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Delay in tanker deal could put 500 jobs 'at risk'

By Tony Capaccio
Bloomberg News

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"Without the contract, Boeing would be forced to continue at their own risk," Air Force Acquisition Assistant Secretary Marvin Sambur wrote in a Nov. 25 e-mail to Michael Wynne, the Pentagon's acting top acquisition official. "Five hundred jobs are at risk; 200 can be laid off immediately," Sambur wrote.

Pentagon officials put the lease contract on hold pending a review of whether the contracting process was tainted by improper contacts between Boeing officials and the Air Force's then No. 2 acquisition official, whom Boeing hired in January.

Sambur, in an interview at the Pentagon, said he didn't know how Boeing will react to the delay in its deal to supply 100 767 planes as refueling tankers to the Air Force. The overall program is valued at $27.6 billion through 2017, including $18.3 billion in acquisition costs.

"My immediate challenge is not to even talk to Boeing," Sambur said.

"They've got to make their decision themselves" on whether to stick with the tanker proposal in light of what could be a lengthy pause, he said. "They may decide to bail out — it's possible," Sambur said.

Boeing said in a statement: "On Monday as our new president and CEO, Harry Stonecipher was clear that Boeing is fully committed to the tanker program.

"As he said, 'Getting the tanker program going and reassuring the government that we are not only compliant but an exemplary supplier to them is one of the first, foremost and most immediate tasks I have.' He also noted that despite the rhetoric, 'The need for tankers is still there, it's a critical need, and we are prepared to offer that.' "

Boeing's third-quarter filing with the Securities and Exchange Commission said the company may record as much as $270 million in "termination costs" at year's end if the agreement falls through.

Boeing, which has 166,000 employees, hasn't said how many workers are dedicated to assembling the 767 aircraft in Everett and converting it to a tanker in Wichita, Kan.

Boeing last week fired both its chief financial officer, Michael Sears, and Darleen Druyun, who was the Air Force's No. 2 acquisition official before joining the company in January. Boeing determined the two broke company rules by discussing Druyun's hiring while she was negotiating the contract for the Air Force.

Though he wasn't accused of any ethical breaches, Boeing CEO Phil Condit stepped down Monday, saying he took blame for those breaches.

The original tanker proposal called for the Air Force to lease all 100 planes from Boeing at a cost of about $150 million per plane. The Pentagon negotiated a lower price, but the Senate Armed Services Committee rejected it. The panel balked at the notion of leasing all the planes, saying that was too expensive and circumvented the normal budgeting process.

The Inspector General's (IG) review will likely take a couple of months, said Rep. Norm Dicks, D-Wash.

"I've been told they think they can get it done in late January," Dicks said. "I don't think this has to go on for a long time."

Boeing's initial contract with the Air Force would be worth about $2 billion and contain only lease payments for 20 planes, with no funds set aside to buy the rest, Sambur said. The Pentagon and Air Force would continue to negotiate a multiyear contract as part of the normal budgeting process for an additional 80 tankers, he said.

Sambur made the Air Force's strongest public case to date that Druyun's possible improper contact had nothing to do with the final contract proposal that Congress reviewed and changed.

"Did she influence the contract?" Sambur said. "She's been gone for a year and three months — there wasn't even a 'contract' when she left. There was a 'price.' The price has gone down significantly," from $150 million to about $131 million per airplane, Sambur said.

"We put in stronger terms and conditions to verify profit margins," he said. "We put in the most strict warranty conditions. We did everything under the sun to hold Boeing's feet to the fire. So from my view, she has no imprint on this contract."

Still, Sambur said he understood the need for the IG investigation and stood ready to support its conclusions. "If the IG investigation says we'll have to start again, we will," Sambur said. "If you start again, it's not a two-month delay but a two-year delay."

Sambur said Boeing's prediction of up to 500 layoffs — which he forwarded to Wynne — "are the numbers they told me."

"Boeing did not threaten us," he said. "This was the status. They will have to make decisions now because they are starting to assemble this."

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