Defense Firms Strafe Each Other

Posted July 2, 2010 at 4:10pm

Two defense contractors in search of tens of billions of dollars in government work are expected to show up at Wright-Patterson Air Force Base in Dayton, Ohio, on Friday afternoon with hard-bound copies filled with thousands of pages detailing their bids to build refueling planes.

The submissions for the KC-X tanker competition marks the latest chapter in a long-running saga that has drawn in European governments, two U.S. administrations, key Capitol Hill lawmakers and a long list of K Street firms.

On one side is Boeing Co., the U.S. aerospace giant, which was originally slated to replace the Eisenhower-era refueling tankers early last decade but ran into turbulence along the way — including a contracting scandal and stiffer-than-expected competition.

On the other side is the European Aeronautic Defence and Space Co., owner of Airbus, which decided to make a solo bid for the project after its U.S. partner, Northrop Grumman Corp., dropped out earlier this year.

Since the Defense Department announced at the end of March that it was extending the bidding period, the two companies have waged fierce public relations and lobbying campaigns, taking out ads in inside-the-Beltway publications as well as working their allies in Congress.

The latest twist in the fight is the official ruling last week by the World Trade Organization that European governments have illegally subsidized Airbus. The decision was immediately seized upon by Boeing and its Capitol Hill allies, who say the Pentagon should factor in those subsidies in awarding the contract.

Earlier this year, House Members sympathetic to Boeing were able to insert an amendment into the defense authorization bill that would require the Pentagon to report within 60 days of the WTO ruling on the effect of the subsidies on the refueling tanker competition. The push now by Boeing is to get the Senate to include similar language in its defense authorization bill.

“The situation is fundamentally changed. That’s why it is important for DOD to take into account the subsidies,” said Sean McCormack, vice president of communications for Boeing.

McCormack said Boeing has been trying to educate lawmakers through print ads in Capitol Hill publications as well as national radio and online spots.

Boeing has also emphasized its domestic roots, arguing that the tanker refueling project will mean more jobs around the country — unlike EADS planes, which McCormack maintained would be “made in Toulouse, Dresden and Spain.”

EADS officials counter that their planes, which would be assembled in Mobile, Ala., would be based on Airbus jets that are already flying and would not have to be developed from scratch, in contrast to what they say Boeing plans to do.

“Boeing does not have a real aircraft to offer,” said Guy Hicks, spokesman for EADS North America. Boeing, however, argues that the aerial tanker EADS would build differs from its current Airbus planes.

As for the WTO decision, Hicks said the Pentagon cannot penalize EADS because the world body has not yet levied any sanctions and the appeals process is not over. The WTO proceedings are not expected to be completed until after the tanker contract is awarded in the late fall.

“Our position is that’s an illegal act,” Hicks said, referring to any attempt by the Pentagon to factor in the WTO decision in a tanker deal. He also noted that the European Union has filed a complaint with the WTO that Boeing has also been unfairly helped by local, state and federal subsidies.

“Obviously we are trying to make people understand there are two sides to any story,” Hicks said.

Cmdr. Wendy Snyder, a Pentagon spokeswoman, said that in March 24 Congressional testimony, Defense Secretary Robert Gates said the WTO’s final ruling would not affect the tanker competition.

“It’s a matter between the U.S. and the European Union. It is not a matter of Boeing vs. Airbus,” Snyder said.

The tanker contract is being managed by the Air Force at the Wright-Patterson base.

Both companies are relying on their friends on Capitol Hill. Boeing has tapped a powerful political network that includes Rep. Norm Dicks, who recently took over the Appropriations Subcommittee on Defense and is likely to move up to Appropriations chairman next year if Democrats retain the majority.

After the WTO officially released its decision last week, the Washington Democrat, whose district is home to many Boeing workers, issued a statement saying the U.S. government cannot ignore the Airbus subsidies in the tanker competition.

Rep. Todd Tiahrt, whose district includes Boeing operations, went even further, saying that it was the responsibility of the Obama administration “to level the playing field and stop pandering to the interest of European governments.”

“We need an American tanker built by an American company with American workers,” the Kansas Republican said.

EADS has the backing of many Gulf Coast lawmakers, including Sen. Richard Shelby (R-Ala.), who earlier this year held up Senate confirmation of a number of White House nominees because of his belief that the tanker bidding process was skewed in favor of Boeing.

Both companies also have assembled large lobbying teams with political connections.

Last fall, EADS hired Sean O’Keefe, a former NASA administrator in the Bush administration, to be its CEO. O’Keefe is also registered as a lobbyist for the company, as is Samuel Adcock, who was a security policy aide to former Senate Majority Leader Trent Lott (R-Miss.), and Aubert Kimbrell, a former legislative director to Sen. Roger Wicker (R-Miss.) when Wicker served in the House.

EADS, which spent $700,000 in lobbying in the first quarter, also has retained a number of top lobbying firms including the Livingston Group, headed by former Rep. Bob Livingston (R-La.), and Quinn Gillespie & Associates, whose founder, Jack Quinn, has been a longtime adviser to Democrats.

Hicks said that while EADS has not expanded its government relations team, more of its activity has been aimed at addressing legislative interest in the tanker.

Boeing, which spent $4 million on lobbying in the first three months of 2010, also has a large stable of outside firms, including Akin Gump Strauss Hauer & Feld, the Gephardt Group, the Podesta Group, K&L Gates and McBee Strategic Consulting.

Richard Aboulafia, a defense analyst at the Teal Group, said that over the years the parties in the tanker competition have loaded up on lobbyists to act as a “warm security blanket.”

He predicted that the outcome could well be influenced by the upcoming Congressional elections. If Republicans make considerable gains, that could help EADS, which has more GOP lawmakers in its corner, he said. If Democrats retain control of Congress, Aboulafia predicted that would work in Boeing’s favor.

However, he suggested it was dangerous to predict any finality to the tanker war.

“There have been so many false starts and ridiculous delays,” he said. “This is the most partisan defense contract I have ever seen.”