March 7, 2008
Boeing Flubs Tanker Contract
The Air Force has testified to Congress that of the nine criteria the Air Force used to determine the winner in the competition to supply new air refueling tanker aircraft, Boeing lost to the Northrop Grumman/Airbus bid on most, if not all, measures. Nonetheless Senators and Representatives from the states where Boeing has major plants are incensed; they want our armed forces to be equipped with the apparently less effective (smaller payload, shorter range) losing bid from Boeing. Their argument: jobs (i.e. "pork") should determine who wins, not the effectiveness or cost of the equipment, as determined by the Air Force. The issues were summarized in a PBS broadcast on The Jim Lehrer Newshour this past Thursday. Congressman Norman Dicks, D-Wash., articulated Boeing's arguments; Winslow Wheeler of the Straus Military Reform Project had a different point of view.
Audio of the PBS broadcast is available here.
The full transcript can be found below.
March 6, 2008
Jim Lehrer Newshour (PBS), 7:00 PM
JIM LEHRER: Trouble over the Air Force decision to buy a new airplane. Ray Suarez has our story.
RAY SUAREZ: This is the tanker that Northrop Grumman and its European partners hope to make for the U.S. Air Force. The KC-45 is the next generation of an existing military tanker, Grumman’s KC-30. The Air Force announced Friday it plans to buy 179 of them. They'll cost at least $40 billion.
GEN. DUNCAN MCNABB [Vice Chief of Staff, U.S. Air Force]: The KC-45 built by Northrop Grumman will provide our nation and partners the critical ability to reach across the globe and project our combat capability or our humanitarian friendship rapidly and effectively.
SUAREZ: The Air Force picked the Northrop Grumman consortium, including the European giant EADS, over the U.S. manufacturer Boeing. General Arthur Lichte is commander of the U.S. Air Mobility Command.
GEN. ARTHUR LICHTE [U.S. Air Force]: I can sum it up in one word: more. More passengers, more cargo, more fuel to offload, more patients that we can carry, more availability, more flexibility, and more dependability. And so from my aspect, the team did tremendous work and now we will take that and put it into the fight.
SUAREZ: In Washington State, where the Boeing tanker would have been built, the announcement drew heated response from workers and their union.
LARRY BROWN [IAM District Political Director]: There’s a good chance that this program is going to be turned around and be built here at Boeing in America by American workers, as it rightly should be.
TOM WROBLEWSKI [IAM District President]: This is an unjustified gamble which puts our armed services at risk. American taxpayers should be outraged because this—they deserve better. Are you outraged?
NORTHROP GRUMMAN VIDEO: Mobile, Alabama will be home to the KC-30’s new assembly and production centers at –
SUAREZ: Northrop Grumman says this contract will bring jobs to the U.S. Sixty percent of the labor and parts building will happen here.
VIDEO:And we’ll also employ an additional 20,000 Americans –
SUAREZ: Now the Pentagon’s purchase is coming under sharp congressional attack because it would give thousands of jobs to EADS and its subsidiary, Airbus. House Speaker Nancy Pelosi.
REP. NANCY PELOSI [D-CA; Speaker of the House]:If we continue to outsource these contracts, we are exporting jobs out of country. I mean, will not have—let me say it another way—we will not have the industrial and technological base necessary to ensure our national security because it will fade. It will diminish. It is not strengthened.
SUAREZ: The Air Force insists it made the right decision.
REPORTER: And the foreign element—do you think that you’re going to get some blowback from Capitol Hill about this?
LICHTE: This is an American tanker. It’s flown by American airmen. It has a big American flag on the tail. And every day it’ll be out there saving American lives.
SUAREZ: Air Force officials also said jobs were not a factor in awarding the contract. For more on all this we get two views: Democratic Congressman Norman Dicks is from Washington State, where much of the Boeing aircraft would have been built. He’s on the House Appropriations Committee. Winslow Wheeler had a 31-year career as a staffer for both Republican and Democratic senators focusing on defense issues. He’s now with the Center for Defense Information, a think tank. His latest book is “Military Reform: A Reference Handbook.”
Congressman Dicks, the Air Force says for its part that this was an open and fair procedure and that it yielded a pretty good aircraft, but you don’t agree.
REP. NORMAN DICKS (D-WA): No, Ray, I disagree very strongly with that. I am very, very shocked and surprised that the Air Force, after telling us for months—they gave me a briefing in December of 2007 and said, we want a medium-size tanker to replace the KC-135R. And instead of that, they went to a large tanker, the KC-30, which is a much bigger plane, even larger than our KC-10. Now, Boeing had asked the Air Force at the start of these proceedings, do you want us to bid a larger plane? If you do, we will bid the 777, and they were discouraged from doing that.
Now, I think a smaller airplane in this situation is better because over its lifetime it will use $15 billion less fuel than the A-30. It will also have $5 to $6 billion less in maintenance. And it is—because the A-30 is a bigger plane, it will clog up fields. It will need to have new military construction facilities for hangers. I mean, this is going to be very expensive. And it hasn’t been built. I talked to the Australian embassy tonight —they don’t expect to get this plane operational until 2009. It had been promised in 2007. Boeing had already delivered a tanker of the KC-767 vintage to Japan just a few weeks ago. And until last week—I think till yesterday, the EADS Airbus tanker had not used its fuel—its boom to pass fuel.
SUAREZ: Well, Congressman, let me—
DICKS: So I just think they made a terrible decision and a terrible mistake for the U.S. taxpayer and for jobs in our country.
SUAREZ: Winslow Wheeler, you have an intimate knowledge of how this process works. Does it look like the Air Force followed its guidelines when letting this contract?
WINSLOW WHEELER [Center of Defense Information]: Right now all we have is dueling press releases from Boeing and its advocates, Northrop Grumman and its advocates, the Air Force and its spokespeople. We’re about to enter a process where we’re going to find out the details of this. What the Air Force says at this point is that it was a slam-dunk. There are nine criteria. Northrop Grumman won on most, maybe even all, of them. We don’t know the details yet. This competition was Boeing’s to lose. It lost it. The contention that nobody told Boeing that the Air Force was after a bigger airplane really doesn’t make any sense to me.
SUAREZ: Well, why is that? Is that they could change the proposal if they wanted? You heard Congressman—
SUAREZ: —Dicks talk about something almost akin to a bait-and-switch.
WHEELER: Boeing was at liberty to submit two bids, one for the smaller 767, one for the larger 777.
DICKS: And as I said, Winslow, they were discouraged from offering the 777. I have got a chart, which I’d be glad to share with you, Winslow, in December of 2007—three months ago —from Ken Miller saying that they wanted a medium-size replacement plane, and nobody was talking about a large plane. A large plane has all kinds of problems. It’s more expensive to operate. It’s going to have greater greenhouse emissions. It’s more expensive to maintain. And the only reason that they could even bid a low price is because they receive subsidy. And, again, Senator McCain jumped into this last—and said that they could not look at the subsidy issue, which I think is a big mistake, especially when the U.S. trade representative is bringing a case in the WTO on this very issue.
SUAREZ: Well, how about that, Winslow Wheeler? Right now the United States is pursuing EADS at the World Trade Organization for improper trade practices at the same time as the United States Air Force is getting ready to buy billions of dollars of aircraft from them?
WHEELER: The contention is that Airbus gets a subsidy from its government sponsors in Europe. They respond to the WTO that Boeing gets a roughly equivalent subsidy from the American government for its defense contract—
DICKS: That is totally inaccurate, and Winslow knows better. They don’t get any subsidy of the size—$2.5 billion on the—
WHEELER: If I could finish.
SUAREZ: Let him finish, Congressman.
DICKS: I will. But it’s just an outrage to hear him say that.
WHEELER: That’s their contention, and it’ll be adjudicated not by Congress, but by the World Trade Organization. There’s a fundamental point that needs to be addressed here. The Air Force made a decision of its judgment based on the criteria it put out there which airplane did the best job for our armed forces. That judgment is going to be challenged and we’re going to learn, hopefully, lots of details about that process. But their position right now is that on the nine criteria that they laid out there that Boeing went into with its eyes open that the best thing for the United States Air Force to do and for our fighting capability is to take the airplane with more payload and more range, and it’s the best choice. The criteria —
DICKS: It’s not the best choice.
WHEELER: The criteria for where it’s made is purely secondary. The object here is to get the best equipment at the best price to our armed forces.
SUAREZ: Congressman, earlier in the program you heard your leader, Nancy Pelosi, the Speaker—
SUAREZ: —make an anti-outsourcing argument. You in other venues have talked about jobs and the loss of jobs in the United States. Is there anything in our contracting procedures in the United States military to favor domestic companies and domestic producers for military hardware?
DICKS: No, there isn’t. In fact, there are all kinds of provisions in our law that makes it more attractive to be a foreign country. Now, in this situation EADS gets subsidy from the European consortium. You’ve got the (Barry ?) amendment on specialty metals, which the Europeans don’t have to follow and American companies do. You have ITAR regulations, which the American companies have to follow, but the Europeans don’t have to follow. So there are a whole series of things that disadvantage American companies, and I think—
SUAREZ: But if I understand you, Congressman, you’re saying there should be.
DICKS: I think—I think—I think—
SUAREZ: There should be a preference for American?
DICKS: I think the Congress, the authorizers, have a job to do to go and change some of these things to put this on a level playing field. American companies are losing these competitions and jobs overseas because of these regulations that have been put into place over the years.
WHEELER: But an American producer is still getting a piece of the action, right, Winslow Wheeler?
WHEELER: Northrop claims in its press releases that 60 percent of this aircraft will be American made. Boeing says it’s a purely American-made aircraft. That’s not entirely the case. It’s 85 percent. There are essential parts of this aircraft from Boeing made in Japan, Russia, the United Kingdom, and other countries.
DICKS: But Ray—
WHEELER: If we make this a one-way street, we’re going to lose lots of jobs. Boeing sells to Europe a lot more than we buy from Airbus. America defense exports to Europe are multiples of what we import from them. If we go down this road, we’ll lose lots of jobs and lots of those jobs will be at Boeing.
SUAREZ: Congressman, are you prepared—you’re on the Appropriations Committee—
SUAREZ: Are you prepared to hold up this contract?
DICKS: Well, that’s up to Chairman Murtha and our committee, and we’re going to have some more hearings on this. But I think there’s a very strong sentiment on the Hill that we should reconsider this decision. The Air Force has the right to do its competition, but it’s our decision to make the policy of our country about what we should do, and I think protecting 44,000 jobs at 300 companies in the United States at a time when we’re going into a serious recession—as you noted, the stock market went down even further today. This is a time of economic uncertainty. We need these jobs in the United States, and building these tankers and the aerial refueling equipment is one of the crown jewels of American technology. And I can’t understand why we would give this away. The Europeans would never in 100 years let us have a chance to bid on a contract of this magnitude in their country, so why should we do it?
SUAREZ: Well, given what you know about the structure, Winslow Wheeler, does Boeing have a court of appeal? Is there one final shot that they get at this thing before it becomes a done deal?
WHEELER: They’ll get two shots. They’ll get a shot with the Government Accountability Office. After this briefing they’ll get from the Air Force tomorrow, they will make a legal and political decision about whether they want to do a contract protest with GAO. That will take a year. They also have another court in Congress. 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.
DICKS: Hey Ray, by the way—
SUAREZ: Very quickly.
DICKS: —it’s not the Boeing Company, it’s Congressman Norm Dicks, Congressman Tiahrt, Congressman Murtha – a lot of us has very serious concerns about what happened here. And we’re going to take – we’re going to review this and we’re going to do what’s right for the American people.
SUAREZ: Congressman Norm Dicks, Winslow Wheeler.
DICKS: Thank you.
SUAREZ: —Gentlemen, thank you both.
Tags: Acquisition Reform
Director, Straus Military Reform Project, CDI at POGO, POGO
Mr. Wheeler's areas of expertise include Congress, the Defense Budget, National Security, Pentagon Reform and Weapons Systems
The goal of the Straus Military Reform Project is to secure far more effective military forces and much more ethical and professional military and civilian leadership at significantly lower budget levels.
We would like to thank Philip A. Straus Jr. and family for their generous support.