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No quick end in sight for Boeing launch ban

By Tony Capaccio
Bloomberg News

BOEING / BLOOMBERG NEWS A Boeing Delta IV rocket is launched in 2003. In July, the Air Force suspended Boeing from seeking military launch contracts over alleged use of Lockheed documents to win a $1.5 billion rocket contract.

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Boeing was suspended from new launches in July after the Air Force said the company improperly obtained documents from Lockheed Martin that helped it win an earlier contract. Air Force Undersecretary Peter Teets told reporters yesterday that while the service would like to lift the suspension sooner, investigations by the Justice Department and the National Aeronautics and Space Administration have "complicated" things.

"Frankly, as these things roll out over time, I think that's really what's been causing the delay," Teets said. "I am anxious to lift the suspension on Boeing as soon as the general counsel declares them a responsible contractor."

Boeing Chief Executive Harry Stonecipher is trying to mend fences with the military after charges that the company behaved improperly to obtain contracts, including the theft of Lockheed documents. That led the Air Force to suspend Boeing from new contracts and turn over some of the company's launches — worth about $1 billion in revenue — to Lockheed.

The Air Force plans to award Bethesda, Md.-based Lockheed a contract soon to launch a spy satellite on its Atlas V booster — a job that would have been put up for competition between Lockheed and Boeing, the two largest U.S. defense contractors, prior to Boeing's suspension, Teets said.

Following the awarding of that contract, the service can hold off proceeding with a competition for 24 additional launches of the Evolved Expendable Launch Vehicle (EELV) program, Teets said. The next round is known as Buy-3.

"Once we get that single launch service, we can wait until the end of the year to initiate Buy-3 procurement," Teets said.

Teets also said the Air Force would re-examine the expensive tag-team approach for Boeing and Lockheed to put U.S. satellites into orbit.

A House Appropriations Committee report last week said the U.S. should pick one or the other company rather than "underfunding" both in what it called a counterproductive dual program.

The EELV is to be the military's primary means of launching weather, communications, reconnaissance, spy and Global Positioning System satellites. The Air Force anticipates contracting as many as 133 launches over the next 20 years.

The Air Force suspended three Boeing units in July after concluding a Lockheed employee who moved to Boeing took 24,500 pages of documents, "many of which contained Lockheed Martin proprietary markings," that helped Boeing beat Lockheed for the bulk of launch work in October 1998.
 
The Justice Department is looking into whether others at Boeing may have been involved in the theft of the Lockheed documents. NASA also is investigating allegations of similar document misuse.

Two former Boeing workers were indicted last year on a charge of illegally obtaining the Lockheed documents and await trial. A third former Boeing employee was charged in May in the use of stolen Lockheed documents.

The Air Force's review of whether to lift the suspensions was "complicated" when a former Boeing cost analyst agreed in April to cooperate with the investigation, Teets said.

The analyst, Matthew Jew reversed testimony he provided a year ago that Boeing didn't use proprietary Lockheed material in 1997 while preparing its bid for the launch contract.

"I know that Boeing has taken this matter seriously," Teets said. "They have put in place a lot of strong actions to correct the situation. It seems to be a continuing story, though," he said of the indictments and Jew's reversal. "When events like that occur, it's important for the general counsel to be aware" and ask more questions, he said.

Boeing also has faced setbacks in efforts to win a $23 billion contract to supply the Air Force with refueling tankers based on its 767 plane.

That award remains on hold until at least November while the military evaluates alternatives.

Information from Reuters is included in this report.

Boeing vies for contract from South Korean military

Boeing said yesterday it is bidding to win a contract for four airborne early-warning and control (AEW&C) aircraft from the South Korean government.

The company is offering a 737-based aircraft, a type it already has sold to Australia and Turkey.

About 2,000 Boeing employees in the Puget Sound area, mostly design and systems engineering staff, work on the original 707-based AWACS airplanes and the new 737-based AEW&C airplane. The modification of the Renton-built 737s is done at Boeing Field in Seattle.

AEW&C aircraft carry advanced surveillance and data systems to track both friendly and hostile aircraft in airspace over a conflict zone and to direct all airborne military resources.

Boeing will compete for the South Korean program, dubbed EX, against a consortium led by Gulfstream, of Savannah, Ga., which has proposed a Gulfstream 550 ultra-long range business jet as its AEW&C platform.

Last year, Israel picked the Gulfstream jet for its airborne early-warning system.

Northrop Grumman may also submit a proposal for the contract. A decision is expected this year.

Seattle Times business staff

Report: U.K. threatens to cancel tanker deal

LONDON — Britain has threatened to cancel a $23.9 billion contract with a consortium led by aerospace giant EADS to press for concessions over the aircraft-tanker deal, the Financial Times reported yesterday.

Peter Spencer, head of U.K. military procurement at the Defence Ministry, sent a list of demands including price reductions and restructured financing to European Aeronautic Defence & Space (EADS) in a letter dated June 10, the Financial Times reported.

According to the newspaper, the letter states: "If your response on 24th June 2004 falls short of the absolute unconditional agreement I seek, I shall recommend cancellation straight away."

Franco-German EADS, the parent of Airbus, beat out Boeing in January to win the contract to build a fleet of air-to-air refueling tankers for the Royal Air Force.

Robin Southwell, chief executive of the EADS-led consortium AirTanker, declined to say whether the group would meet Spencer's demands. He told the Financial Times, "I'm not sure it is uniquely strongly worded. The rough and tumble of defense procurement is part of the rich environment we work in."

Reuters