For Boeing, a happy ending to tanker battle is crucial

Ethics scandals. The return of old enemies. The power of new ones.

Hollywood couldn’t have dreamed up a believable script with all the twists and drama of the Air Force’s real-life tanker contest.

When Northrop Grumman, its competitor over the past five years, dropped out a few weeks ago, the Boeing Co. looked like it finally had the $35 billion deal in the bag.

But Northrop’s partner, EADS, the French parent company of Boeing’s commercial rival Airbus, is considering going it alone.

And, late last week, came a strange report of a Russian-backed bid. A Los Angeles-based attorney said he had been asked to pave the way for a Russian consortium, United Aircraft Co., to partner with an unnamed U.S.-based defense contractor for the tanker deal. UAC and Russian officials have denied association with the attorney, making a Russian run on the tanker contest look less likely.

Nearly a decade after its first attempt to replace 179 of its Boeing-built KC-135 tankers, the U.S. Air Force, while no closer to ending this saga, looks to have landed squarely in an international debate over protectionism and the meaning of true competition.

Inside the biggest building by volume on Earth, Boeing workers are changing the way they produce Boeing’s 767 jet, the airplane on which Boeing is basing its tanker. The changes will cut costs and reduce risks, bolstering Boeing’s offering to the Air Force.

Josh Seelhoff, a father of three, and his industrial engineering team assess the new tooling required to implement a lean manufacturing line. Seelhoff, 34, has worked for Boeing for 14 years.

“I was here when we lost the first one due to the ethics scandal,” he said. ”It’s hard to lose over something I had no control over.Now we have an opportunity to do it right.”

The Pentagon put an end to the initial contract it awarded Boeing to lease tankers after it discovered the company offered jobs to a weapons buyer and her family in exchange for steering the contract Boeing’s way. But Boeing learned from its mistake, implementing a beefed-up ethics policy and training as a result, Seelhoff said. The Snohomish resident was surprised when Northrop and EADS won the second round — a contract the Pentagon also stopped when government auditors found it unfair.

After all this time, a Boeing win would give the economy a boost, Seelhoff said.

“We’ve got all these people who are ready,” he said. “It’s always exciting to have new work.”

When the United States was drawn into World War II, its Boeing B-29s could fly long distances, easing the need for aerial refueling. However, after the war ended, the country faced a new enemy: the USSR. Boeing used its B-29s as the basis of tankers used to refuel planes patrolling Soviet borders.

Had it not been for the onslaught of the Cold War, Boeing might never have furthered its aerial refueling technique. Today, the prospect that Boeing could face a Russian-backed competitor for the U.S. Air Force tanker contest seems outrageous.

“What a completely bizarre idea,” said aerospace analyst Richard Aboulafia.

Boeing backers say that allowing a foreign contractor to build an integral piece of defense technology not only poses a security threat to the country but also erodes America’s industrial base.

For Boeing as a company, the loss of the Air Force contract would mean giving up its edge in aerial refueling for perhaps decades. It would open the door for foreign competitors not only to enter the U.S. defense market but also to build jets on American soil.

After surrendering its title as the No. 1 jetmaker several years ago to Airbus, Boeing finally could overtake Airbus when it begins deliveries of its 787 Dreamliner.

EADS officials would like nothing more than to increase their presence in the United States. The Air Force contract comes at a pivotal time . With the U.S. dollar’s decline, EADS, which prices its products in dollars but pays costs in euros, is at a disadvantage. And the company has two problematic programs — the A400 and Airbus A380. Both drain the company of cash when it needs to finance Airbus’ new A350 jet program.

Here in Everett, Boeing’s efforts to win the tanker have both economic and emotional significance. A Boeing tanker contract promises 12,000 jobs for Washington state; it means contracts for suppliers in Snohomish County, and it locks in thousands of jobs at Boeing on the 767 line for nearly two decades.

It’s not surprising, then, that Boeing’s tanker bid has received tremendous support from Washington political leaders. The Snohomish County council and executive passed a resolution this week urging the Pentagon to pick Boeing’s 767 tanker. Gov. Chris Gregoire formed a coalition with other governors, chambers of commerce and labor unions to back Boeing’s tanker bid. And, perhaps Boeing’s most influential supporters are members of Washington’s Congressional delegation — many who hold key positions on defense committees.

For John Riddle, a quality assurance inspector for the 767, a Boeing win in the Air Force contest just makes sense.

“Boeing has a lot of experience — we just have a huge edge,” said Riddle, 47.

The father of three worked at Boeing roughly two decades ago but moved away from the Puget Sound region to pursue other interests. Riddle returned to be near his grandchildren. It’s the next generation of Boeing workers that Riddle has in mind when he reflects on the opportunities a Boeing tanker win could provide for Snohomish County.

“If my grandchildren should want to follow in their grandpa’s footsteps, they could,” Riddle said.

Tanker timeline

Late 2001: The Boeing Co. seems poised to win a deal to lease the U.S. Air Force aerial refueling tankers, which would have boosted the area’s economy after the Sept. 11 terrorist attacks.

2002: Criticism surfaces over the cost of the tanker leasing agreement.

2003: An investigation into the tanker bid process focuses on activities of a former Air Force procurement officer who went to work for Boeing. Congress and the president sign off on funding, but Sen. John McCain, R-Ariz., challenges the deal. Boeing’s chief executive Phil Condit resigns.

2004: Boeing’s former chief financial officer and the former Pentagon weapons buyer plead guilty to ethics violations over the tanker contract. The Pentagon decides to start the tanker bidding process anew.

2005: Boeing warns it may shut down the 767 line; Jim McNerney becomes Boeing’s new chief executive. Northrop Grumman and EADS forge a partnership to build Air Force tankers.

2006: The Air Force opens its tanker contest for a second time. Boeing ponders offering its 777 as a tanker.

2007: Early in the year, Northrop threatens to withdraw from the competition if it’s slanted in Boeing’s favor. Northrop and Boeing submit bids. By late 2007, the Air Force delays the contract and meets with the companies one more time in November.

2008: Feb. 29, the Air Force selects Northrop and EADS’ KC-30 tanker. Boeing appeals the decision to the GAO in mid-March. The Air Force admits it erred in scoring Boeing’s cost estimate in June. Late in the year, the Pentagon calls off its competition until the new presidential administration takes office.

2009: The Air Force launches its third attempt to replace its KC-135 fleet in September, releasing its draft requirements. In December, Northrop’s CEO threatens to withdraw unless significant changes are made.

2010: The Air Force releases its final request for proposals for the $35 billion contest in February. Northrop withdraws from the competition in March. EADS says it may go it alone. Boeing is expected to bid in May. The Air Force will award the contract by September.

Source: Herald archives