Stormy Weather
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."
The Air Force says it isn't retiring the C-5s to buy more C-17s. A spokesman says no decision will be made to cut back or delay any program until the tanker lease deal is done. For now, the Air Force officially supports both the C-17 and the C-5. If the Air Force doesn't cut the C-5 in the next Bush budget, sources say, it will cut the program the following year.
The Air Force clearly has a favorite. It already announced it wants at least 42 more C-17s and will retire 14 C-5s by March 2005. Officials at the Air Force's Air Mobility Command, which runs airlift operations, say they want to modernize the newer version of the C-5 fleet but doubt that upgrading the older version will adequately fix the planes. "When you factor in the age, fatigue, corrosion, and flying hours," says Brig. Gen. Loren Reno, "the questions of risk start adding up." The Air Force has formed a panel, the Fleet Viability Board, to assess whether to modernize the old model C-5s. Col. Francis Crowley, the head of the board, says in an E-mail that the report, due in March, will be unbiased; some C-5 supporters say it will simply endorse the mobility command's view. If it doesn't modernize the remaining C-5s, the Air Force could need 82 more C-17s.
The C-17 program has powerful friends on Capitol Hill, too--thanks to the jobs it provides in many congressional districts. The C-17 supports 10,000 jobs in four states, although most of the work is done in Southern California. Some 700 Boeing suppliers provide 25,000 more jobs in 39 states. "I wish I had a program that has as many jobs associated with it as the C-17," says a lobbyist for a rival defense company.
The Air Force won congressional favor for the C-17 by basing the planes in the states of key lawmakers. In April 2002, the Air Force said it would put C-17s in Hawaii, Alaska, California, Mississippi, Delaware, and New Jersey. It also increased the number of planes stationed in three other states.
Retired Air Force officers say basing the C-17s in Alaska and Hawaii makes no military sense; crews will have to fly all the way to California to pick up cargo. "Those airplanes should be stationed at key ports," says George Chabbott, a retired Air Force colonel who wants to see the C-5s modernized. "Unfortunately, the military gets caught up in politics, and common sense does not prevail. "
The arrangement does make political sense, however. Sen. Daniel Inouye of Hawaii is the ranking Democrat on the defense appropriations subcommittee. Republican Ted Stevens of Alaska is the committee chair. Stevens, a World War II cargo pilot and longtime champion of Boeing, pushed hard for the original tanker lease deal. Boeing executives are important Stevens backers, having given him $22,000 in campaign funds in 2001. The company and its employees spent $1.8 million on campaign contributions and $15.6 million on lobbying in 2001 and 2002. During that time, it won $31 billion in government contracts, according to POGO.
Douglas Kennett, a Boeing spokesman, says the Air Force and Congress have supported the C-17 because its versatility makes it superior to the C-5, not because it provides jobs or is based in key states. The company, he adds, does not discuss its lobbying. The Air Force says military, economic, and political factors all determine where it bases planes.
Spin cycle. Money, jobs, and politics aren't the only ingredients that go into funding multibillion-dollar military projects. The relationship between Boeing and the Air Force has been nurtured by the "revolving door" between government and industry. The Pentagon is investigating the case of Darleen Druyun. The former Air Force acquisitions official was fired last month by Boeing after allegations that she was recruited for a job by the company while still overseeing Boeing projects for the Air Force.
Druyun is one of many to trade an Air Force position for the chance to work at Boeing. Paul Weaver Jr., who as an Air Force two-star general called for new tankers and more C-17s, is now a registered Boeing lobbyist. Retired Lt. Gen. John Sams, who oversaw airlift assets at California's Travis Air Force Base, is now the tanker program manager at Boeing. Charles Robertson, a retired general who headed the Air Mobility Command, now works for Boeing on the C-17. POGO identifies 29 other government and military officials who have taken senior positions at Boeing or lobbied for the company since 1997. Another group, Taxpayers for Common Sense, says 23 more ex-officials now lobby for Boeing.
McCain, outraged by Boeing's behavior, wants answers. He plans to request a General Accounting Office inquiry into government officials who have gone to work for Boeing. Next year, he plans to hold hearings on the matter.
Spread your wings
The C-17, based around the country, provides jobs for 8,000 Boeing employees; the plane's suppliers employ an additional 25,000 in 39 states.
[map key]
A - C-17 plants and suppliers
B - C-17 suppliers
C - Existing C-17 bases
D - New C-17 bases
[map labels]
Ala. - B
Alaska - D
Ariz. - A
Ark. - B
Calif. - A,D
Colo. - B
Conn. - B
Del. - D
Fla. - B
Ga. - A
Hawaii - D
Idaho - B
Ill. - B
Ind. - B
Iowa - B
Kan. - B
Ky. - B
La.
Maine
Md. - B
Mass. - B
Mich. - B
Minn. - B
Miss. - B,D
Mo. - A
Mont.
Neb. - B
Nev. - B
N.H. - B
N.J. - B,D
N.M. - B
N.Y. - B
N.C. - B
N.D.
Ohio - B
Okla. - B,C
Ore. - B
Pa. - B
R.I. - B
S.C. - B,C
S.D. - B
Tenn. - B
Texas - B
Utah - B
Vt.
Va. - B
Wash. - B,C
W.Va.
Wis. - B
Wyo.
Source: Boeing
This story appears in the December 15, 2003 print edition of U.S. News & World Report.