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US: Boeing’s Skillful Lobbying Efforts

by Marianne Brun-Rovet, Joshua Chaffin, Caroline Daniel and James HardingFinancial Times
December 8th, 2003

In a June day this year, just over 50 executives from the Boeing Company trooped into Room 405 upstairs in the Old Executive Office building adjacent to the White House. From the podium where George W. Bush often hosts visiting groups, Karl Rove, the president's chief political strategist, briefed the Boeing managers on the administration's agenda and how it overlapped with Boeing's concerns.

Second only to a private audience with the president himself, a meeting with Mr Rove is arguably the most sought-after appointment in Mr Bush's White House. The fact that Boeing could bring in a cohort of managers - not to mention the meetings on June 17 and 18 with senior officials from the State Department and Commerce Department and at least 13 members of Congress - was a testament to Boeing's government relations team.

But then Boeing has made an extraordinary effort to make its presence felt in Washington, as it has moved from influencing the government as regulator to wooing it as its biggest customer, accounting for half its sales. In the past fortnight, its most ambitious lobbying effort - to secure an Dollars 18bn (Euros 15bn, Pounds 10bn) contract for aerial refuelling tankers - has ended in scandal and scrutiny.

Mike Sears, Boeing's chief financial officer and leading successor to run the company, has been fired for his part in hiring Darleen Druyun, a Pentagon procurement official who was central in arguing the case to lease 100 Boeing 767 tankers. Phil Condit, chief executive, has resigned, becoming the highest-profile executive since the 1980s to lose his job in the aftermath of a military lobbying scandal. The Pentagon last week put the deal on hold, pending an investigation.

Keith Ashdown, director of Taxpayers for Common Sense, an opponent of the deal, says: "What was unusual about Boeing's lobbying was that it gained complete access to all divisions of government from the president down, to having the key leadership of the House and Senate and dozens of lawmakers pushing their wares on the deal. People like Card, Hastert, Dicks, were lobbying for this."

Andy Card is the White House chief of staff, Dennis Hastert is Speaker of the House and Norm Dicks is US Congressman from Washington state, the home of Boeing's manufacturing base.

Boeing is not the only company to cultivate powerful people. In June Lockheed Martin, a defence rival, recruited Pete Aldridge, the Department of Defence official in charge of acquisitions, to its board. (He approved the Boeing tanker deal on his last day at the Pentagon.)

Yet more than 8,500 e-mails gathered by the office of John McCain, the Arizona senator who has led efforts to stop the Boeing deal, reveal how Boeing lobbied the Pentagon, Capitol Hill and the White House. The e-mails provide a unique insight into the military industrial complex at work and show how Boeing pushed back the boundaries of corporate lobbying.

Of all the industries damaged by the events of September 11 2001, the commercial aviation industry was perhaps the most severely hit. In the emotional aftermath, the US airlines secured Dollars 15bn in aid. Boeing, however, which was heavily dependent on the US airline industry, missed out on the first tranche of aid. Even before the attacks it was suffering from sluggish sales, ceding its lead in new aircraft orders to Airbus, its European rival. The production line for its mid-sized 757 and 767 was suffering weakening orders and faced closure. Mr Dicks was prompt to present a solution in Sepember 11 terms. In a letter to Mr Bush on October 4 2001 he wrote: "We have a unique opportunity to address the problems affecting Boeing while also meeting urgent requirements to modernise air force and navy aircraft."

Boeing had already developed a plan to extend the prospects for its 767 line by adapting it as a military refuelling tanker. In February it had presented the air force with an unsolicited offer: to purchase 36 767 aircraft to be delivered by 2010. After September 11, however, the scale and the structure of the deal changed. Ms Druyun, then a leading procurement official in the air force, put together a proposal at the end of September for a deal to lease, not buy, 100 tankers as well as an action plan to win political approval.

Whether the US military really needs the tankers remains a moot point. In testimony to Congress, James Roche, secretary of the air force, said the existing tankers had the oldest average fleet age, at 44 years, of any air force aircraft and the costs of maintenance promised to escalate dramatically. But there have been plenty of contradictory assessments. For example, the air force's own economic service life study in February 2001 concluded that the existing KC-135 fleet could "remain viable through the year 2040".

Still, in the aftermath of the attacks the sense of urgency changed and the proposal seemed to be a win-win for both sides. The air force could afford - through the use of a lease - to get the aircraft promptly. For Boeing, any deal could keep its 767 line open. Signs also emerged that the contract could expand to 200 aircraft. As an internal e-mail from a Boeing executive on May 22 2003 put it: "We may actually be looking at a Dollars 35+B (Dollars 35bn-plus) deal with some additional political work."

By late 2001 Ted Stevens, the Republican senator from Alaska who chairs the powerful appropriations committee, had inserted language to get the air force its aircraft through a leasing contract. Mr Stevens, a long-time recipient of political contributions from Boeing, had a month earlier received Dollars 21,900 from Boeing at a fundraiser in Seattle.

Even early on it was clear there would be problems selling the deal. An air force e-mail sent on September 30 2001 noted: "Throughout the uniformed air force, the realisation exists that leasing is considerably more costly to the air force and taxpayer." Mitch Daniels, director of the Office of Management and Budget, also consistently opposed the idea, which was seen to add Dollars 2bn-Dollars 6bn to the costs.

But Boeing had built a strong political base. As America's largest exporter and as the leading aerospace manufacturer (building, among other things, the iconic Air Force One), it had long commanded attention. It and its subsidiaries employ more than 153,000 people in 47 states, generating more than Dollars 1bn of wealth a week in the US.

Boeing had long understood the appeal of job generation. The company has an internal database that allows executives to type in a state and find out how many jobs Boeing creates there. The database also shows how much Boeing spends on utilities and charitable contributions. "When Boeing was a commercial aircraft maker, they were prominent in sponsoring tables at philanthropic and arts related events and wanted to be seen as America's flying icon, creating a warm, fuzzy feeling in Congress," says one aerospace veteran.

The nature of Boeing's lobbying efforts, however, changed after the merger with McDonnell Douglas and Rockwell in the late-1990s, shifting gear from monitoring benign issues, such as air traffic control, to aggressively elbowing for multi-billion-dollar contracts. "MDC was the lobby king in aerospace," says an employee in Boeing's defence operations. "The DC office became decidedly MDC after the merger; all the MDC guys got the leadership positions."

The appointment of Rudy deLeon, deputy secretary of defence from March 2000 to 2001, as senior vice-president of Boeing's Washington operations also bolstered the company's defence connections. Boeing improved its clout oversees by recruiting Tom Pickering, a former US ambassador, to create a global network of diplomats. Boeing wooed mid-level military officials through, for example, golf tournaments for the Army Guard and National Guard. "They were very chummy events. They made sure each foursome had a Boeing guy and one or two government people along with a supplier," says one employee.

The company was also active in Washington, making strategic political donations, such as Dollars 100,000 to Mr. Bush's inauguration party, and funneling nearly Dollars 1m in contributions to politicians on the armed services and defence appropriations committees.

As Boeing ran into opposition over the tanker deal last year, it mobilised its supporters. An e-mail from Mr deLeon in September 2002 notes: "Speaker Dennis Hastert and congressman Norm Dicks spoke directly with President Bush in support of moving ahead on the tanker lease. In both cases, President Bush reportedly expressed his support for moving ahead with the tanker initiative and asked chief of staff Andy Card to be 'on point' for this effort."

The White House, meanwhile, had cause to be sympathetic. "The reason the president and Karl Rove are interested is because they want to win in Washington (a battleground state) in the next election. That is why the president went out there and endorsed the tanker deal two months ago," says a former government official.

Boeing brought in outside lobbyists with impeccable connections to help its cause. According to a draft review by Taxpayers for Common Sense, Boeing spent at least $1.2 million on lobbyists for the tanker deal, led by Akin, Gump, Strauss Hauer & Feld, which was paid $300,000. Its chief Boeing lobbyist is Bill Paxon, a former Republican congressman who served as one of the "gang of six" advisers who aided Mr Bush during his presidential run. When the tanker deal was running into trouble, Jim Albaugh, head of Boeing's defence division, sent an e-mail setting out a new case: "Rudy, we'd like you to ask Bill (Paxon) to try this on Andy Card."

Boeing courted the defence elite, hiring as consultants two members of the Defence Policy Board (which advises Donald Rumsfeld, the defence secretary): General Ronald Fogelman, air force, and Admiral David Jeremiah, ex-navy. A Boeing executive says in December 2002 he held talks with consultants "who have relationships with Rumsfeld (Jeremiah)."

Boeing also invested Dollars 20m last year in adefence-related venture capital fund run by Richard Perle, a former Reagan-era assistant defence secretary, regarded as an architect of US policy in Iraq. Mr Perle co-authored an editorial in The Wall Street Journal in August supporting the deal. He did not disclose the Boeing investment.

Towards the end of the process even Mr Bush and Mr Card were involved in price negotiations. An e-mail from Andy Ellis, a Boeing executive, in May notes that "both the president and Andy Card" reacted negatively when they saw the Pentagon was getting the same discount for 767s as Continental Airlines. Mr Card was then reported as saying the White House would be happy to negotiate down the price on the understanding that Boeing could sell not 100 but 200 aircraft. "I asked her (another official) about the 200 tankers, she said YES, that was Andy Card's view of the deal," said a Boeing e-mail of May 22.

Yet, while the scale of the corporate lobbying was extensive, what marked it out was how it was promoted within the Pentagon. "It was not so much the lobbying as the way Boeing handled it internally, with the games they played with the contracts, from manipulating the alternative analysis document and helping define the requirements," says one former government official.

Ms Druyun from the start acted as much as lobbyist for the deal as customer. "She was a very powerful person and built up an empire in the air force. No one crossed her," says one person who has dealt with her in previous negotiations. Within Boeing Ms Druyun was seen as a supporter. "Darleen was the 'godmother of the C-17' (a Boeing military airlift). There were banners proclaiming that throughout the factory," says a Boeing defence employee. "They first showed up during her first visit to Long Beach and stayed up in the Moose Cafe until she came to work for Boeing."

Ms Druyun worked in close collaboration to shape the contract. On ber 12 2001 a Boeing e-mail stated: "USAF wants us to support their language for an operating lease. Darleen will make the actual contract favourable." On June 17 2002 another noted: "Meeting today was very good. Darleen spent most of the time bringing the USAF price up to our numbers."

"Everyone in Washington was talking about Darleen before this happened and her perceived relationship with Boeing," says one procurement lobbyist. "People were nervous about it." Even so, Ms. Druyun was not in a position to swing the final contract. Last November she left the Pentagon to take a job with Boeing.

Other Pentagon officials worked closely with Boeing. Marvin Sambur, assistant secretary of the air force for acquisitions, in April e-mailed Mr Albaugh an internal e-mail he had sent his bosses, adding: "Please treat this as sensitive." He also sought Boeing's help in fending off criticism from Mr. McCain about the deal.

Boeing denies there was anything unusual about its ties. It says that throughout the negotiations it followed government regulations.

On November 24 Mr. Bush signed legislation authorising the compromise deal to buy 80 tankers and lease another 20. Almost as soon as it had gone through, it started to come apart. That same day Mr. Sears and Ms. Druyun were fired from Boeing, accused of breaching internal rules about holding job talks before she had excused herself from working on Boeing-related work, and of covering this up.

Opponents of the 767 deal moved quickly to exploit the dismissals. They want an inquiry into what effect this apparent conflict of interest may have had on the contract and whether Boeing gained unfair advantage in other contracts Ms. Druyun worked on. Senator McCain is considering hearings on the wider question of "revolving door" appointments from the government to the private sector. Boeing has denied that it gained any unfair benefit from these early job discussions.

The scandal could bring more fallout for prominent people in government, such as Mr. Roche, who is seeking confirmation to become secretary of the army, Mr. Sambur and even Mr. Card.

Boeing now faces the hard task of ensuring the 767 deal is not permanently grounded. But it is unlikely to be fatally wounded. With the US current account deficit worsening, the US needs to protect Boeing's status as the leading aerospace group. And, with the merger activity in the defence industry over the last decade slimming the number of contractors, it is simply too big to fail.




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