Di Plane Pt. 2: Keating Five, McCain, and EADS

♠ Posted by Emmanuel in ,, at 3/09/2008 02:48:00 AM
While I am not really a supporter of John McCain, I do believe that he is being unfairly singled out over Boeing's unexpected defeat to Northrop-Grumman and EADS in supplying the US Air Force's next-generation air tanker. The latter combo won the deal fair and square. Now, McCain was instrumental in sinking an earlier deal with Boeing over the procurement scandal I posted about before, paving the way for EADS to win the deal in a rematch half a decade later. The Associated Press has an article describing how American politicians and workers supportive of Boeing's bid are keen on exacting a political price on McCain's presidential bid:

Angry Boeing supporters are vowing revenge against Republican presidential candidate John McCain over Chicago-based Boeing's loss of a $35 billion Air Force tanker contract to the parent company of European plane maker Airbus. There are other targets for their ire -- the Air Force, the defense secretary and even the entire Bush administration .

But Boeing supporters in Congress are directing their wrath at McCain, the Arizona senator and nominee in waiting, for scuttling an earlier deal that would have let Boeing build the next generation of Air Force refueling tankers. Boeing now will miss out on a deal that it says would have supported 44,000 new and existing jobs at the company and suppliers in 40 states.

"I hope the voters of this state remember what John McCain has done to them and their jobs," said Rep. Norm Dicks, D-Wash., whose state would have been home to the tanker program and gained about 9,000 jobs.

"Having made sure that Iraq gets new schools, roads, bridges and dams that we deny America, now we are making sure that France gets the jobs that Americans used to have," said Rep. Rahm Emanuel, D-Ill. "We are sending the jobs overseas, all because John McCain demanded it…"

McCain said he is keeping an open mind on the contract, but in the past he has boasted about his role in blocking an earlier version of the tanker deal that gave the contract to Boeing…McCain has run ads touting his role in fighting "pork" such as the tanker project and cited the deal in a recent GOP debate. "I saved the taxpayers $6 billion in a bogus tanker deal," he said.

House Speaker Nancy Pelosi, D-Calif., echoing the thoughts of many congressional Democrats, sees McCain's role in a less positive light. She said the earlier tanker deal was "on course for Boeing" before McCain started railing against it. "I mean, the thought was that it would be a domestic supplier for it," Pelosi told reporters. "Senator McCain intervened, and now we have a situation where the contract may be -- this work may be outsourced."

Even Boeing's Republican supporters are critical of McCain. "John McCain will be the nominee and I will support him, but if John McCain believes that Airbus or EADS is the company for our Air Force tanker program he's flat-out wrong -- and I'll tell him that to his face," said Rep. Dave Reichert, R-Wash.

Rep. Todd Tiahrt, a Kansas Republican whose district includes a Boeing plant that could have gained hundreds of new jobs from the tanker program, said McCain's role in killing the earlier deal is likely to become an election issue. Both of the leading Democratic candidates for president, Barack Obama and Hillary Clinton, have criticized the Air Force decision. "I think we absolutely will hear more about it," Tiahrt said. "We'll hear it mostly from the Democrats and they have every right to be concerned."

McCain called such criticism off base. "In all due respect to the Washington delegation, they vigorously defended the process before -- which turned out to be corrupt -- which would have cost the taxpayers more than $6 billion and ended up with people in federal prison," he said. "I'm the one that fought against that ... for years and brought down a corrupt contract."

Keith Ashdown, with the watchdog group Taxpayers for Common Sense, said Boeing executives who broke the law were to blame for the demise of the tanker contract -- not McCain. "This was theirs from day one," he said. "This idea that any lawmaker is to blame is a joke."

Still, Todd Donovan, a political science professor at Western Washington University, said McCain's opposition to Boeing could hurt him with voters in Washington and other states affected by the tanker program. Boeing would have performed much of the work in Everett, Wash., and Wichita, Kan., and used Pratt & Whitney engines built in Connecticut. Significant work also was slated for Texas. "If he can be painted as somehow being associated with job losses ... it could hurt him on the margins," Donovan said.

McCain's role in the tanker deal did not bother Alabama politicians, including Republican Gov. Bob Riley, who endorsed McCain three days after the Air Force contract was announced. The EADS-Northrop tanker, based on the Airbus A330, will be built in Mobile, Ala., where it will produce 2,000 new jobs, and support 25,000 jobs at suppliers nationwide.

Why has McCain become keen on pursuing cases of government corruption, you ask? The largest stain on his record remains being one of the "Keating Five" politicians who aided Charles Keating and his Lincoln Savings & Loan Association in avoiding federal scrutiny for a while after receiving substantial campaign contributions from Keating. It of course ended with about $2.6B being shouldered by American taxpayers. The Arizona Republic jogs our memory:
In the picture, taken in the Bahamas, McCain is seated on a bandstand while wearing an outrageous straw party hat. Next to him on the dais sits Charles Keating III, son of developer Charles H Keating Jr. McCain calls the Keating scandal "my asterisk." Over the years, his opponents have failed to turn it into a period.

It all started in March 1987. Charles H Keating Jr., the flamboyant developer and anti-porn crusader, needed help. The government was poised to seize Lincoln Savings and Loan, a freewheeling subsidiary of Keating's American Continental Corp. As federal auditors examined Lincoln, Keating was not content to wait and hope for the best. He had spread a lot of money around Washington, and it was time to call in his chits...

McCain already knew Keating well. His ties to the home builder dated to 1981, when the two men met at a Navy League dinner where McCain spoke. After the speech, Keating walked up to McCain and told him that he, too, was a Navy flier and that he greatly respected McCain's war record. He met McCain's wife and family. The two men became friends.

Charlie Keating always took care of his friends, especially those in politics. McCain was no exception. In 1982, during McCain's first run for the House, Keating held a fund-raiser for him, collecting more than $11,000 from 40 employees of American Continental Corp. McCain would spend more than $550,000 to win the primary and the general election.

In 1983, as McCain contemplated his House re-election, Keating hosted a $1,000-a-plate dinner for him, even though McCain had no serious competition. When McCain pushed for the Senate in 1986, Keating was there with more than $50,000. By 1987, McCain had received about $112,000 in political contributions from Keating and his associates...

Despite the reprieve, Keating's businesses continued to spiral downward, taking the five senators with him. Together, the five had accepted more than $300,000 in contributions from Keating, and their critics added a new term to the American lexicon: "The Keating Five."

The Keating Five became synonymous for the kind of political influence that money can buy. As the S&L failure deepened, the sheer magnitude of the losses hit the press. Billions of dollars had been squandered. The five senators were linked as the gang who shilled for an S&L bandit...

Among the Keating Five, McCain took the most direct contributions from Keating. But the investigation found that he was the least culpable, along with Glenn. McCain attended the meetings but did nothing afterward to stop Lincoln's death spiral. Lincoln was the most expensive failure in the national S&L scandal. Taxpayers lost more than $2 billion on the bailout.
Ever since then, McCain has been keen on avoiding the corruption rap, hence his subsequent efforts against the Boeing tanker deal. Ultimately, McCain will have to live with the reputation of being one of the Keating Five for the rest of his political career. What is lost in the current complaints being lodged against him is any concept of "procedural fairness." I know, Airbus, whose parent company is EADS, is currently duking it out with Boeing at the WTO as the US and EU accuse each other of subsidizing aircraft production.

Still, the pertinent facts of the case to me remain that (1) Boeing tried to seal the deal by offering employment to an Air Force procurement officer. Cheaters never win, and it seems fair to me that even if Boeing had the upper hand on EADS way back when that it would be disallowed from the competition for such tomfoolery. As an aside, it's funny that I was able to pull up a Boeing press release concerning Druyun "joining" Boeing prior to her incarceration over the botched tanker deal. (2) Why is it that the current critics of McCain speak little of the merits of the Boeing design against the EADS one? If the latter is clearly a superior design as the USAF states, then there will be little ground for Boeing to lodge a complaint. As I said, it is unlikely for Boeing to dispute its loss since it probably wants to put this dreadful saga behind it. Maybe Boeing should just concentrate on keeping its nose clean and offering more compelling designs in the future. McCain should be commended, not pilloried, for calling a spade a spade. Once bitten, twice shy.

UPDATE: Well this is surprising--to me at least. Boeing now intends to contest this deal. Here are the press release and a writeup from the Wall Street Journal:

Boeing said it will file a formal protest on Tuesday asking the Government Accountability Office to review the Air Force's decision to give the contract to Northrop and European Aeronautic Defence & Space Co.

"Our team has taken a very close look at the tanker decision and found serious flaws in the process that we believe warrant appeal," said Boeing Chairman and Chief Executive Jim McNerney in a statement. "This is an extraordinary step rarely taken by our company and one we take very seriously."

An Air Force spokeswoman said ahead of Boeing's announcement that the process was "fair and transparent." She declined to discuss details.

Boeing said it spend three days reviewing the Air Force's decision following a briefing it received from military officials Friday. Boeing said a "rigorous analysis" led it to conclude that a protest was necessary. "Based on what we have seen, we continue to believe that we submitted the most capable, lowest-risk, lowest- most probable life cycle cost airplane as measured against the Air Force's request for proposal," Mr. McNerney said.

The company said it would provide additional details on Tuesday. However, it hinted at some of its concerns in a statement earlier Monday. The Air Force last month passed over Boeing's bid, a big blow because analysts thought Boeing a shoo-in for the 179 jets at stake in the deal...

The Northrop team will take an Airbus A330 -- which is larger than the 767 jet that Boeing bid -- and convert it into a military-grade airplane capable of supplying 37,000 gallons of fuel in midair. Replacing current tankers that are more than 40 years old is a top Air Force priority. The planes are used to refuel fighters, bombers and transport planes around the world.

Citing its Friday debriefing, Boeing said it believes it fared well under the five main criteria the Air Force used to evaluate bids. For example, Boeing said it received a top rating for its aircraft's "mission capability," the No. 1 factor, and said it scored very similarly in other areas to the Northrop offering. The company said subjective assessments and changes to an important analytical model contributed to the loss.

"We have serious concerns over inconsistency in requirements, cost factors and treatment of our commercial data," said Mark McGraw, the head of Boeing's tanker effort, in a statement.

In particular, Boeing said the Air Force had sought detailed cost information Boeing couldn't provide, though it said it gave the military data that exceeded what a commercial customer might receive. Boeing said it couldn't provide the information on the basis the Air Force sought because its plane had already been designed. It said the Northrop-EADS plane is still in the design process, allowing the consortium to present the information in terms the Air Force sought.

Boeing also said the Air Force made changes in its model that allowed a bigger plane to stay in the competition.

In a statement, Los Angeles-based Northrop said its offering won because of its cost, past performance on other contracts, the airplane's capabilities beyond refueling and how the plane fared using a complex model assessing the plane's performance on military missions. The debrief was "rigorous and deliberative," Northrop said. Air Force officials walked Northrop executives through their proposal on Monday.

Companies can file a protest with the GAO, Congress's investigative arm, which then takes up to 100 days to review the objections and issue a ruling on them. The GAO's findings can be followed by the government and have resulted in re-bids, as in the case of a more than $10 billion Air Force search and rescue helicopter contract that has been twice protested by Lockheed Martin Corp. and United Technologies Corp., parent of Sikorsky, after Boeing won it in November 2006. A winner is expected this fall.

Protests of contracts for big weapon systems like planes and helicopters have become more common in recent years because there are fewer and fewer to compete for.