Own the Sky

Comments () | Published November 1, 2010

Compete or Perish
In a joint news conference with President Obama on March 30 of this year, French president Nicolas Sarkozy waded into the deliberations. EADS was willing to bid, he said, only if the competition was “free, fair, and transparent.” The nearly decade-long tanker ordeal now threatened to spark an international row.

Obama replied that he wouldn’t “meddle” in the process. But the next day, Secretary Gates stepped in, granting EADS a 60-day extension to recover from losing Northrop, revise its proposal, and submit a new bid. The Pentagon was unwilling to move forward without competition. A Pentagon spokesman insisted, with nearly a decade of evidence to the contrary, “Politics are not part of this process. Never have been, never will be.”

Boeing’s friends in Congress were outraged. Washington-state Democratic senator Patty Murray called Gates’s offer “completely unacceptable.” The state’s junior senator, Maria Cantwell, complained that there was “no reason” to give EADS more time because it had already submitted a lengthy proposal with Northrop. For its part, the Alabama delegation was delighted by the news. Republican senator Richard Shelby called it “the right decision.”

But would EADS see it that way? The company wanted high-level assurances that if it competed, it wouldn’t get blindsided by political forces.

Fortunately for the company, it had just hired a Washington ace. In November 2009, Sean O’Keefe, a seasoned government insider and onetime acolyte of Ted Stevens, became CEO of EADS’s North American division. O’Keefe had run NASA during the Bush administration and was the number-two official at the Office of Management and Budget. He had begun his career in the Pentagon as a budget analyst and later was Stevens’s staff director on the Senate Defense Committee. He’d also been comptroller and chief financial officer of the Defense Department and acting Secretary of the Navy under President George H.W. Bush. One could scarcely find a chief executive who knew the complex relationships of the “iron triangle” so thoroughly.

O’Keefe ran the traps in the Pentagon, meeting with the brass to determine whether EADS would get a fair shake if it bid on its own, without its American partner.

In the end, the decision to compete was as much political as it was practical. Tankers weren’t the ultimate prize for EADS. The company wanted to erode Boeing’s dominant position in the US aviation market. This wasn’t a fight for money; it was a struggle for the future of a business. If EADS didn’t charge forward, it would cede the market to Boeing on the most crucial battlefield.

In July of this year, when bids were due, Boeing and EADS submitted their written proposals to an office at Wright-Patterson Air Force Base in Ohio. Each ran more than 8,000 pages. EADS’s showed up in a private airplane and stood almost four feet tall. The company also brought a backup copy by truck.

Things being what they are, the tanker story couldn’t have come to a close without one more complication, and this time it bordered on farce. Just eight days before the competition ended, a Ukrainian airplane manufacturer, Antonov, announced it was making a bid along with U.S. Aerospace, a tiny American company with few obvious qualifications for building billions of dollars’ worth of Air Force planes. Publicly, the group suggested as its tanker model an airplane that didn’t currently exist in the Antonov fleet. Its proposal showed up at Wright-Patterson via messenger, in an envelope.

The courier also arrived late. Air Force officials received the proposal at 2:05 pm, five minutes after deadline. Antonov and U.S. Aerospace were disqualified. The companies said that guards at the entrance to Wright-Patterson had delayed the messenger and then given him wrong directions to the office. They alleged a Cold War conspiracy: The US military was desperate to keep an ex-Soviet satellite out of the race, so it literally put up roadblocks in Antonov’s path. The Government Accountably Office found that the allegations were baseless.

Throughout this past summer, as federal officials convened behind closed doors to pore over 16,000 pages of documents, Boeing and EADS launched a media war. In political publications across Washington, they placed dueling full-page ads touting their respective tanker proposals and trashing the competition’s. Their essential themes were the same: Our plane is the best for the job, and the other side is misleading you about what theirs can do. Rarely in Washington does a company run such extensive high-priced advertising for a military contract, much less engage in such mudslinging. The fact that Boeing and EADS placed the ads in publications read mostly by members of Congress and their staffs leaves little doubt about who the rivals think is calling the shots; the ads ran nearly daily in publications such as Politico, the Hill, Roll Call, and National Journal. Both sides are also laying the groundwork for another campaign. Whoever wins the tanker contract, most analysts consider it a certainty that the loser will protest.