Exit a CEO; enter a new case of cozy ties between Boeing and the Air Force
In seven years, Philip Condit transformed the Boeing Co. from the world's largest maker of commercial aircraft into a corporation that earns most of its money from military contracts.
Boeing's growing dependence on the government is a big reason Condit lost his job as CEO last week. Now it's up to the new boss, Harry Stonecipher, to steer the company back on course. He faces his first big test this month, when Boeing must choose whether to develop a new futuristic jet, the 7E7, so that the company can regain business it has lost to European aerospace giant Airbus. He must also put to rest questions of scandal, including charges that Boeing competed for rocket projects with a competitor's proprietary documents, lobbied aggressively for a $17 billion deal to lease refueling tankers, and dangled a job in front of a key Air Force official during the tanker talks. Last week, the Defense Department put the tanker deal on hold.
But that's not the end of it. U.S. News has learned that Sen. John McCain wants congressional watchdogs to look into the large numbers of government officials who have gone to work for Boeing. The magazine has also learned of a new Air Force plan to pay for the controversial tankers that could wind up helping another Boeing program--and invite new inquiries.
The preliminary Air Force plan calls for eliminating or delaying the $8 billion modernization of the Lockheed Martin C-5 transport, the military's largest airlifter, industry and congressional sources say.
The surprise move helps Boeing in two ways. First, eliminating the C-5 project would free money to purchase the controversial Boeing KC-767 tankers. The Air Force needs the billions because if the tanker deal is revived--and most military experts think it will be--the Air Force will have to pay for 80 of the refueling planes upfront rather than lease them. There's also this twist: By not upgrading the C-5 with new engines and flight controls, the Air Force will have to bulk up its cargo fleet with some other aircraft to meet its growing airlift requirements. There's only one choice: Boeing's C-17 Globemaster III. "If they eliminate the C-5, they would need more airplanes, more strategic airlift," says Michael Quarnaccio, a retired Air Force brigadier general and former C-5 wing commander. "That means more C-17s."
What's good for Boeing might not make sense for taxpayers. The C-17 is the most advanced air freighter in the world, able to land on short runways nearly anywhere. But the plane has one big drawback: its price tag. For the $184 million cost of a single C-17, the Air Force could modernize nearly three C-5s. Though less versatile, a C-5 carries twice as much payload as a C-17 and requires fewer air refueling runs.
Bait and switch? For years, the C-17 program has benefited from savvy lobbying by both the Air Force and Boeing. In fact, the coziness of its dealings with the Air Force got Boeing in trouble on the tanker leasing deal. U.S. News has learned that Air Force and Boeing officials appear to have discussed strategies for selling the C-17 to Congress as well. An internal Boeing E-mail dated December 2002 reports that Air Force Secretary James Roche urged the company to lobby lawmakers and chastised Boeing for getting less C-17 money from Congress than the Air Force had wanted. According to the correspondence, Roche expressed to Boeing his "continued unhappiness" with the company's efforts. The Air Force says there is nothing improper about Roche's contacts with Boeing. But the back and forth suggests an unseemly partnership, says Eric Miller, a defense-spending expert at the Project on Government Oversight (POGO). "It is totally inappropriate," he says. "You are not supposed to coordinate your lobbying efforts with contractors."