As I suspected, Boeing Inc. (NYSE: BA) was trying to exert pressure to change the terms of the competition when it signaled this week that it might withdraw from the bidding for the $35 billion Air Force contract for airborne refueling tankers. BusinessWeek reports that Boeing wants the Air Force to delay the date for submitting the proposal and to change the specifications to favor Boeing's smaller modified 767.
BusinessWeek also reveals that the competition is tied in with this November's election. John McCain's former finance committee chair, Tom Loeffler, is a lobbyist for EADS, parent of France's Airbus, which has joined with Northrop Grumman (NYSE: NOC) in a bid for the tanker. In June, the General Accounting Office (GAO) agreed with Boeing that the February award to Loeffler's client had process irregularities. So the Air Force announced it would rebid, but it did so in a way that -- if my hunch is correct -- Boeing believes will put Loeffler's French client at a big advantage.
As BusinessWeek points out, if the Air Force sticks with its current schedule and specifications, it will help McCain win Republican-dominated Alabama in November, which is where Northrop would build the modified A330 that it would deliver to the Air Force if it wins the competition. Democratic Washington would benefit if Boeing won the competition.
What is getting lost here is that it's not clear what would actually be in the Air Force's best interests. I would think that the best solution would be the one that provided tankers that cost the Air Force the least to purchase and maintain while using the least amount of fuel to service in-flight aircraft.
Boeing appears to have a two-pronged strategy. If it gets the Air Force to delay the deadline until after the election and to change the specifications to favor its offer, then it will bid. Otherwise it will threaten to stay out of the competition. If Boeing does bid on its terms, it would delay the decision beyond November and cut into McCain's chances.
But it's still not clear to me which aircraft would be best for the Air Force's needs -- the A330, the 767, or the larger 777 that Boeing would bid if the Air Force's specs stay the same.
That should be the deciding factor.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
8-13-2008 @ 12:27PM
Chris K. said...
Does Peter Cohan Own Boeing Stock?
Fabulous job, Peter, on cherry-picking your facts to paint Boeing as the victim of successful lobbying by its competitors and a desire to acquire votes via any means possible by John McCain.
Why is it OK for Norm Dicks to lobby for Boeing (while accepting campaign contributions), but not OK for McCain to pressure the Air Force to create real competition for the contract? Dicks has been in Boeing's hip pocket since even before the days he actively argued Boeing's point of view for the tanker lease deal that led to the resignation of Boeing's CEO and the imprisonment of an Air Force officer.
Your single-side castigation of McCain's association with a lobbyist for EADS while ignoring the financial influence wielded by Boeing on a number of democratic elected officials makes Bill O'Reilly look balanced.
As far as which plane is better, I think it is pretty obvious that the Air Force wants the Northrop/Airbus tanker. In the commercial market, the airlines voted for the A330 over the 767 a long time ago. That is why the 767 line is shutting down: the plane, while easily better than the current 50 year old KC-135 fleet, is already obsolete.
Boeing all but wrote the original RFP for the Air Force, and it took John McCain's influence for the Air Force to make a process that invited more than token competition. Now Boeing is essentially whining that it lost control over the ability to write the requirements for the Air Force.
Boeing might win, yet. That wouldn't surprise me, but if it does it will have everything to do with political intervention from those who needs votes out West and very little to do with it having the better product. If they do win, I certainly hope they can execute better than they have done with the Japanese and Italian tanker contracts, the latter of which is 3 years behind schedule.
8-13-2008 @ 6:30PM
Claude Foutch said...
Chris K. would suggest we are all naive re the political influence being exerted by Boeing and EADS backers. As a small, unashamed, shareholder of Boeing stock and a very proud former soldier who trusts American aircraft builders over all others worldwide and who wants our warfighters to utilize American built craft, I stand my ground. I have flown in KC-135's, A330's, 757's and 767's, all fine aircraft but one of these is not an American plane. Further, I do not believe we should be purchasing defense related major products from foreign countries, even though France, Germany and England are dear to my heart. The worst part of this saga, beyond all else, is that Mr. McCain would loose his avatars on the voters of S. Carolina with promises of jobs in exchange for votes. I have long suspected this was the case and if true, it will end McCain as a "straight talk" man and likely kill his run for the presidency. He surely will not get my vote.
8-14-2008 @ 7:31AM
charlie said...
I imagine their is blame on both sides of the aircraft deal. The airforce made it worse by getting caught stacking the deck against boeing. Maybe they had a good reason mabe not but they got caught cheating so now they are behind the deadline many more months. Maybe they will split the contract and give each side half of the planes. It might cause some competition between the two.but the average joe is not privy as to what is going tohappen.
8-14-2008 @ 9:36AM
Chris K. said...
Claude,
My only gripe is how Cohan pushes only the side of the story that benefits his political party while ignoring the transgressions of his own.
The debate about whether or not we should be buying military systems from overseas is perfectly valid. Congress could mandate that the winning product be built in the US, but they haven't. Instead they talk about a fair and open bidding process until the manufacturer in their district loses. Congress is where the power lies to change the process.
I am a former soldier as well and as I'm upset that the best Boeing could do was to bid a 25 year old design whose commercial life has come to an end. Timing for the contract is bad for Boeing, though, as production for the 787, Boeing's replacement for the 767, is just ramping up and it has a deep order book for commercial deliveries. Not sure how feasible a 787 tanker would be anyway. However, I do see the 777 as the shoe-in for the DC-10 replacement
Also, I think it would be the US's interest to give EADS an excuse to build a factory in the States. There is a very real chance that that could eventually lead to the production of commercial Airbus aircraft in the US.