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Thursday, July 24, 2014

Analysts: Tanker delays defeated Boeing Wichita

By Molly McMillin
The Wichita Eagle

Had Boeing secured a controversial Air Force tanker contract during an earlier round of bidding, the company would not be closing its Wichita facility, analysts and a tanker advocate said.

The $35 billion tanker bid dragged out for nearly a decade over three rounds of politically charged competition, marked by ethics violations and technical mistakes.

“If Boeing would have started building tankers in Wichita three or four years ago, at this point, they would be looking at ways to put work inside the facility rather than take it out,” said Lexington Institute defense analyst Loren Thompson.

In the final round of the contract competition, Boeing bid so aggressively to compete against Airbus, it took a risk of the possibility of a loss on the program, Thompson said. Boeing wanted to stop Airbus from setting up a tanker final assembly plant in Mobile, Ala., and keep Airbus out of the U.S. market.

Now, its low bid means Boeing must “drain every cent of cost out that it could find,” Thompson said. That includes cutting its underutilized, high-overhead Wichita facility, he said.

Earlier this month, Boeing announced it would close the Wichita facility and send existing work to Oklahoma City and San Antonio. Tanker work that was to come to Wichita now will go to the Puget Sound, Wash., area, officials said.

The plant in south Wichita, which employs 2,160 people, will close by the end of 2013 because of the winding down of existing programs, high overhead costs and little prospect of new work coming in, officials said. The closing will end a relationship between Boeing and Wichita that began in the 1920s.

Boeing won the tanker competition in February 2011, and Wichita was to have been a finishing center for the tanker.

But the center would have had less tanker work than planned during earlier rounds of competition, which began in 2001.

Since then, Boeing figured out how to do more of the changes needed to turn a 767 commercial airliner into a tanker as it moves down the production line in Everett, Wash. That meant less finishing work leftover for Wichita.

“The first time around, it would have been very unusual for them to change their production plans,” said Teal Group defense and aerospace analyst Richard Aboulafia. “It would have been an immediate procurement of something that was ready to go.

“As the decade went on, they rethought their options, and by the time they did get the contract, everything had changed.”

The latest contract would have still meant a few hundred jobs in Wichita, and with the trickle-down effect, 7,500 Kansas jobs with suppliers and others.

But the tanker work wouldn’t have arrived here until 2014. And that was too little, too late.

Boeing spokesman Jarrod Bartlett in an e-mailed statement said the company would not speculate on what would have happened had the deal been secured earlier.

“There are too many variables to say what could’ve happened in the previous competition,” Bartlett said. “We are focused on delivering on the current contract we have.”

Former U.S. Rep.Todd Tiahrt said securing the contract earlier would have lowered Wichita’s overhead costs. And that would have made it more competitive to win other work.

“The more work, the lower the rates, and we still would have Boeing here in 2013,” said Tiahrt, who lobbied in Congress for a Boeing win and now does consulting work for the company.

Members of the Kansas delegation have said they’re unhappy with Boeing because they worked hard to help Boeing win the contract in return for Boeing’s promise to put work in Kansas. They question how long Boeing knew it would close the Wichita plant.

“Boeing broke their promise not just to me, but to the highly skilled workers who worked for them,” said Sen. Pat Roberts. “There’s a heavy dose of gamesmanship here. We’re going to have to live with those consequences.”

While you can express outrage, frustration and anger, the key is for Boeing to keep the work it has with Wichita suppliers, he said.

“You don’t want to endanger that,” Roberts said.

Thompson said the Air Force doesn’t care where the tanker is built as long as it’s done in a timely fashion.

“The U.S. Air Force has exactly two priorities: One is to start getting aircraft to replace its aging tankers,” Thompson said. “The other is to stick with the terms of the contract so there is no further delay.”

Bad process?

Tiahrt blames a flawed acquisition process for the loss of Boeing in Wichita.

In a first attempt in 2001 to replace the aging tanker fleet, Tiahrt and Rep. Norm Dicks, D-Wash., introduced legislation for the Air Force to lease tankers from Boeing. The bill passed into law.

The deal was opposed by Sen. John McCain, R-Ariz., who questioned the agreement. An ethics violations led to its demise after Boeing’s chief financial officer and an Air Force procurement officer were sent to prison after the Air Force official accepted a job from Boeing while working on the contract.

In the second round of bidding, Airbus teamed with Northrop Grumman to compete. Boeing wasn’t given a fair shot, Tiahrt said.

“The federal government, in order to have a competition, bent over backwards for Airbus,” he said. “First they went out and recruited them to bid.”

The Air Force also ignored a World Trade Organization’s ruling on illegal government subsidies to Airbus, Tiahrt said. The subsidies, amounting to $5.8 billion, were used to develop the jetliner used as the platform for its tanker bid, he said.

“The federal government turned a blind eye,” he said. “That is not right.”

Tiahrt also alleges that the government did not hold Airbus to the same expensive regulations Boeing had to follow, such as the Foreign Corrupt Practices Act, Buy American provisions and others.

The Air Force awarded the contract to the Northrop Grumman/Airbus team. But it was overturned in June 2008 after the Government Accountability Office upheld a Boeing protest, saying it found “significant errors” in the process.

In a final round of bidding, Boeing cut its bid 10 percent and resubmitted it in order to overcome the financial barriers with Airbus, Tiahrt said.

“To overcome all these illegal subsidies, to overcome the waived regulations, Boeing simply cut out the profit and then went on a soul searching to cut costs,” he said.

Other work absent

While the tanker controversy dragged on, other work planned for the Wichita site didn’t materialize.

Maintenance work Boeing performs in Wichita on the presidential fleet won’t occur in 2012 because it’s a campaign year and the planes are being used.

“Those planes are all in the air next year, and they’re not coming in for maintenance,” Tiahrt said.

About 400 Boeing employees work on the airplanes, commonly known as Air Force One, he said.

In addition, the airborne laser program has ended, meaning there is no additional modification work in Wichita for the program.

A B-52 Standoff Jammer program was canceled in 2006, and a program for a B-52 Core Component Jammer, a scaled down version, never materialized.

A presidential aircraft recapitalization program, which Boeing responded to, has not started. And an E-4B replacement program did not materialize.

In addition, a B-52 Extreme High Frequency program was canceled at the end of 2011, which would have been a three- to four-year program for Wichita.

Defense budget cuts will mean other defense plant closings, Thompson said. Lockheed Martin has already closed a plant, he said.

Tiahrt said it’s easy to be mad at Boeing. But “it’s harder to explain the facts,” he said.

“These inequities imposed by the federal government, the circumstances, caused the facility to close.… The economics are very clear.”

Had the contract come sooner, Tiahrt said, “there would have been plenty of work there, and it would have gone on for a long time, and Boeing would not have left.”

Contact Molly McMillin at 316-269-6708 or mmcmillin@wichitaeagle.com.

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