Boeing seeks to rebound in wake of Joint Strike fighter loss

The Wind Beneath Boeing's Wings Brody Mullins On September 11, a Boeing 767 commercial airliner slammed into the Pentagon. Six weeks later, the Pentagon slammed into Boeing.

The twin blows--the first a deliberate attack by foreign terrorists, the second the unintended result of the government's decision to award the largest-ever defense contract to Lockheed Martin Corp.--have severely rattled Boeing Co.

Within days of the terrorist attacks, the aerospace giant announced it would lay off 30,000 employees and prepare for a plunge in orders for commercial jets. Boeing's failure to win the Pentagon's prized contract for the next-generation Joint Strike Fighter may force more layoffs and put the company out of the fighter jet business altogether.

Boeing, aided by a squadron of lobbyists and congressional allies, wants the federal government to help the jet manufacturer get flying again. The mission: Put together a series of bills, defense contracts, and business deals aimed at rebuilding Boeing's commercial and military wings.

To boost its revenues, Boeing wants Congress to approve billions of dollars to replace the Air Force's aging fleet of airborne refueling tankers and surveillance planes with modern Boeing jets. The lobbyists--both company executives and outside representatives--are also pressing the Pentagon to extend or accelerate orders for Boeing transport haulers, fighter jets, unmanned spy planes, and futuristic missile defense systems.

To hold down its expenses, Boeing wants Congress to shield the company from billions of dollars in potential liability claims stemming from the September terrorist attacks. Boeing's lobbying crew also hopes that influential lawmakers can pressure Lockheed Martin to share a slice of the lucrative Joint Strike Fighter contract with Boeing.

The success of Boeing's campaign will largely depend on a corps of in-house lobbyists who have recently rebuilt their Washington operation. In the past two years, the company spent $16 million on lobbying; only a handful of corporations paid more for lobbying over that period, according to disclosure forms. Boeing also retains nearly three dozen K Street firms. Of those firms, Cassidy & Associates by far earned the most from Boeing during the first six months of 2001, disclosure forms show. In September, Boeing added former Sen. Bennett Johnston, D-La., to its lineup of lobbyists on contract.

Another prominent Washington lobbyist, Kenneth B. Duberstein, sits on Boeing's board of directors, although his firm, the Duberstein Group, does no outside work for the company. Retired Chairman of the Joint Chiefs of Staff John M. Shalikashvili is also on the Boeing board.

Boeing also has among the most generous political fundraising operations in Washington. In the 2000 campaign cycle, the company contributed more than $1.5 million to candidates and political parties, a 62 percent increase over the $928,000 it donated in the 1996 presidential election campaign, according to FECInfo. So far this year, the company has reported contributing $419,000 in hard and soft money.

To lead its Washington office, Boeing this year hired former Deputy Defense Secretary Rudy de Leon, a top defense adviser to President Clinton. Boeing's landing of de Leon-a respected inside-the-Beltway problem solver-was considered a coup by many in the defense industry.

The rise of Boeing's lobbying shop has caused turbulence at times. House Republicans were furious when the company hired de Leon, a Democrat. GOP Conference Chairman J.C. Watts of Oklahoma called it "a slap in the face" to Republicans' efforts to boost defense spending.

Boeing also riled Majority Leader Dick Armey and Majority Whip Tom DeLay, both Texans, by toying with the idea of moving its corporate headquarters from Seattle to Texas before settling on Chicago, which is close to House Speaker J. Dennis Hastert's Illinois district.

In response to the GOP's concerns, Boeing in mid-October hired lobbyist and former Rep. Bill Paxon, R-N.Y., of Akin, Gump, Strauss, Hauer & Feld, who was once a member of the House leadership and is still close to his former colleagues. "Bill was brought in to balance off Rudy," said one Boeing lobbyist.

Now the company confronts a worldwide slump in demand for commercial airliners, which had begun to hurt Boeing even before four of its planes were hijacked and crashed on September 11. The cyclical downturn in the company's traditional market seemed to validate its decade-long strategy of diversifying into the defense industry. Then, on October 26, Boeing lost the Joint Strike Fighter contract, a massive deal to build 3,000 stealth fighter jets for the Navy, Air Force, and Marines at about $35 million apiece.

Boeing's business plan assumed "that one side of the company would generate revenue when there was a downturn in the other," said Loren Thompson, an analyst for the Lexington Institute. "They never [anticipated] that both parts of the company would turn down in tandem."

The duel setbacks threaten Boeing's most important asset: thousands of highly trained engineers. "It isn't going to happen tomorrow; we're not going to close anyone out of their offices," said Jerry Daniels, the head of Boeing's military aircraft unit. "But the perishable commodity here is people. If Boeing cannot find meaningful work for its engineers, then the loss of that capability will take the company out of the fighter jet business."

When alarms bells sounded at Boeing, the company scrambled its high-flying lobbying team to search for more business. The night before the Pentagon announced the winner of the Joint Strike Fighter contract, Boeing Chairman and CEO Philip Condit went to Capitol Hill to rally support in the Washington and Missouri delegations. Meanwhile, de Leon, Boeing Vice Chairman Harry Stonecipher, and other executives debriefed key lawmakers on the company's multifaceted effort to stay airborne.

Within days, Sen. Patty Murray, D-Wash., began advancing the first element of Boeing's campaign-a multibillion-dollar lease proposal to replace the Air Force's aging fleet of refueling tankers with up to 100 militarized versions of Boeing's 767 aircraft. Murray, who sits on the Appropriations Committee, got support from two key colleagues on the panel: Sen. Ted Stevens, R-Alaska, the ranking member on the full committee, and Sen. Daniel K. Inouye, D-Hawaii, the chairman of the Defense Subcommittee. Together, they plan to attach the provision, which could mean nearly $20 billion for Boeing over the next decade, to the Defense Department funding bill for 2002.

"What we're really talking about is how many fewer people will be laid off," said Rep. Norman Dicks, D-Wash., a key Boeing ally. "We are really hurting here."

The proposed new tankers are part of a broader plan for the government to help Boeing by acquiring militarized versions of planes that are now used to transport passengers. Boeing also wants Congress to buy 767s to replace both surveillance planes and command-and-control centers, and to buy 737s to replace older C-9 transport craft.

Analyst Richard Aboulafia of Teal Group Corp. said the idea is for Boeing's military side to "provide short-term relief ... for the beleaguered civil segment."

Boeing also wants the Pentagon to order new planes for the armed forces. For example, the company has offered to renew a multiyear contract for dozens of heavy-duty C-17 transport planes. The four-engine planes, which the Pentagon is now using to drop food and medicine in Afghanistan, are ideally suited to carry heavy loads and land on short, unpaved airstrips. Boeing also hopes to negotiate a deal with the Navy for revamped F/A 18 Super Hornet fighter jets. Each deal could mean billions in new revenues. Additionally, to keep Boeing engineers busy, the company wants the Pentagon to speed up research and development of unmanned spy planes and bombers.

Separately, Boeing has joined with the landlord of the World Trade Center and others to ask Congress for billions of dollars in liability limits related to the September 11 attacks. House Republicans added the liability provision to airport security legislation that passed the chamber in early November. Paxon was especially helpful to Boeing in getting that provision.

But like Boeing's other priorities, the liability provision faces a bumpy ride. Key senators oppose the liability language, and they refused to add it to the Senate version of the bill. Congressional conferees are now working to reconcile the House and Senate airport security bills.

Other measures aimed at helping Boeing also face resistance. House appropriators who oppose the Senate plan to have the Air Force lease Boeing's refueling tankers have drafted a defense spending bill that includes only $500 million for buying a handful of 767s and 737s. The differences are likely to be settled in a conference committee.

Finally, in their most daring move, Boeing executives and lobbyists hope to push legislation to force Lockheed to share the Joint Strike Fighter contract with Boeing--while at the same time, the company is privately negotiating with Lockheed for a lucrative piece of the deal.

Missouri's two Senators, Republican Christopher S. Bond and Democrat Jean Carnahan, support a measure requiring Lockheed to give Boeing one-third of the contract. The Missouri delegation, which represents Boeing's St. Louis-based military production facility, fears that giving Lockheed the entire contract will force Boeing out of the jet-making business--leaving Lockheed with a monopoly.

"It makes absolutely no sense to give the winner the whole contract," Bond said in an interview, or "to have one tactical aircraft producer."

This bill stands little chance of flying. The real mission is to pressure Lockheed to sign a deal with Boeing on its own. A big incentive for Lockheed to welcome Boeing on board is that the Joint Strike Fighter program must survive 30 congressional budget cycles in order to deliver its full benefit of $200 billion to Lockheed.

"The Joint Strike Fighter is an invitation for guerrilla warfare for Boeing," Thompson said. Added Aboulafia: "The more Lockheed woos Boeing, the less it has to worry about a Boeing strategy to sabotage the Joint Strike Fighter."

Even if Boeing gets a piece of the contract, it will still need to work to regain its high-flying status. "We need to get some good hard engineering, design, and development work in here," said Boeing's Daniels.