World News Roundup
Boeing Punished Over EELV
The
Pentagon left no doubt that it found Boeing guilty of wrongdoing during the
1998 Evolved Expendable Launch Vehicle (EELV) competition, and has suspended
indefinitely three Boeing space divisions and shifted seven launches to its
competitor Lockheed Martin.
Also,
Lockheed Martin's Atlas V program will receive contracts for three more
launches, awards that would have ordinarily gone to Boeing, because it
maintains the only EELV heavy-lift launch facility at Vandenberg AFB,
"Boeing
has committed serious and substantial violations of federal law," USAF
undersecretary and Pentagon space czar Peter B. Teets
said. Moreover, he stressed, Boeing was "not forthcoming" and took
four years to return to Lockheed Martin nearly 25,000 pages of proprietary
documents. Boeing still faces a Justice Dept. investigation, although Teets indicated the Air Force review didn't find
culpability beyond the company's space operations.
The
three divisions suspended from receiving new government business are Launch
Systems, Launch Services and the Delta program, including Delta II and Delta
IV. Even though Boeing last week shuffled its space organizations (see p. 17),
the suspension of the three entities, just one step short of debarment, remains
in effect.
The
move could pose a risk to the government. The three latest EELV launches
awarded to Lockheed Martin will all be West Coast-based, but the company may
not be able to upgrade its Atlas IIAS site in time. Lockheed Martin decided
against a West Coast launch facility after failing to win sufficient business
there in the now-tainted 1998 competition. The upgrade is expected to cost $200
million and could take more than two years, although all three satellites are
slated for launch in 2005. But Teets said that's a
risk the government has to absorb. Lockheed Martin will finance the upgrade,
but the facility will later be leased back to the government.
The
National Reconnaissance Office, which has a launch requirement in mid-2005 from
Vandenberg, is also concerned. The Atlas V facility almost certainly won't be
ready. The Pentagon can either wait for the suspension to be lifted, or invoke
a national security clause to buy Boeing's Delta IV.
Teets noted that the Pentagon could lift suspension of the Boeing units
relatively quickly if the company takes swift action and demonstrates its
commitment to fixing internal problems. The Pentagon wants to award a third
round of EELV launches later this year--a potential 15-20 launcher deal.
"We
are extremely disappointed by circumstances that prompted our customer's
action, but we understand [USAF's] position that
unethical behavior will not be tolerated. We apologize. . . . We will continue
to . . . address the issues that caused this suspension," said Boeing CEO
Phil Condit.
Teets said he hopes Boeing will address the military's concerns so the
government can again have two competitors for EELV, giving them a launch option
should one of the systems be grounded for technical reasons.
Some
of the details of the Air Force's revised EELV plan remain to be worked out.
For instance, the Pentagon set aside money in Fiscal 2004 to aid the financial
well-being of the two launcher families in this depressed commercial market.
What portion Boeing is now entitled to hasn't been determined.
Under the revision to the 1998 procurement plan, Lockheed
Martin will now hold the majority of launches with 14, with Boeing reduced to
12. The first of the seven Delta IV launches shifted to the Atlas Vs is set for
2005. Two will be launched in 2006, two in 2007 and one each in 2008 and 2009.
Contracts for rockets are awarded two years in advance.
World News &
Analysis
EELV Disclosure Could Cost Boeing
Over $1.5 Billion
Risk
to Boeing Growing
Boeing's
use of proprietary pricing information allegedly stolen from Lockheed Martin
Corp. to win the Evolved Expendable Launch Vehicle (EELV) competition in 1998
almost certainly will mushroom into an even more costly blunder than has
emerged thus far.
"People
haven't connected the dots yet," a major investor told Aviation Week &
Space Technology. Boeing is facing damages of at least $500 million, and if
punitive damages are included, the total easily could exceed $1-1.5 billion,
according to legal sources close to the case.
He
said Lockheed is likely to seek substantial civil damages, using the
government's own action to bolster its case. At the heart of Lockheed's civil
suit will be a legal concept known as "tortious
(wrongful) interference," in which the company will argue that it was the
victim of industrial espionage.
The
Air Force recently stripped Boeing of seven EELV launches, each worth about
$100-150 million in revenues, with a 10-15% profit margin. USAF also awarded
Lockheed three additional launches that were up for grabs, giving them 17 of
the 29 set so far. And three Boeing space units were suspended from NASA and
other government competition.
While
the company may not be able to recover its pre-1998 development costs on the
EELV program, Lockheed stands a good chance of recouping its investment now
that its EELV position has been strengthened. Lockheed also is expected to
press a civil suit in which it stands to recover from Boeing three times the
actual lost profits, although that would require a higher burden of proof of
Boeing's alleged misdeeds.
Legal experts note that Boeing's suspension, unless lifted,
will shut the company out of competition for 15-20 launches at stake in the Air
Force's next buy. Moreover, all of Boeing's business practices will be
scrutinized, which will play to its competitors' advantage.
Boeing Responds to
"We are extremely disappointed by the circumstances that prompted our
customer’s action, but we understand the U.S. Air Force’s position that
unethical behavior will not be tolerated. We apologize for our actions. We will
continue to work with the Air Force to address the issues that caused this
suspension.
"Last week, I asked former Senator Rudman to review
the company's policies and procedures regarding ethics and the handling of
competitive information. His review will include looking at any management or
cultural factors that could affect how these policies and procedures are
respected and enforced.
"To reinforce the impact unethical behavior has on the customer and the
company, a stand-down will take place on July 30 for all 78,000 employees in
our Integrated Defense Systems business unit. These employees will be briefed
on today’s action taken by our Air Force customer and the events that caused
it, and participate in specialized interactive ethics and procurement integrity
training.
"As I've said before, I am proud of the 160,000 men and women of The
Boeing Company. The unethical conduct that led to this action does not reflect
the high standards that we exhibit day-in and day-out to our customers,
suppliers and communities. We want to ensure that Boeing will never again have
to face such criticism."