- The Washington Times - Wednesday, August 19, 2009

NEWSMAKER INTERVIEW:

Defense contractors have been put on notice that they will have to provide value for money and meet their delivery obligations if they want to continue selling to the Department of Defense, the chief executive of Europe’s largest aerospace company said Tuesday.

Ralph D. Crosby Jr., chairman and chief executive officer of European Aeronautic Defense and Space Co. (EADS), told editors and reports of The Washington Times that there is “obviously merit” in tough remarks delivered Monday by President Obama, who complained that huge cost overruns have undermined the U.S. war against Islamic extremists.

Mr. Crosby said the president’s speech, combined with the cancellation of a half-dozen defense acquisition projects this spring, “sends a strong message that [Defense Secretary Robert M. Gates] is just not going to buy things where the performance of the contractors is not up to par.”

Among the projects canceled by Mr. Gates were the F-22 fighter, a new fleet of presidential helicopters, the Armed Reconnaissance Helicopter program, and a search and rescue program. He also substantially changed the Army’s future combat system.

Mr. Crosby, whose company is engaged in a fierce struggle with the Boeing Co. for a $35 billion contract to sell the United States a new generation of aerial refueling tankers, said he welcomes such competition as the best way to ensure good value for American taxpayers.

“There’s only one good way to ensure that you get continuing value and that’s through competition,” he said.

Mr. Obama, in his remarks Monday, objected to “indefensible no-bid contracts that cost taxpayers billions and make contractors rich.”

Complaining of “special interests and their exotic projects that are years behind schedule and billions over budget,” the president said “entrenched lobbyists” were pushing weapons programs “that even our military says it doesn’t want.”

He also went after lawmakers who try “to protect jobs back home building things we don’t need.”

Those kinds of concerns have come to bear in the tanker fight, which has instigated massive lobbying efforts and congressional involvement as lawmakers push for jobs in their home states by backing one company or the other.

Mr. Crosby, whose European-based firm is hard-pressed to match the political clout of Boeing, said he understands it is the job of House members, state governors and other players to bring political pressure in the tanker fight.

But, he said, “it’s the Pentagon’s job to ignore that and do the right thing.”

Mr. Crosby suggested that politics contributed to the Pentagon’s cancellation of an earlier contract with EADS and its U.S.-based partner, Northrop-Grumman Corp., to build the tankers after the Government Accountability Office cited eight errors in the acquisition process.

“The reasons seemed to me to be pretty political,” he said. “The secretary of defense canceled the contract instead of fixing the eight things.” That decision, he noted, “added three to five years” to the date when the new tankers can be put into service.

The Air Force’s current 513-plane fleet of KC-135 tankers is now at an average age of 50 years or more and facing heavy demands in Iraq and Afghanistan. He said the biggest losers when new planes are delayed are the current “war fighters.”

Although Mr. Obama got attention with his remarks on defense contracting this week, Pentagon officials say Mr. Gates has been taking a tough line since April.

Long known for his quiet demeanor in the Pentagon, the secretary has turned into a “pit bull” on wasteful contractor spending, said one Defense Department official who asked that his name not be published because of ongoing contract bids.

“He’s not afraid to draw the line on the defense contractors,” the Pentagon official said. “He’s not going to allow anyone to bully him into anything.”

Mr. Crosby said he thinks that if a decision is not made soon on the refueling tankers, Congress will demand that the project be divided between the two bidders, an outcome that would satisfy EADS.

Dan Beck, a spokesman for Boeing Integrated Defense Systems, said his company “will do whatever the Air Force and Defense Department would like us to do to recapitalize America’s tanker fleet.”

He said any discussion about job creation is premature because “we have yet to see a draft out of the Pentagon.” The Defense Department is expected to issue its first draft of specifications for the new contract as soon as next month.

Mr. Beck said last year that estimates showed the creation of “44,000 direct and indirect jobs” in the United States if Boeing wins the contract.

If EADS and prime contractor Northrop Grumman secure the tanker contract, Mr. Crosby said, the companies’ proposal would create 48,000 jobs in 49 states, including construction jobs to build a new manufacturing plant in Mobile, Ala.

Mr. Crosby stressed that EADS’ participation in the tanker contract would easily satisfy the Defense Department’s “Buy American” provision, which requires at least 50 percent of the contract’s content be produced in the United States. He estimated that U.S.-based output would total about 57 percent.

Besides its defense contracting business, EADS is the parent company of Airbus. With plants throughout Western Europe, Airbus produces about half of the world’s jetliners.

In 2005, the United States and the European Union filed cases against each other at the World Trade Organization, each charging the other with unfairly subsidizing its airliner manufacturers.

Boeing has protested that Airbus receives “launch aid” for its new aircraft and other forms of government subsidies. Airbus, in turn, charges that Boeing is the beneficiary of massive subsidies from the Pentagon and NASA through military and research-and-development contracts.

The WTO is expected to release its draft preliminary report early next month.

Boeing held large advantages in commercial aircraft deliveries every year from 1990 through 2002, but Airbus erased Boeing’s lead in 2003 and has maintained it ever since.

EADS posted more than $60 billion in sales last year, making it the largest aerospace corporation in the world. It was an achievement, Mr. Crosby quickly conceded, that resulted from a two-month strike waged by 27,000 machinists against Boeing.

David Dickson contributed to this report.

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