GAO decision–only the tip of the iceberg?

Newsweek has a piece about US Sen. John McCain and the KC-X tanker competition, quoting an unidentified Pentagon official about McCain’s involvement. This is the first article we’ve seen quoting a Pentagon official.

As readers know, we were in Washington, DC, when the GAO announced its decision upholding the Boeing protest of the award to Northrop Grumman. We’ve been told by a Boeing partisan of something that, if true, will create a procurement scandal if not quite equal to the illegal activities surrounding the first tanker award to Boeing in 2004 will at least rock the Air Force to its procurement core. This may or may not come out in the 69-page GAO report that is being sanitized for proprietary information before its release, perhaps as early as this week. If what we’re told is true and it’s not in the report, it should be, or certainly should become the subject of Congressional investigations of the thoroughness and aggressiveness undertaken by McCain following the Boeing tanker award in 2004.

If what we were told is true, not only was the process examined by the GAO flawed but it was outright subverted.

Meanwhile, fired Air Force Secretary Michael Wynne, on his last day in office, said a rebid is likely and suggested that a fly-off between Boeing and Northrop might be worthwhile. This Reuters story may be found here.

New, Monday, June 23, 1030 PDT: An interesting twist to the GAO decision. Readers will recall that we’ve previously mentioned that there was a “shadow group” looking over the shoulder of the Air Force the whole way during the evaluation process. It turns out that the GAO was a member of this shadow group. Now if one presumes that the role of the shadow group was to keep the USAF on track and not to simply look over the shoulder and not say anything or raise questions about whether there were irregularities, then one has to ask: just where was the GAO itself during this process? Perhaps the 69-page report will say.

New, Monday, June 23, 315 PM PDT: Loren Thompson has a fresh commentary on the tanker fiasco here.

New, Tuesday, June 24: Politico reports the Air Force is considering a KC-767/KC-30 flyoff. The Hill reports the Defense Department acquisition group may take over the rebid process from the Air Force in this report.

New, Tuesday, June 24, 945 AM PDT: Here’s an amusing piece from the United Arab Emirates about the tanker program. It’s amusing because it takes a shot at CNN’s Lou Dobbs, a once-fine financial reporter who has gone off the deep end on anything not US. The piece also has some interesting facts in it.

In the meantime, JD Crowe, the cartoonist with the biting wit for The Mobile Press-Register, inked this one today:

The Press-Register’s Washington reporter has this look at the current situation in the wake of the GAO protest.

Economist piece on Airbus

In a welcome reprieve from the tanker saga, here’s an interesting piece about Airbus and the A380 from The Economist.

What’s next on the tanker?

We’ve been asked by media across the country, What’s next for the tanker competition?

We stated our position long ago: if Boeing lost the protest, it should accept the GAO decision. On the other hand, if the Air Force lost, then the service and Northrop should accept it.

This means the deal, in our view, should be rebid as recommended by the GAO.

As for what should happen, we’ve been clear about that for a long time: double the production and appropriation and split the order between Boeing and Northrop. Then everyone can get on with their lives and be put out of collective misery over this interminable saga.

Details beginning to emerge in tanker ruling

All those interested in the GAO tanker decision are waiting for the 69-page decision to be sanitized of proprietary information, but one detail about life cycle cost emerged, according to this Bloomberg report: that Boeing wound up with a $91.8m life cycle advantage after the Air Force corrected a math error. This math error was one of seven “significant” errors identified by the GAO in its three page press release in recommending a recompete.

To put this in perspective, this is a difference of $2.3 million per year over the projected 40 year life cycle, out of a $35 billion program. This is a rounding error, and not one we’d call particularly significant. It’s also a far cry from the hyperbolic, hand-ringing $40 billion promoted by Boeing.

We hope the 69-page decision is a bit more definitive and substantive than this.

New, 100 PM EDT: The Mobile Press-Register’s JD Crowe is at it again with this cartoon following the GAO decision:

GAO sustains Boeing’s protest

In another stunning twist in the USAF tanker contract, the GAO sustained the Boeing protest over the award to Northrop Grumman. In a three page press release, the GAO sustained Boeing on key elements of the protest while rejecting other unidentified elements.

One of the complaints that Boeing had was that the Air Force didn’t communicate well on the competition. This is the crux of the NA KOA complaint we’ve written about as well.

We’re swamped with media calls and e-mails, so we’ll be digesting this a bit more when we have time. But this doesn’t look like the “close call” that either side expected; it looks like a clean victory for Boeing.

The Air Force doesn’t have to follow the GAO’s decision and recommendation to reopen the bidding, but politically we don’t see how it can’t.

If we’ve got this figured out, here’s the three page press release. press-release-final-boeing-decision-6-18-08

More, 245 PM EDT: We’re going to be very interested to read the 69-page redacted GAO decision when it becomes available. It has to be sanitized for proprietary information first.

One of the things that we find stunning about this decision is that given how the Air Force screwed up the first time around 2001-04, in which people went to jail and and lost their jobs, you would have thought the USAF would have avoided screwing up this time. The Air Force even created a “shadow” group to oversee the process, yet the GAO concluded the service screwed up anyway.

What happens now? The Air Force has 60 days to decide what it will do. As mentioned, it is not legally obligated to follow this decision. In fact, on a previous GAO protest a over tanker maintenance contract, the Air Force ignored the GAO upholding the loser’s protest over the award to Boeing.

An interesting element is that the new chief of the Air Force, who assumed this office after his predecessor was unceremoniously by DOD Secretary Robert Gates, is the former chief of the Air Mobility Command–in other words, a cargo guy. What, if any, bearing this will have going forward is a matter of speculation.

More, 430 PM, EDT: Although Boeing and its supporters are understandably overjoyed by the GAO decision, and assuming the USAF does undertake a recompete, this hardly means that Boeing will win the recompete. This is going to be another uphill battle for Boeing. Any assumptions on the part of Boeing-boosters that this knocks Northrop out of the game is simply wishful thinking.

One of the questions we were asked by the media is whether the award to Northrop was the Air Force’s way of simply stuffing it (our word) to Boeing as a result of the 2004 tanker scandal, or whether the Air Force simply a bunch of bumbling idiots (the broadcaster’s words).

My response: Well, this is the government, after all, and bumbling idiots are not incompatible with government. But in all seriousness, we really won’t get the full picture until the redacted GAO decision is issued for public consumption.

Waiting with bated breath

It didn’t take long for one of our readers to e-mail us that the headline for our Corporate Website update today (June 17) had a misspelling: Waiting with baited breath.

Well, be that as it may–we said it was a fish story and we may not really be all that far off–we take a final look at the USAF tanker protest in advance of the decision by the Government Accountability Office on Boeing’s protest. The deadline for issuing the decision is Thursday, June 19. The buzz here in Washington, DC, where we are, is that it might come down after the stock market closes tomorrow.

We also posted on our website four big PDF files of redacted documents filed by Boeing and Northrop Grumman with the GAO in April.

Whether the GAO decision comes out tomorrow or Thursday, we’ll be in DC.

Casey at the bat

We’re traveling and have limited access to reading things about the tanker, but we’ve seen the news about the USAF admitted a calculation error in the life cycle costs for the KC-30 vs the KC-767.

This reminds us of Casey Stengel, the iconic New York Yankees player and manager who later became the manager of the expansion team the New York Mets.

Although the Mets later went on to become world champs, the initial team was so bad that Stengel lamented, “Can’t anybody here play this game?”

via CaseyStengel.com

We can’t hlep but ask the same question of the Air Force. After all the scandal involving the first tanker award to Boeing in 2004, in which illegal activities canceled the award, sending the Boeing CFO at the time to jail as well as a former Air Force procurement official who went to work for Boeing; and causing the end of several careers of ranking Air Force civilians and military men; and after recognizing the scrutiny that would be on this competition; and after having a “shadow” group over-see the competition, you’d have thunk that the USAF might avoid such a basic mistake.

This certainly falls under the “Good grief” category.

via BBC

This one seems appropriate, too:

via fanboy.com

On the road

We’re on an extended travel schedule, so there won’t be much in the way of updates on this site.

In advance of the anticipated June 19 GAO decision on the tanker competition, we’ll have some documents to post to our Corporate Site June 17.

Lots of Boeing, Airbus, tanker news

It’s been a busy 24 hours. In no particular order:

Boeing drops out

Boeing has dropped out of its participation to build the Joint Cargo Aircraft, called the C27J, because it could not reach a financial arrangement with the European manufacturer. This report from from the publication, The Hill.

The C27J is a small, twin-engine turbo-prop.

Why is this interesting?

  1. Boeing teamed with Alenia of Italy to offer this airplane to the Army after EADS teamed with Raytheon to offer a competing C-235 and C-295.
  2. The Alenia-Boeing team won the competition.
  3. The C27J is to be assembled in Florida even though it’s a European airplane.
  4. If this sounds familiar, it is. While Boeing was complaining about Northrop teaming with Europe’s EADS with plans to assemble the KC-30 in Alabama, Boeing was following the same business model for the C-27J.

Grounding 737s

Continental Airlines yesterday followed United Airlines in announcing the grounding of a whole bunch of Boeing 737 “Classics” because of the current price of oil. Wednesday, United said it will ground 95 737-300s and -500s. Thursday Continental said it will put down 65 -300s and -500s. Some media, seeing only the name “Boeing 737,” jumped to the conclusion that Boeing will be hurt.

This isn’t true, of course, at least not in the direct sense. The 737 Classic is not the current-production 737NG, so no harm there. But what these actions do suggest is that none of the US legacy carriers will order replacement aircraft any time soon as they preserve cash to see them through this crisis.

Jobs, jobs, jobs

The pro-Boeing website Tanker Blog Wars was the first to report a study by a liberal think tank examining the jobs claims of Boeing and Northrop Grumman for their respective tankers. The 11 page report says Northrop’s selection will mean the loss of 14,000 US jobs compared with Boeing, a far cry from the 44,000 jobs Boeing’s supporters recklessly claim.

This is the first report we’ve seen anywhere that details how Boeing claims 44,000 jobs will be created by its KC-767. (Boeing has refused to say.) Thousands of them come from a principal called “re-spending.” The report explains just what this means. The take-away, however, is that when this principal–which we think is a stretch to include after reading the explanation–when excluded from the computation means Boeing will have “only” 28,000 direct and indirect jobs for the tanker, a number far closer to the 22,000 and 25,000 jobs we’ve consistently pointed to in previous reports.

The 22,000 comes from the jobs created by the 767 program at its peak production of 36 a year in 2001, when 36 airplanes a year were delivered. The 25,000 figure comes from the jobs claimed by Boeing for its C-17 program, which at its peak delivered 18 planes a year–the same number proposed at the top end for the tanker program–and the C-17 has higher US content.

According to the think tank, Northrop’s KC-30 will produce 17,000 jobs if 60% US content is assumed and 14,000 jobs if 50% US content is assumed, excluding the re-spending. Northrop initially projected 25,000 jobs and later revised the prediction to 44,000 jobs. The former was using a Department of Commerce formula and the latter using a Department of Labor matrix and also based on talking to its sub-contractors.

The think tank talks about the Commerce formula but doesn’t address the Labor one. Still, this is the first outside study we’ve seen and it’s completely devoid of the histrionics employed by Northrop’s critics.

One note: the labor union International Association of Machinists is on the think tank’s large board of directors, as are several other unions. The IAM is one of Boeing’s unions and it has been highly critical of the tanker award.

Countdown to GAO decision

June 19 is the deadline for the Government Accountability Office to render its decision on the Boeing protest over the tanker award to Northrop. This Reuters report quotes the Pentagon’s top buyer as saying small errors in the process shouldn’t undo the award. In legalese, these would be known as “harmless errors.”

Boeing is cautiously optimistic, though it notes that only 25% of the protests to the GAO are successful. Wall Street analysts are split on predicting the outcome, with some saying it will succeed and others saying it won’t.

And then there is the NA KOA Aviation Partners protest we’ve been writing about.

We’re making this definitive prediction: the protest will either be affirmed or denied.

Airbus vows to avoid Boeing mistakes

James Wallace at The Seattle Post-Intelligencer has this interesting interview with Airbus COO John Leahy about the A350, the A380 and the Boeing 787. Leahy says Airbus not only learned from its own mistakes on the A380 production, it’s been carefully watching Boeing’s problems with the 787 production and vows to avoid them with the A350.

Top Air Force officials “resign”

Reuters just moved this report:

WASHINGTON (Reuters) – U.S. Air Force Secretary Michael Wynne and Air Force Chief of Staff Michael Moseley intend to resign, a congressional source told Reuters on Thursday.

The resignations come after a series of concerns about recent Air Force matters, including a controversial award of a contract for the Air Force’s elite Thunderbirds flying group and the service’s mistaken shipment of fuses for nuclear missiles to Taiwan in 2006, the source said.

“There has been a lack of accountability that raised concerns,” said the source, who had been informed about the matter.

(Reporting by Andrea Shalal-Esa; editing by John Wallace)

NA KOA Aviation Partners, whose obscure protest in the KC-X tanker competition we reported about Tuesday, tells us that Gen. Moseley’s possible role in the tanker procurement is an element in its protest to the Government Accountability Office (GAO). NA KOA says that it believes Moseley may have had some role in how Boeing came to believe the USAF preferred the KC-767, and this was part of NA-KOA’s protest to the GAO as well as its protest to the USAF KC-X contracting office. NA KOA asked Gates’ office to look into this prospect and when a Freedom of Information Act request was denied, went to the GAO.

In a story moved by Wired, Secretary of Defense Robert Gates is quoted as saying the Air Force chiefs’ preoccupation with a surging Chinese military and a resurgence of Russia was mis-guided considering the active wars at hand. We previously reported, citing an Aviation Week news article, that the KC-30s better capabilities across the Pacific in anticipation of a Chinese conflict was one element of the USAF decision selecting the KC-30 over the KC-767.

NA KOA believes this development will have a direct bearing on the Boeing protest and its own.