Northrop Drops Tanker Bid; NLPC Exposed Boeing Scandal

tankerOn Monday, Northrop Grumman Corporation announced that it would drop out of the competition with Boeing to build midair refueling tankers for the Air Force. Boeing had the original contract until NLPC exposed a scandal that sent two Boeing executives to prison.

The tankers are flying gas stations that refuel fighters and bombers on long-range missions. By exposing the scandal, NLPC saved taxpayers billions of dollars. The original plan was for the Air Force to lease, rather than buy, a hundred 767s to be used as tankers from Boeing. The new contract will be for the outright purchase of the planes.

In February 2008, the Air Force awarded a huge $40 billion contract to a Northrop/EADS consortium, after competition had been reopened in the wake of the scandal. Boeing then counter-attacked by successfully seeking to get the selection criteria changed and competition again reopened. Although NLPC had no favorite between the two companies, we have pointed out that if Boeing had obeyed the law in the first place, it would already be building the planes.

The central figure in the scandal was Darleen Druyun, the former Air Force official who negotiated the deal with Boeing and soon after took a job with Boeing. Druyun’s was prosecuted criminally after NLPC filed a complaint on October 6, 2003 with the Pentagon Inspector General and the Defense Department Criminal Investigative Service. It was the basis for a front-page Wall Street Journal article the next day.

The Complaint detailed how Druyun, while still at the Pentagon, sold her house to a Boeing executive who was also working on the tanker deal and how her daughter had worked for Boeing since 2001. These facts were dug out in the course of original research by NLPC Chairman Ken Boehm.

The Complaint specifically raised the possibility that Druyun had negotiated employment with Boeing while still at the Pentagon, which would have been flatly illegal. A subsequent Boeing internal investigation determined it to be true. On November 24, 2003, Druyun and Boeing Chief Financial Officer Michael Sears were fired. One week later, Boeing Chief Executive Officer Phil Condit resigned.

In a comment that proved prescient, NLPC President Peter Flaherty told Joe Scarborough, host of MSNBC’s Scarborough Country, on September 3, 2003, “There’s no telling how high it will go. We believe there is a culture of corruption at Boeing, leading perhaps to the very top.”

As Ken Boehm charged in another front-page Wall Street Journal story during 2003, “Boeing can no longer assert that its ethical problems are the result of a few corrupt middle managers.” More to the point, Boehm was quoted in the Denver Post, “They had people who put rivets in planes taking ethics classes when the problem was with the No. 1 and No. 2 executives.”

Subsequently, Air Force Secretary James Roche and Air Force Assistant Secretary for Acquisition Marvin Sambur also would resign as a result of the scandal.

Described as “unusual and secretive” by Business Week, the original deal was engineered by Boeing lobbyists on Capitol Hill. Boeing employs a small army of lobbyists, including Linda Daschle, wife of then-Senate Minority Leader Tom Daschle. Congress created a customer for the 767, orders for which had all but dried up after September 11. Wording was slipped into a spending bill in 2001 allowing for negotiation of the lease-deal by then-House Speaker Dennis Hastert (R-IL), in whose state Boeing is headquartered, and then-Senator Ted Stevens (R-AK), Chairman of the Senate Appropriations Committee.

Both liberal and conservative groups criticized the deal as corporate welfare, but it was only after NLPC exposed Druyun that there any hope of stopping it. In response to the controversy, the plan was scaled back. The Air Force instead would lease 20 tankers and buy 80, saving taxpayers $4-5 billion, but even that plan was eventually killed as the scandal unfolded.

In 2004, Druyun accepted a plea bargain and was sentenced to nine months in jail. Although the media described Druyun’s incarceration as the culmination of a “spectacular fall,” she was actually lucky to be sentenced to only nine months.

Druyun violated her original plea bargain by lying about other aspects of her relationship with Boeing after failing a polygraph test. She also admitted to altering a personal journal that she claimed contained contemporaneous accounts of events reinforcing her original version of events.

Faced with much heavier jail time, Druyun spilled the beans on sweetheart deals she arranged for Boeing on three other Air Force projects. The dollar amounts are staggering, totaling hundreds of millions of dollars. She also admitted to improperly sharing with Boeing proprietary pricing data from competitor Airbus for the refueling tankers. Prosecutors characterized the action as a “parting gift” to Boeing.

Druyun was the Air Force’s former number two acquisition official. Her alleged motivation was to help secure her future employment by Boeing and the continued employment of her daughter, Heather McKee, and her future son-in-law. Federal law prohibits defense acquisition officials from discussing jobs with companies unless they recuse themselves from contract decisions involving those companies.

It was former Boeing CFO Michael Sears who negotiated Druyun’s employment. He pled guilty to a single felony on November 15, 2004, and was sentenced to four months in prison.

According to several reports, Sears received an email in September 2002 from Heather McKee, at the time a 26-year-old Boeing employee in St. Louis, who is also Druyun’s daughter. It stated that “mom” would rather “live in Chicago,” where Boeing is headquartered, after leaving the Pentagon. The email apparently initiated Druyun-Sears meetings to discuss employment over the following months when Druyun was negotiating the tanker deal contract, as well other contracts, with Boeing.

On October 17, 2002, Sears and Druyun secretly met in a private conference room at Orlando International Airport to discuss her future plans. Druyun told Sears she had already agreed to take a job with another company, but said she would consider an offer from Boeing, court documents showed.

Druyun and Sears would later agree via e-mail to tell investigators they had not discussed her potential employment until early November 2002, after Druyun had signed a letter recusing herself from all Boeing matters before the Air Force. In subsequent e-mails and phone conversations, Sears implored Druyun to “hang tough” as investigators began questioning her about how she got her Boeing job.

Sears was considered by many to be Condit’s likely successor. His firing postponed the publication of his book titled, Soaring Through Turbulence: A New Model for Managers Who Want to Succeed In a Changing Business World.

NLPC played a key role in altering an even bigger military contract with Boeing. In 2005, the Army announced that it would renegotiate Boeing’s contract for Future Combat Systems after NLPC Chairman Ken Boehm testified before a Senate committee that the contract exempted Boeing from virtually all statutes dealing with waste, fraud and abuse.