmakers lecturing top Air Force officials on how they should have reached their decision. Through it all, the service's top acquisition official, Sue Payton, stuck to her guns, repeatedly telling the bitter lawmakers she had adhered strictly to contracting laws and that, in the end, the Northrop Grumman/EADS team had "brought their A-game."

It was Murtha, a Democrat from Pennsylvania, who lathered on the criticism of McCain, blaming him for outsourcing American defense business, delaying the Air Force's tanker replacement, and costing the United States a purported 40,000 jobs.

"Because of the individual in the other body stopping what the Air Force and this committee agreed to is [sic] costing billions of dollars, and we're at a point where we don't know how long it's going to take to get these [KC-135s] out of the air," Murtha whined, blaming McCain instead of the Air Force or Boeing for the entire fiasco.

Despite the winners' claim that 25,000 new American jobs will be created by the deal and that about 60 percent of the plane will be made in the United States, both Democratic presidential candidates have criticized the award and hinted that McCain is to blame. And Speaker of the House Nancy Pelosi threw her own political grenade at the Republican nominee.

"Senator McCain intervened, and now we have a situation where contracts may be--this work may be outsourced," she said.

As usual, McCain is refusing to budge, reminding the public that the earlier Air Force deal he fought was rotten and that his dogged exposure of it saved the government money. What's more, if the Democrats are campaigning on ethical purity, how ironic is it that they would have parochialism and pressure from unions trump the fair and lawful competitive bidding that produced the Airbus win?

"I intervened in a process that was clearly corrupt," McCain said at a campaign event in early March. "That's why people went to jail. That's why the Government Accountability Office said that I saved the taxpayers over $6 billion."

On March 11, Boeing filed a formal protest of the Northrop Grumman/EADS award to the GAO, which handles such acquisition challenges, citing "irregularities" that "placed Boeing at a competitive disadvantage." So, now there's political hay to be made over the issue of lost jobs and "outsourcing" while the auditors pore over Boeing's complaint--a process that is likely to play out through the November election. Democrats will try to damage McCain's prospects in "red" states like Kansas--where the Boeing tanker was to be assembled--and Missouri--where the Boeing division that designed the tanker is headquartered--by waving the bloody shirt of exported jobs.

As defense budget watchdog and Capitol Hill veteran Winslow Wheeler said last week of the upcoming political battle: "If Boeing wants to go down the road in Congress, we're in for a real food fight. Boeing has 40 states involved in the 767 contracting; Northrop Grumman has 49. That's not going to be a pretty thing to watch."

Christian Lowe is managing editor of military.com.