Inside Story: $35 Billion Boeing Air Force Tanker Deal

By Andrew Kreig / Project Director's Blog

The Department of Defense Thursday announced its choice of Boeing for a $35 billion contract to build the Air Force’s next generation of mid-air refueling tankers. Boeing’s selection, subject to any challenge by the losing bidder EADS, could end a decade-long, scandal-ridden process that became one of the controversial and important in modern U.S. procurement history.

Boeing’s victory over the consortium lead by EADS (European Aeronautic Defence and Space Co.) surprised many industry experts. They believed EADS held the edge over Boeing. Alabama's powerful Republican Senate delegation fought so hard for EADS that Sen. Dick Shelby, left, put a hold last February on every Obama nomination in the federal government unless the White House promised to give EADS what he called fair consideration. Later in the spring, President Obama promised to provide such fairness also in response to a specific request by European leaders, whose subsidies of EADS have sparked criticism at the World Trade Organization and elsewhere as a violation of fair trade.

In the end, DoD officials under Defense Secretary Robert Gates, right, cited Boeing’s smaller planes among other factors in making this week's award. "What that means is that, in the end, Boeing won on price," Loren B. Thompson, a defense policy analyst for the Arlington-based Lexington Institute, told the Washington Post. "Price consists of the cost of producing the plane, plus the cost of operating it over 30 years,” he continued. “The Airbus plane is so much bigger and burned over a ton more fuel per flight hour."

The Justice Integrity Project has tracked the proceeding closely for a year and a half after learning from reliable sources details about industrial espionage and skullduggery in the contract battle. This went far beyond even the scandals showcased in Senate oversight hearings led by Sen. John McCain (R-AZ). Those scandals sent a Boeing executive and former Air Force procurement officer to prison on bribery charges and led to DoD revocation in 2005 of the initial award to Boeing.

Last spring, we published several columns linking EADS and its United States allies to the frame-up of former Alabama Gov. Don Siegelman on corruption charges in the most notorious U.S. political prosecution of the decade. The plot, according to our sources, was for EADS-proponents working behind the scenes with selected federal authorities to remove the Democrat Siegelman from public life with trumped-up charges. This was, according to our information, part of an overall plan to advance the interests of well-connected military contractors and their political allies. In part, the EADS plan involved empowering Siegelman’s Republican successor, Gov. Bob Riley, left, to use his superb connections stemming from his previous House Armed Services Committee leadership to work with Europeans and fellow Republicans to advance the contract and all of their interests. The contract is sometimes estimated, as here, at $35 billion. But is often reported also as $40 billion in United States spending. The value could be much more if other nations followed the U.S. lead to achieve economies of scale by selecting the same supplier. For this and other military deals, EADS created a North American subsidiary based in Virginia, partnered with politically well-connected Northrop Grumman and planned $600 million parts reassembly plant in Mobile, AL.

These efforts were to create an American face for the project, which was vitally necessary for political reasons in an era of high-tech job-decline in the United States, especially given the political clout of Chicago-based Boeing and its workforce around the nation. As revealed by the McCain hearings, Boeing has its own dark-side in lobbying as well as its more public operations, which include disclosure that consultant David Plouffe, a close Obama campaign advisor, has been on their payroll.

More Dark Side

"I’m Shocked, Shocked! To Find Politics In Defense Contracting,” was one of our reports about these maneuvers last year based on what we could confirm. Earlier, investigative reporter Wayne Madsen, a Russia Today cable news commentator and former National Security Agency analyst, broke even more shocking allegations of government misconduct on his subscription-only website in a series of stories beginning in 2007. Based on sources, he reported keen interest in the success of the EADS bid by Europe's Rothschild family, the billionnaire Russian tycoon Oleg Deripaska (whose aluminum company supplies materials that would be used if EADS won its bid), their U.S. allies, and others. In 2009, Madsen travelled to Libya at the invitation of Moammar Qaddafi (sometimes spelled Gaddafi and otherwise) to join hundreds of others others for a feast in the dictator's tent on the occasion of the 40th anniversary of his "Revolution," aka coup-enabled ascension to power. Madsen recalls that the dictator seated him and other American guests in the front row about a dozen feet from him, "for propaganda purposes." With that kind of highly unconventional and indeed controversial vantage point through the years, Madsen reminded his readers this week on Feb. 22 that, based on his sources, Qaddafi's son Saif al Islam Qaddafi has long frolicked at luxurious retreats with the Russian tycoon Deripaska and other proponents of the EADS bid. On his way to an RT interview Feb. 25, Madsen commented to us by phone, "It's high-time for Qaddafi to fold his tent."

The EADS strategy appeared to be working well after DoD in 2008 awarded the contract to the EADS and its co-prime partner, Northrop Grumman. EADS operated in significant part via its subsidiary, North American EADS based in Virginia.  But the Government Accounting Office disallowed the tanker contract in 2009 and reopened the competition. Northrop Grumman dropped out, and EADS assembled a consortium of primarily U.S. subcontractors to win back the contract. As indicated from the selected news clips below, federal decision-making encountered several delays, including one last fall after DOD mistakely sent each side their rival's confidential bidding information.

 
During this process, our Justice Integrity Project has monitored major developments. Also, we have occasionally attended briefings by the major players for the press (primarily for those covering aviation and defense contracting) and monitored alternative information sources honed from our investigative reporting about the criminal justice system. For example, we covered a briefing last October at the National Press Club whereby the independent consultancy Iris Research presented its report "9 Secrets of the Tanker War."
 
 
We don't presume to publish routine coverage in such a specialized field as aviation technical and policy requirements. So, we used these occasions to enhance our understanding of technical and policy issues, and to meet with specialists -- but not to publish ongoing columns about the bidding competition.
 
 
Several of the specialist reporters said that they had never heard of the Siegelman angle. But why would they? They don't cover law enforcement. Even Siegelman, now free on bond pending resolution of his appeals from a seven-year sentence, told me last year he knew nothing about such a plot. Yet when he was tried he and his attorneys knew nothing either about his trial judge's extensive holdings in the closely held company Doss Aviation, Inc. Chief U.S. District Judge Mark E. Fuller of Alabama's middle district controlled Doss as its largest shareholder among just six other shareholders. Doss received $178 million contract shortly before the Siegelman case to refuel Air Force planes. We reported these and other conflicts on the Huffington Post in an investigative report in 2009 entitled, Siegelman Deserves New Trial Because of Judge’s ‘Grudge’, Evidence Shows….$300 Million in Bush Military Contracts Awarded to Judge’s Private Company.
 
 
True, that Doss contract is in a somewhat different niche of Air Force refueling contracting than the EADS-Boeing bidding war. And the Air Force Reserves Colonel who led the prosecution team against Siegelman under the middle district U.S. attorney has long held an appointment with the Justice Department. But it's all close enough to underscore the synergies in these kinds of high-stakes contracting battles, and the difficulty of mainstream media has in broaching non-official evidence and analysis even in the most controversial contracting dispute of the decade. Fuller, who declines to release his photo or to comment aside from no comment, is portrayed at ight. Alabama photographer Phil Fleming, a former ABC-TV newsman, took the portrait at the judge's invitation in his chambers minutes after the Siegelman verdict in 2006. Fuller could still have a role presiding over the case although Siegelman has a recusal motion pending.
 
What's the Story?
Further, virtually no in-depth mainstream commentary exists on the reasons why a 2001 Bush appointee, Middle District U.S. Attorney Leura Canary, right, is still running Alabama's most important federal prosecution office. This is the one that prosecuted Siegelman, in part by using an Air Force base as a locale to prep -- some would say pressure with abusive interrogation methods -- the key witness against him, former Siegelman aide Nick Bailey. For the record, Democratic Party officials say they have been unable to agree on the best successor for Canary, whose husband is a friend of Karl Rove, runs the Business Council of Alabama and served as campaign manager for Riley, Siegelman's successor. But the story surely is more complicated than differences of opinion over Canary's successor. The tradition in the United States is that Presidentially-appointed U.S. attorneys resign upon a change of Presidential administrations. This allows an interim prosecutor, usually chosen from the ranks of career professionals, to run the powerful regional offices until the Senate confirms a successor.
 
The full truth behind such matters ultimately requires a full congressional or Defense Department investigative run by professionals with unquestioned commitment to the truth and public interest. But with the stakes so high and the intrigue so deep involving so many from both major parties, there is scant realistic prospect that the media or anyone else would find the will to build popular support for such an investigation bringing in all relevant witnesses under oath.
 
Further reading:

Defense Department Tanker Refueling Decision

Financial Times (United Kingdom), Europe dismayed by Boeing’s tanker win, Feb. 25, 2011. EADS, the rival bidder in the contest, is part-owned by the French and Spanish government and by a proxy for the German government. The German government described the decision as a “missed opportunity to deepen the transatlantic partnership”.

Mobile Press Register, Air force tanker contract: EADS wants process details before making protest decision, George Talbot, Feb. 25, 2011. The decision confounded industry analysts and elected officials close to the competition, who boldly declared EADS as the favorite in the days leading up to the announcement. Those predictions vanished in a blink on Thursday afternoon, followed swiftly by the cancellation of arrangements for a ceremonial groundbreaking Monday at the Brookley Aeroplex  “I have no doubt” that EADS will contest the award, said Richard Aboulafia, an aerospace analyst for the Teal Group in Arlington, Va. “This is by no means the end of the contract.”

USA Today, Pentagon awards tanker contract to Boeing, Bart Jasen, Feb. 25, 2011.  "Boeing was a clear winner," said Deputy Defense Secretary William Lynn. Boeing will build the planes in Kansas and Washington state. EADS would have built them in Mobile, Ala.

Washington Post, Boeing wins $35 billion contract to supply new aerial refueling tankers, Karen DeYoung and Walter Pincus, Feb. 24, 2011.  The Pentagon awarded Boeing a $35 billion contract Thursday for a new-generation aerial refueling tanker, after a decade-long battle between the U.S.-based aircraft manufacturer and Europe's largest aerospace company. The weapons contract, which will provide an estimated 50,000 jobs, is one of the biggest in history and by far the largest likely to be awarded under the Obama administration. "What that means is that, in the end, Boeing won on price," said Loren B. Thompson, a defense policy analyst for the Arlington-based Lexington Institute. "Price consists of the cost of producing the plane, plus the cost of operating it over 30 years. The Airbus plane is so much bigger and burned over a ton more fuel per flight hour.

Economist (United Kingdom), Home-team advantage pays off for Boeing, Clausewitz, Feb. 25, 2011. It should not have come as a surprise, because this was a competition decided more by politics than the capabilities of the two aircraft on offer.

Boeing, Boeing Receives US Air Force Contract to Build Next-Generation Refueling Tanker, Feb. 24, 2011. The Boeing Company [NYSE: BA] has received a contract from the U.S. Air Force to build the next-generation aerial refueling tanker aircraft that will replace 179 of the service’s 400 KC-135 tankers. The contract calls for Boeing to design, develop, manufacture and deliver 18 initial combat-ready tankers by 2017.

MarketWatch, Boeing faces plenty of risk in tanker award, Christopher Hinton, Feb. 25, 2011. The overall contract — valued at more than $30 billion — is written as fixed-price, which means the customer won’t pay for any unforeseen and additional costs incurred by the manufacturer. That will prove a challenge for the Chicago-based company as the aircraft in its offer, a converted 767 jet, may have been aggressively priced.

Atlanta Journal Constitution, Military Gravy Train, Jamie Dupree, Feb. 25, 2011. The news to me wasn't so much who won the tanker competition, but a reminder of how widely distributed U.S. defense contracts are, and how much the Pentagon has become a jobs creation magnet for lawmakers around the country.

Legal Schnauzer, Pentagon Dumps Alabama at the Altar on Air Force Tanker Deal, Roger Shuler, Feb. 25, 2011.  Perhaps the nastiest competition in American history concluded yesterday when the Pentagon announced that it had awarded a $35-billion Air Force refueling-tanker contract to Boeing, over the European Aeronautics Defence and Space Company (EADS). The process had dragged on for 10-plus years and involved apparent scandal on both sides. Greed, fraud, and subterfuge seemed to mark a battle that left scars on our political system, especially here in Alabama, where EADS had planned to build a manufacturing facility in Mobile. How close to home does this hit? Our blog, in a nutshell, is about the befouling of Alabama government by what amounts to an organized-crime syndicate--and how that criminal mindset has been spread by Karl Rove and his minions throughout the American political system. We suspect the battle for the Air Force tanker contract has played a pivotal role in soiling our democracy. 10pt;">Selected Previous Coverage: 2010

Legal Schnauzer, Pentagon Commits Blunder on $40-Billion Tanker Project With Alabama Connections, Roger Shuler, Nov. 23, 2010. 
A $40-billion Air Force refueling-tanker project could wind up being built largely in Alabama, and some reports indicate the hotly contested contract has been a driving force behind political prosecutions that have engulfed our state for the past decade or so--including the Don Siegelman fiasco. Any developments in the battle between Boeing and the European Aeronautic Defence and Space Co. (EADS) is big news here in the Heart of Dixie -- even if it involves a colossal screw up by the Pentagon. The latest actions from the geniuses who run our military-industrial complex is so comical that it brings back memories from the '80s of $10,000 screw drivers and $100,000 toilet seats. The Air Force recently sent out internal bid assessments -- but sent them to the wrong parties.

Aviation Week, Additiona Fuel May Pay Off In Tanker Competition, David A. Fulghum, Oct 19, 2010. The U.S. Air Force tanker aircraft fleet is going to shrink significantly, well-connected observers say, but exactly how much they do not know.The details are, roughly, that the first group of 179 new KC-Xs will not be reinforced with KC-Y and KC-Z for 15-20 years and the larger KC-10 replacement will not show up for 30 years, says the former commander of the 12th Air Force and a key Washington-based airpower analyst in a briefing for reporters Oct. 19. In the near-term tanker competition for KC-X, time on station and total fuel carriage will likely be the key determinant between Boeing’s 767 or EADS’s A330 tanker designs, says retired Lt. Gen. Norm Seip and Rebecca Grant, author of a new white paper, “Nine Secrets of the Tanker War.”

Mobile Press-Register, Pentagon extends deadline for air tanker bids to July 9, George Talbot, April 1, 2010. All the factors are not in yet, but the elements are lining up more and more that this is looking very positive for us," said EADS North America Chief Executive Sean O'Keefe.

Truthout, Alabama Sen. Shelby Backs Down From Blocking Obama’s Nominees, Glynn Wilson, Feb. 9, 2010.

2009

Huffington Post, Siegelman Deserves New Trial Because of Judge’s ‘Grudge’, Evidence Shows….$300 Million in Bush Military Contracts Awarded to Judge’s Private Company, Andrew Kreig, May 15, 2009.

2008

Washington Independent, McCain & The Air Force Lobby, Matthew Blake, Sept. 10, 2008. In 2001, the Air Force handed the tanker contract to Boeing, the largest aircraft manufacturer in the world. But in 2005, the Air Force terminated the deal after McCain led a three-year investigation by the Senate Armed Services Committee that unearthed potentially illegal conduct by Air Force and Boeing officials. At the time, the media hailed McCain as a heroic, lonely crusader who had saved taxpayers millions of dollars. But there may have been another side to McCain’s investigation — one that may undercut a central premise of his presidential campaign: that he will be a reformer as president.

For an overview, see also a Reuters chart, Bidding Chronology, and the Wikipedia entry for the planes. Boeing maintains an informational website about the process: Boeing KC-767 Tanker. So does the pro-EADS Mobile County Commission, which has an index on its Keep Our Tanker website as well as News Round-Up and Tanker Facts subsites. Northrop Grumman dropped out of the bidding but has additional information also on its site. Note to readers: This column has undergone several substantial updates since first published Feb. 25, but with no corrections aside from minor typographic errors.

Below are significant articles on legal reform and related political, security and media factors. The articles contain a sample of news. See the full article by clicking the link.

Salon Unclaimed Territory, The DOJ's creeping war on whistle-blowers, Glenn Greenwald, Feb. 25, 2011.  Last April, the DOJ served a subpoena on New York Times reporter James Risen, demanding to know his source for a story he published in his 2006 book regarding a "reckless" and horribly botched CIA effort to infiltrate Iran's nuclear program. That subpoena had originally been served but was then abandoned by the Bush DOJ, but its revitalization by the Obama administration was but one of many steps taken to dramatically expand the war on whistleblowers being waged by the current President, who ran on a platform of "protecting whistleblowers."

Harper’s No Comment, Justice Cranks Up Its Covert War on Whistleblowers, Scott Horton, Feb, 25, 2011. As noted previously, candidate Barack Obama promised to protect whistleblowers who come forward with information disclosing government waste, abuse, and inefficiency. Unfortunately, President Obama has done exactly the opposite. Obama’s real policies are exposed in documents filed in the prosecution of former CIA agent James Stirling.

Politico, Feds spy on reporter in leak probe, Josh Gerstein, Feb. 24, 2011. Federal investigators trying to find out who leaked information about a CIA attempt to disrupt Iran’s nuclear program obtained a New York Times reporter’s three private credit reports, examined his personal bank records and obtained information about his phone calls and travel, according to a new court filing.

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