With the guilty plea this week of former-Pentagon-procurement-officer-turned- Boeing-executive Darleen Druyun, accused of conspiring to grease a then–$22 billion aerial-refueling-tanker contract, the Boeing Co. has suffered yet another reversal of fortune in its 31-month, back-and-forth attempt to get congressional and Pentagon approval of the 100-plane deal and save its struggling 767 line in Everett. Druyun, 56, admitted Tuesday, April 20, that she secretly negotiated a job with Boeing while arranging the tanker deal for the Pentagon. Boeing, in a statement, tried to soften the blow, claiming the plea shows only a "conflict of interest in Ms. Druyun's hiring and is not related to Boeing's business, its financial performance, or the 767 tanker program." Shortly after Sept. 11, 2001, however, U.S. Rep. Norm Dicks, D-Bremerton, wrote President Bush to suggest what amounted to a bailout of Boeing's nose-diving commercial-airplane division. The 767 tankers would be built in Everett and modified in Wichita. But the proposal stalled and has shed about $5 billion of its pork, only to dive into what is now one of the most wide-ranging government investigations in recent history. Igniting at least seven federal probes and reviews, the deal has further scarred Boeing's corporate image, turned victory into defeat for the state's loyal congressional delegation, and made the offices of Boeing's attorneys perhaps the corporation's busiest production line.
Who's Investigating Boeing's Tanker Deal
Justice Department—Investigating Darleen A. Druyun, ex–senior vice president, and Michael M. Sears, ex–chief financial officer, for possible conspiracy.
Securities and Exchange Commission—Obtained copies of Boeing's internal reports on Druyun and Sears, apparently to determine if shareholders were told the full story.
Pentagon Inspector General—Just issued a report saying that Pentagon policies put taxpayers "at high risk for paying excessive prices and profits."
Pentagon General Counsel's Office— Reviewing case to determine if rules governing Pentagon officials who take high-level defense contracting positions are strict enough.
Defense Science Board—Task force is studying tanker fleet and will recommend whether new planes are needed or if current fleet's life can be extended with just new engines.
National Defense University—Examining procurement process to determine whether Pentagon properly complied with procedures and if Congress was kept informed.
Congress—Has held numerous hearings; more expected. Challenge led by Sen. John McCain, R-Ariz., who called the tanker plan "a lousy deal for the Air Force and for the American taxpayer."
Related Probe—Pentagon investigating Boeing's defense chief, James Albaugh, for his role in negotiating a separate $1.3 billion AWACS contract handled by Druyun for NATO.
As in past decades, ethics violations and lawbreaking continue to dog the company to which Washington state taxpayers are giving more than $7.5 billion in new tax breaks and transportation improvements, in return for Boeing's agreement to assemble its airliner of the future, the 7E7 Dreamliner, in Everett. Besides the tanker investigations, two former Boeing employees are charged in a separate case with stealing proprietary documents from rival Lockheed Martin to win an Air Force rocket contract, and Lockheed is suing Boeing in a civil action. The cases are among what has become a legendary record of misconduct by Boeing that is ingrained in its corporate history, dating back to the 1930s (see "A New Ethical Era for the Sleazy B?" Dec. 3, 2003). The latest corporate wrongdoing raises a number of issues for state taxpayers: Should they be supporting a company with such a history, and, perhaps more pressing, could they end up paying to defend Boeing for any similar ethics breeches, related to the 7E7 program?
A little-noticed provision of the contract arranged by Gov. Gary Locke obligates the state to defend Boeing in court against any legal issues arising over the 7E7 deal. The provision, on p. 55 of the Boeing-Washington agreement, says that should "any third party or parties institute any legal proceedings against any of the Public Parties and/or Boeing relating in any manner to this Agreement, or any agreement, document or Permit, executed, issued or implemented pursuant to this Agreement," the state "shall assume the entire defense of such proceedings." The state attorney general's office doesn't see that as obligating taxpayers to defend any Boeing corporate misconduct, but the possibility of the federal government being one of those "third parties" does raise "an interesting hypothetical," says Special Assistant AG David Walsh.
It's not what the state had in mind when the deal was drawn up, but "I suppose the federal government could qualify as a third party," says Walsh. "What we envisioned was a citizen's activist group, for example—someone with proper standing—suing to challenge whether or not the state has the authority to make this contract." Walsh agrees the state could conceivably be involved in defending Boeing against, say, a 7E7-plant environmental challenge by the U.S. Environmental Protection Agency. But the Justice Department, the Securities and Exchange Commission, the Pentagon? Though the 7E7 pact uses wide-open language—"any legal proceedings . . . related in any manner to this Agreement"—Walsh couldn't imagine those agencies bringing any action that would draw the state into the dispute. As for defending Boeing against criminal charges, that brought a flat "no" from Walsh.
Boeing's unethical conduct never became an issue in the state's naked effort to win the 7E7 plant. Locke's upbeat bid included $3.2 billion in tax giveaways and another $4.3 billion in transportation improvements "designed to reduce traffic congestion in areas where Boeing operates." (The persuasive bid also included sweeping unemployment insurance and workers' compensation reform, a state-supported employment and training center for Boeing workers, and two full-time state employees to help the company get the assembly operation up and running.) Ironically, some officials from competing states thought Washington's bid actually benefited from Boeing's latest ethics breech—the tanker scandal—because it led to a front-office shake-up, the resignation of Chairman Phil Condit, and, apparently, at least a temporary tamping down of aggressive corporate tactics. Mike Jarman, county development manager for Lenoir County, N.C., one of the bidding entities, told the Kinston Free Press in February that he sensed a subtle shift of purpose among Boeing officials after Condit's fall. "When those kinds of things [firings] started happening, I just had a different feeling" about North Carolina's chances of winning the 7E7 bid, Jarman said. "But nothing was said specifically."
Like Locke, Washington's congressional delegation seems undeterred by the ethics questions. In November 2003, months after Druyun's role in the tanker scandal had been revealed and just weeks before she and Michael Sears, then the chief financial officer, were fired, Boeing had emerged as winner of a scaled-down contract to sell 80 refueling tankers to the Air Force and to lease 20 others, for a total of $17 billion. Though the company had originally proposed a $22 billion cost just to lease the modified 767s, the lower price was still suspect to critics such as U.S. Sen. John McCain, R-Ariz., who said Boeing had tried to rip off taxpayers. Unfazed, Dicks gushed at a press conference that the Washington delegation, of all the nation's delegations, is the "most loyal" to "and always there for" Boeing.
It was a giddy if not embarrassing moment—and premature. The deal almost immediately began to once again slip away as more of the true story emerged. Investigators say Druyun, as a Pentagon official, helped steer the tanker deal to Boeing and away from European rival Airbus, then accepted a top Boeing job as reward. (She may have played a similar role in a $1.3 billion NATO contract for Boeing jets that is now in question.) Evidence of her role is indicated in confidential Boeing e-mails from 2001 and 2002 that wound up in investigators' hands. They include, according to McCain's office, one noting that Druyun, then with the Pentagon, "told us several times to keep in mind" that Airbus was offering to supply tankers at a per-plane cost of $5 million to $17 million less than Boeing. Another said "Darleen will make the actual contract favorable and is willing to go to the financial market with us." Others said the Boeing "team is working the art of the possible in terms of obfuscating construction financing, transaction costs and lease administration" and that Druyun "may be running her own covert operation on this one, so we probably don't want to discuss openly." In light of the e-mail and other evidence, McCain said it would be "irresponsible" for the Pentagon to execute the tanker contract. Nonetheless, Sen. Patty Murray in March was still pulling for the Lazy B. In a letter to Defense Secretary Donald Rumsfeld, she wrote that Airbus was the bad guy, having spread "half-truths" about the deal. "Airbus' corporate behavior on this matter cannot be tolerated by the U.S. government," Murray said. No kidding. Her struggle continues.