Boeing Bail-Out Boondoggle

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With the stench of the Enron (search) scandal having seeped as far as the White House, you’d think the government would be treading more cautiously in bellying up to and bailing out beleaguered corporations.

But, at the same time the Justice Department is investigating Boeing (search) employees on charges of corporate espionage--stealing tens of thousands of pages of competitors documents—Congress has shoe-horned through a craftily disguised hand out for the airplane manufacturer, to the tune of $21 billion tax payer dollars.

Following the Sept. 11 terrorist attacks, the nation’s airlines asked for and received two bailouts from Congress. While airplane manufacturers were also hit hard, even Congress was hard-pressed to bailout Boeing, since that particular company remained profitable.

Instead, House Speaker Dennis Hastert (search) and Senate Appropriations Chair Ted Stevens (search) teamed with  some influential lobbyists to come up with a more creative idea to “save” Boeing: Allow the Air Force to lease 100 Boeing 767 planes under the guise of replacing an “aging” fleet of mid-air re-fueling tankers, guaranteeing that the company’s return on investment would far exceed what the company would make if the planes were sold outright. But a bailout is a bailout, even when it’s a lease. In this instance, it’s expensive, wasteful, and soaks taxpayers in order to reward a company with questionable ethical practices.

To replace the current fleet of re-fueling tankers--which many critics argue should be upgraded instead of replaced-- the deal calls for a 10-year, $16 billion lease. At the end of the term, the Air Force will be left with no tankers and be forced to either buy the leased planes outright--pushing the bailout to $21 million-- or purchase brand news ones. It turns out that upgrading the current fleet of KC135E tankers (searchwould cost only $3.2 billion.

Former Sen. Phil Gramm, R-Texas (search), said negatively of the Boeing lease deal, "I do not think in the 22 years I've been here [in Washington] I have ever seen anything equal to this."  Columnist Robert Novak called the deal “Boeing’s pay dirt.”

Since taxpayers were not the cause of Boeing’s fiscal woes, they should not be forced to bear the $16.8 billion cost of bailing out the company. In fact, the real reasons for Boeing’s problems were set forth by Robert Samuelson, who wrote for Newsweek:  “The story of Boeing’s distress comes in three parts: bad luck, bad management and bad government policy.”  Samuelson believes that Boeing became overconfident, and reports that they took a product-development holiday for the last eight years. In fact, there are no current orders for 767s by any commercial airline.

But there’s much more to this story: The day Samuelson’s article appeared, the Department of Justice (search) announced that it was charging two former Boeing managers with conspiring to steal a rival’s proprietary documents--37,000 pages worth--in a successful effort to win a $2 billion contract with the government. Many now believe that more than just two employees were involved with the corruption. Boeing Chairman Phil Condit telegraphed as much the day before the criminal charges were filed when he remarked that “Two (Boeing) people were directly implicated, there’s a question right now: Did that go any further?”

Boeing’s theft of documents follows a General Accounting Office (search) report released in January which found that the company used a second rival’s documents in an effort to secure yet another government contract. It also follows a lawsuit by an El Segundo, Calif., company that Boeing stole its idea and then put it out of business.

Condit likes to call these “isolated incidents” involving only a “handful” of employees. Boeing may not be another Enron, Arthur Andersen or WorldCom-level scandal... yet. But if upper management is implicated in the espionage scandal, which is now looking like a possibility, all bets are off.  Regardless, Congress should not be writing a $21 billion check to a company with such questionable business practices and ethical lapses.

Congress should be investigating whether or not it is appropriate for the government to even be doing business with Boeing, not bailing out the company. Legislators should not continue to hide behind a deal that was hatched behind closed doors, inserted into legislation at the last minute by two of the most powerful members of Congress and then sold to the American people as a vital link in the transformation of our military.

Thomas Schatz is president of Citizens Against Government Waste.