Series of emails between White House, Department of Defense and USAF officials reveal concerns over Boeing contract
Former US Department of Defense (DoD) comptroller Dov Zakheim said he had a "simple" question: "Where is the [US Air Force] money to fund this lease?"
It is not known how Zakheim's private query to Marvin Sambur, assistant secretary of the air force for acquisition, in an email dated 25 November 2002, was answered. But his direct request is one of the milder examples of the internal scepticism - if not hostility - that greeted the air force's single-minded pursuit of a now-discredited scheme to lease 100 Boeing 767 tankers.
Zakheim's email was among several dozen private communications between top White House, DoD and air force officials released on 18 November by Senator John McCain. The Arizona Republican is seeking to build a case that Secretary of the Air Force James Roche and Sambur lied to Congress and displayed conflict-of-interest in acquisition decisions by mocking Boeing's competitor - Europe's EADS.
"Fools in Paris"
Roche wrote to a friend at Raytheon that the "fools in Paris and Berlin" made a mistake in hiring Ralph Crosby, who with Roche had shared two of the three sector vice-president positions at Northrop Grumman in the late 1990s.
"The AF has problems with EADS on a number of levels," Roche wrote on 8 August 2002. "The widespread feelings about Crosby in the Air Staff [Chief of Staff General John] Jumper especially, will only make their life more difficult. Smiles." Nine months later, Roche lobbied an aide to Secretary of Defense Donald Rumsfeld to call off a scheduled lunch with Crosby, saying Crosby "has lots of baggage, as does Airbus. We won't be happy with your doing this!"
But the 50-plus pages of emails now in the public domain indicate that neither Crosby nor McCain were the strongest obstacles to the Boeing lease plan, which first emerged as a Congressional proposal in November 2001. Roche personally led a fierce - and often personal - fight to defend the proposal inside the administration for nearly a year until it was forwarded to Congress in July 2003.
Opposition in the White House first appeared in early August 2002. Mitch Daniels, then-director, Office of Management and Budget (OMB), sent a letter to McCain criticising the deal. The alarm sounded in the air force. "Mr Daniels went out of his way to slam the 767 lease, even though he does not really know much about it yet," a USAF acquisition staffer wrote to Sambur on 3 August 2002. "Looks like an interesting fight shaping up."
Writer Bill Essex proved to be prescient, foreseeing a bureaucratic tussle lasting nearly a year which rivalled in intensity the air force's fight against McCain. "OMB will fight us to the death on the lease," Sambur warned to Roche and the air force's No 2 acquisition official, Darleen Druyun about two months later, in October 2002. "They do not believe our numbers and their analysis shows that it is better to purchase."
The OMB had pegged the actual cost of the deal at $26 billion, which surpassed the air force's still-evolving projections by $8 billion to $10 billion. Sambur acknowledged in an email to Roche in September 2002 the lease "is going to be a tough sell" and the "economic justification is not a slam dunk for either position (purchase or lease)".
In mid-2003, OMB's Robin Cleveland, who supervised all defence and aerospace issues, agreed to allow the lease deal to proceed, but not before asking Roche for a personal favour that is now the subject of an investigation by the US Department of Justice.
"Jim: This is my brother's stuff," says a Cleveland email dated 9 May 2003. Attached to the email were the cover letter and resume of sibling Peter Cleveland, who was applying for a legal job at Roche's former employer. "I would appreciate anything you can do to help with NG [Northrop Grumman]. É I would be grateful."
Roche quickly complied with her request, then replied to the White House official: "Be well. Smile. Give tankers now (oops, did I say that? My new deal is terrific.) :) Jim."
Air Force officials have dismissed Roche's comments as a joke and his actions as performing a routine favour for a friend and colleague in government. Investigators, however, will probably focus on an email written six days later by Robin Cleveland to her brother, entitled "NG interview." "Great. Hope it works before the tanker leasing issue gets fouled up."
The Roche-Cleveland exchange arose as negotiations between the OMB and the Pentagon would enter an intense, final phase. Inside the Pentagon, however, Roche was still struggling to solidify support among key officials outside the air force.
On 7 May, an aide emailed Roche to warn that Sambur was "getting beat up" on a cost-per-aircraft estimate of $125 million. The antagonist this time was not OMB, but Michael Wynne, undersecretary of defence for acquisition, technology and logistics. Outside experts had told McCain's commerce committee in the Senate the air force deserved a much lower price under normal leasing practices. Watchdogs were criticising Boeing for "capping" potential profits for the air force lease at 15%, or three times more than it makes in commercial deals.
Boeing, the aide wrote to Roche, was willing to call in the "big guns" against Wynne if Roche gave the word.
"It's time for the big guns to quash Wynne!" Roche replied on 7 May 2003. "Boeing won't accept such a dumb contract form and price, and Wynne needs to 'pay' the appropriate price!"
The feuding reached what appeared to be a climax almost two months later. By 7 July 2003, a joint OMB and Pentagon report to Congress on the 767 lease plan was nearly finished.
The 20-page document asserting that leasing would be $150 million more expensive than purchase would clear the way for the deal's supporters in Congress to make a final push.
The OMB was ready to relax its concerns, even though the report listed a total cost estimate of $21 billion, or $5 billion less than its initial projections.
But there was still one major issue to negotiate. Cleveland and Wynne wanted to insert a footnote in the report. It would say a lease is actually $1.9 billion more expensive than a purchase if the air force used a special contracting mechanism called a multi-year procurement (MYP).
The air force, however, was in no mood to compromise.
"What they are forcing us to say is that IF congress gave us permission to PURCHASE under the same MYP terms as the lease, then the lease is DUMB financially," Sambur informed Roche on 8 July 2003. "Wynne has tossed the bomb back to us in a take it or leave it terms."
Roche took the argument to Wynne with an email on the same day: "Last time I checked, you have an IQ greater than room temperature - and, so do I. É OMB can kill the deal and make [Wynne's predecessor] Pete Aldridge [defence secretary] Don Rumsfeld look like dopes. But, we shouldn't help them!"
Wynne refused to budge. "Jim: I am hoping this is about unity of command," Wynne wrote. "Negotiations with OMB are down to a footnote."
Roche persisted: "Mike, it's not that easy for you. You don't want to be put in a position of embarrassing Don; nor do I. We should present DoD's position and let OMB add the bogus point not us. Bogus because we DON'T HAVE THE $$$ NOT WITHOUT GIVING UP COMBAT CAPABILITY! É We turned to a lease because of this reality. The footnote to which you agreed? NEVER mentions this point! That's just not wise. Don't you agree?"
The debate continued one more day. On 9 July, Wynne tried to reason with Roche, saying the footnote "takes the teeth" out of critics who say the administration was whitewashing the economics of the deal.
"My advice to you is to take the deal as written, sign it out of this building," Wynne inveighed. "I think you have a major victory, and are letting a minor math point get in front of a major policy win."
Here, Roche seemed to back off his demand to kill the footnote from the report. Instead, he presented a compromise. "Mike, thanks for your candour," Roche wrote. "I will only add to the footnote of the letter I sign that 'the funds to execute such an alternative could not be made available without harming combat capability.' Then no one can accuse Don of 'wasting' $1.9 billion of taxpayer money."
History has shown that Wynne's promise of a "major victory" would prove to be accurate, but only for about eight weeks. The leasing report was sent to congress on 11 July 2003. Three of the four reviewing committees - armed services and appropriations in the House and appropriations in the Senate - quickly approved the deal as part of the annual legislation package to authorise defence funding.
One last chance
Conventional wisdom held that the Senate Armed Services Committee (SASC) would allow McCain one last chance to flog the leasing deal in a public hearing, then approve it with an easy majority.
Instead, SASC chairman John Warner and ranking member Carl Levin joined McCain to stop the deal in its tracks in early September 2003. Warner and Levin proposed a compromise scheme allowing the air force to buy the first 20 tankers and lease the last 80. McCain warmly hailed the proposal as a "four-fifths" victory.
Negotiations for pricing terms on such a deal were still ongoing on 6 October 2003, the day conservative watchdog group the National Legal and Policy Center filed a complaint with the Pentagon's office of inspector general. The complaint disclosed improper links between Boeing and Druyun before she was hired by Boeing in October 2002.
Boeing launched an internal investigation even as the Pentagon approved a new lease-buy deal on 6 November. But the air force never got to sign the contract. The deal was off after Boeing fired Druyun and chief financial officer Michael Sears on 24 November 2003. Boeing chief executive Phil Condit was forced to resign one week later under pressure from the company's board.
What Wynne knew on 1 November 2003 about the Druyun-Sears debacle is not publicly known, but an email he sent to several aides on that day is revealing. It reads: "Tankers - aaaaarrrrgggghhh!!! enough said."
STEPHEN TRIMBLE / WASHINGTON DC
Source: Flight International