Under the Radar
The inside story of a Pentagon deal that will cost taxpayers billions
By working so closely with Boeing, the Air Force put the competition at a disadvantage. In February 2002, the Air Force invited Boeing and the European Aeronautic Defense and Space Co. (EADS), the maker of Airbus, to compete for the lease deal. But by March, the Air Force concluded that the Airbus was too big and did not meet its requirements. EADS officials say they were never shown the full requirements.
This set the stage for another bit of intrigue: On July 1, Air Force official Darleen Druyun told Boeing "several times" that the price of the Airbus was $5 million to $17 million less than Boeing's 767. Investigators with the Senate Commerce committee now want to know if the disclosure of Airbus's price to Boeing was improper; the committee has provided documents it obtained from Boeing to the Pentagon's inspector general. EADS says the company considers all price information proprietary. "We furnished it in confidence," says a spokesperson. "We expected it to be protected." Druyun now works for Boeing. She failed to respond to repeated requests for comment, but Boeing says it did not receive proprietary information.
By September 2002, Boeing faced no competition within the defense industry; but it still faced criticism, particularly from Arizona Republican John McCain, the chairman of the Senate Commerce Committee. And McCain was of the opinion that the tanker lease was a bad deal for taxpayers and a sweetheart deal for Boeing. In particular, McCain wanted to know why the military needed the tankers now.
That's one reason the Air Force's Sambur was--as a Boeing executive put it in an E-mail--"desperately looking for the rationale for why the USAF should pursue the tanker 767 deal now." Boeing gave him the answer. A senior Boeing executive named Jim Albaugh sent a two-page memo to Sambur outlining how the existing fleet of Air Force tankers was old and increasingly unreliable. Sambur told U.S. News that Boeing executives misunderstood what he was asking for.
In October, the Air Force turned to Boeing again to explain why the plane was needed. Near the end of a meeting about the lease deal at the White House, Chief of Staff Andrew Card asked Air Force Secretary James Roche: "How many jobs does this create . . .?" The next day, Boeing forwarded the answer to the Air Force. Company lobbyist Andrew Ellis wrote that he hoped the "employment numbers below will provide you enough ammunition for the secretary to respond to the White House." Senator McCain says he is appalled that the Air Force relied so heavily on Boeing. "I've never seen such a continuous violation of every standard and norm," McCain says. "This close relationship with Boeing and the secretary of the Air Force was remarkable."
PAYING FOR THE PLANE
The tanker deal isn't like most projects, in which the military buys what it needs. It is structured as a lease because the Pentagon didn't have enough money to buy both new tankers and expensive new fighter planes. Boeing, for its part, didn't want to lease the planes directly to the Air Force--that would have put too much debt on its books. So the company and the Air Force plan to set up a "special purpose entity" to serve as middleman in the transaction. It will collect money from outside investors, use the funds to buy the planes, and then rent the tankers to the Air Force. The result: Boeing gets to book the sale it wants and the Air Force gets its lease.