Update, Jan. 28, 6:30am PST: Predictably, Sen. Cantwell wasn’t satisfied. She said the Senate Hearing didn’t get at the “core issue,” and called for an investigation by the USAF Inspector General. EADS said today that’s fine; here is Chairman Ralph Crosby’s statement:

“We would welcome an investigation by the DoD Inspector General—if such an investigation does not delay the decision on acquisition of new tankers.

“Scandal and protest have kept this badly needed system out of the hands of our service men and women long enough.  We are interested in illuminating unambiguous facts, not in a tactic for delaying the decision process.”

Update, 4:30pm: Here is the archived Hearing web cast; thanks to Dominic Gates of The Seattle Times for the link.

Update, 3:45pm: Boeing delivered the first KC-767 to Italy. See the article here.

Also: While the Hearing was pretty much a sham in our view–partisans on both sides were more interested in scoring political points than in fact-finding–one thing did come out of it and that is the allegation by Sen. Maria Cantwell (D-Boeing/WA) that EADS had the data more than a month appears to be wholly unsupported. EADS received the data Nov. 1; it opened the disks that night, discovered the error and secured the disks the same night. At USAF direction, they (as did Boeing) returned the disks Nov. 8 2, during which time the relevant disk was secured.

Update, 9:15 am: Our take on the hearing:

• A lot of political posturing and little substance.
• No minds changed; Boeing partisans support Boeing and EADS partisans support EADS.
• Senators for Boeing tried to turn this into a hearing about WTO and illegal Airbus subsidies, to no avail–but achieved political points they wanted to make; but does anybody care?
• The 15 second/3 minute/15 minute issue raised by Sen. Lindsey Graham (R-Boeing/SC) wasn’t diffused by committee Chairman Carl Levin (D-MI) and could lay the ground for a Boeing protest if it loses; see Trimble’s running log and closing commentary at the end of this post.
• We watched some but not all of the hearing and frankly came away thinking there’s more smoke than fire based on what we saw–which wasn’t all of the hearing and obviously doesn’t include any of the documentation the USAF provided. But nothing has been settled and this will continue to be an issue throughout the remainder of this competition.
• More than ever, we believe the only solution is to split the contract. We firmly believe there are sound strategic and tactical reasons to do so but politically it is the only choice that has any chance of moving forward with this contract.
• Nobody seems to give a damn about the needs of the warfighter anymore; it’s solely, entirely, 100% about Boeing vs Airbus and jobs rather than the Air Mobility Command and the needs of the warfighter.

(Boeing statement follows EADS; a link to download the EADS timeline follows Boeing; and a link to FlightGlobal’s running blog follows the EADS timeline.)

EADS released the following statement to the Senate committee, chaired by Carl Levin (D-MI), hearing information about the USAF inadvertent release of proprietary information on the KC-X procurement.

The hearing was called at the request of Sen. Maria Cantwell (D-Boeing/WA).

Sean O’Keefe

Chief Executive Officer

EADS North America

Statement for the Record

To the Senate Armed Services Committee

January 27, 2011

Chairman Levin, Senator McCain, and Members of the Committee, I am pleased to provide a statement to the Committee concerning the U.S. Air Forces’ inadvertent release of Integrated Fleet Aerial Refueling Assessment (IFARA) data in the KC-X tanker procurement. The facts surrounding this incident, and the responsible actions taken by EADS North America, are straight forward and deserve to be clearly understood with full transparency. We are pleased to contribute in any way to that full understanding.

The constitutional role of Congress as exercised by this Committee is critical, given that it examines issues that affect the capabilities of our men and women in uniform. I appreciate the thoughtful and careful manner in which the Committee has engaged on the issue of data disclosure on the KC-X competition. It is my hope that this statement – and the information we have provided to the Committee – will add to your understanding of what transpired, as well as the care and precision with which EADS North America personnel dealt with a situation that they had no part in creating; and concurrently the professionalism of the U.S. Air Force response to make every effort to preserve the

integrity of the procurement for aerial refueling tankers.

Many Members ofthis Committee have considerable awareness of EADS North America.

However, some of you may not. I would like to take a moment to briefly tell you who we are. EADS North America is the American Division of a global, publicly-traded defense and aerospace company whose products contribute daily to the security of the United States. In addition, as a global aerospace company, EADS is the largest international customer of u.s. manufactured aerospace components, purchasing in excess of $11 billion a year in U.S. manufactured components – many from your respective states – that are integrated into our final products and platforms for export around the globe.

We are proud to be a major prime contractor to the Department of the Army today, providing the Lakota Light Utility Helicopter which is produced in Columbus, Mississippi, and today is operational in the United States, Europe, and the Pacific. Additionally, we are the largest platform provider to the Department of Homeland Security, and we have a substantial and responsible history as a supplier to other departments and agencies of the United States federal government.

As a company, EADS understands and embraces our obligations as a responsible provider of world class aerospace products to the U.S. military, as well as other government agencies and a myriad of commercial customers. We are a global corporation dedicated to bringing the best aerospace products to customers across the globe – just like our primary competitor, the Boeing Company. For the U.S. market, that means not just sellng our exceptional products here for a good value, but building them here in the United States, and creating jobs across this country and participating constructively in the communities in which our employees live.

The provision of capability and value to our customers is our foundation. As a corporate

partner to the U.S. Government, our guiding tenet is the operation of our business enterprise in a manner that upholds the highest ethical standards. Those standards include protecting the integrity of the procurement process. When mistakes are made, we exercise rigorous care to safeguard competition sensitive or proprietary information – whether that information concerns us or our competitors. In the particular matter under discussion today related to the data disclosure on the U. S. Air Force aerial refueling tanker aircraft competition, EADS North America acted correctly, quickly, and responsibly in addressing an incident that was not of our making.

Clearly, it would have been preferable that the data disclosure by the U.S. Air Force had not happened. However, after a full and thorough review of EADS North America’s actions, I can tell you with high confidence that our actions following awareness of the disclosure were timely, responsible and appropriate.

The facts surrounding this issue are clear. EADS North America received two data discs with security documentation from the U.S. Air Force. After proper in-processing, a cleared employee inserted and opened the first disc, reviewed and verified the EADS North America data, and closed it. He then inserted the second disc, and opened the first file on the disc. On seeing that the contents of the first page of that file contained competitor markings he closed the disc, removed it from the computer, and immediately secured it under appropriate security procedures. The total time that the file was open was less than 15 seconds.

Once the data disclosure was discovered, our employee immediately followed established protocols to ensure that the disclosure was contained, that the media on which the data were contained was controlled, and that no communication of the content of the disclosed data occurred. All of this was done in line with all statutory and regulatory guidelines, and the highest standards of business conduct. Specifically, on the night of the disclosure incident, EADS North America secured the competitive data, under two-person control, using the Defense Department approved security facility at EADS North America. We immediately reported the disclosure to the u.s. Air Force Contracting Officer, and carefully followed the spirit and letter of subsequent government direction. This included the isolation of the data and recusal of the individual who discovered the disclosure, as well as the prompt return of the data and the processing equipment to the U.S. Air Force. The employee who opened the discs was immediately instructed that he must not disclose any information regarding the content of the file he saw on the second disc (one page), and was assigned to administrative duties separate from the KC-45 program, pending the outcome of an independent investigation, and the investigation and determination by the U.S. Air Force.

Recognizing the importance of this unfortunate customer mistake in sending competitor data, I immediately initiated an independent investigation by outside counsel to review and document the events and actions taken by EADS North America to manage the situation. This investigation was thorough and comprehensive and its conclusions are the same as those reached by the U. S. Air Force’s own assessment and the government’s computer forensic analysis. We provided our complete and prompt cooperation with every aspect of the u.S. Air Force investigation, including providing the report of our internal investigation to the u.S. Air Force. The Committee has received the same report of investigation of the events relating to the November 1, 2010 incident. We have voluntarily made our findings and reports available to the Committee, as requested. We did this without making public statements that might exacerbate matters or adversely affect the course of this important procurement.

Unfortunately, it appears that some are attempting to exploit the U.S. Air Force’s inadvertent error by speculating on events which are not in evidence. Most disconcerting is the false assertion that EADS North America held for a month the competitor data incorrectly sent to us. I can assure the Committee that this allegation is simply untrue and is substantively contradicted by the government’s investigation and detailed forensic analysis.

EADS North America has a single goal in the KC-X competition-to ensure that the information necessary to support this competitive procurement is objectively provided to the U.S. Air Force such that a fair and timely decision can be made on this critical military system. Our actions over the more than five years of effort in this competition have fully demonstrated our commitment to that objective. There is no place in this competition for anything other than full transparency into the process leading to a fair outcome. The hearing by the Committee today can advance that objective by affirming through an examination of known facts that the unfortunate misstep of sending competitive information to both contractors was managed in good faith and full compliance by EADS North America and the U.S. Air Force. I stand by the actions taken by this company and our employees as fully compliant and responsible in accordance with the information provided as requested by the Committee.

We are prepared to answer any question this Committee may have regarding this data

disclosure matter. We wish the Committee well in your important work in support of our nation’s security and of our men and women in uniform.

Sean O’Keefe

Chief Executive Officer

EADS North America

Update, 7:06 am: Here is Boeing’s Statement:

STATEMENT OF DENNIS A. MUILENBURG

President and CEO, Boeing Defense, Space and Security

Mr. Chairman, thank you for this opportunity to provide a statement to the Senate Armed Services Committee regarding the release of contractor proprietary data in the KC-X competition.   I am not in a position to comment on specific actions taken by another company. I can, however, provide the facts regarding how Boeing handled the data it received. In all respects, Boeing’s conduct was consistent with the highest standards of ethically responsible behavior.

• On November 1st of last year, Boeing was notified by the Air Force that a classified IFARA package was available for Boeing to receive from Wright Patterson Air Force Base (WPAFB).  Boeing understood the package contained Boeing’s interim IFARA evaluation data and score.   Boeing retrieved the package and brought it to St. Louis for review and analysis, following strict protocol for the transport and handling of classified data.
• An analyst on the Boeing tanker program received the IFARA data package from Boeing Security in St. Louis that evening, and noted there were two disks and a cover letter.  The analyst took the materials to a classified lab for review with another Boeing analyst.  One of the analysts inserted the first disk into a Boeing classified laptop.  The analyst reviewed the file structure and located the Excel file they believed would contain the Air Force Fleet Effectiveness Value (“FEV”) for Boeing.   The analysts opened this file, confirmed it contained the Boeing KC767 FEV score, and printed this classified table.   An analyst then copied the contents of this first disk to the classified laptop hard drive, and removed the first disk from the computer.
• The analyst then inserted the second disk into the laptop, and reviewed the file structure of that disk more closely in an attempt to discern what the difference was between the first and second disks.  The analyst then noticed that the parent folder name of the second started with the prefix “K30B.”  At that point, the Boeing analysts became concerned that the second disk could potentially contain competitor data.  The analysts immediately removed the second disk from the laptop drive, and confirmed that the titles on the first disk did indeed contain references to “K67B” and the titles on the second disk contained references to “K30B.”  At no point did the Boeing analysts open any files on the second (“K30B”) disk, nor did they make any copies or print outs of the second disk data.  Our analysts did not forward the files or in any other way provide further access to the data to any other person.
• The cover letter, both disks, as well as the classified laptop used to open them, were all immediately sealed by security and locked in classified safes, and the analysts contacted the appropriate Boeing personnel to report the incident.   Boeing notified the Air Force by phone and email that night, and received instructions the next day to repackage the materials and return them to WPAFB in Dayton.  Boeing followed this direction, and couriered the materials back to Dayton that same day (November 2nd).
• On November 8th, the Air Force requested that Boeing also deliver its classified laptop computer to the Defense Computer Forensics Laboratory in Maryland on November 10th.  Boeing complied with this direction.

Boeing’s behavior in this instance is emblematic of our conduct throughout this competition.  We have competed fairly and aggressively.  We have not sought extensions of time, we have complied with every deadline, and we have followed the strictures and procedures established by the Air Force acquisition authority to the letter.  And you can be sure that Boeing will do everything in its power to ensure the integrity of this competition because of its importance to our USAF customer and our military men and women that we are honored to serve.

Mr. Chairman, Senator McCain, and members of the Committee:  American industry relies on the integrity of the Defense Department’s acquisition processes.  Your review of this matter is greatly appreciated.

Update, 8:00 am: Here is the EADS timeline provided the Committee.

Update, 8:50 am: Steve Trimble of FlightGlobal kept a running log of the hearing. It may be accessed here. Absent an archived recording of the web cast committee hearing (someone let us know if they find one), Trimble’s running log is a good substitute.