It's a Bird, It's a Plane, It's Pork! - BusinessWeek

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Boeing's C-17 cargo aircraft cost $250 million apiece. The Pentagon says it has plenty. But it's nearly impossible for Obama to kill a project that provides jobs in 43 states

By Ben Elgin and Keith Epstein

President Barack Obama and Defense Secretary Robert M. Gates want to leave the Cold War in the past—finally—and reshape the U.S. military into more of a counterinsurgency force. They have made reforming weapons acquisition a major priority, saying that some hardware designed for battling Soviet armies or other massive foes in vast open-field clashes ought to be replaced by lighter, less expensive gear. The Administration has pared billions from the budget for the Lockheed Martin (LMT) F-22 fighter, a super-sophisticated plane conceived in the 1980s for dogfights against Moscow's best. The Pentagon has also reined in a sprawling high-tech infantry project called Future Combat Systems that Boeing (BA) oversees. All told, a half-dozen major weapons systems have been eliminated for an estimated savings of more than $100 billion over coming decades.

But it's not like military spending is actually going down. At a projected $107 billion for 2010 alone—a 5% rise over this year—the Pentagon's base budget for planes, ships, missiles, and guns has grown more than 50% since 2000. Reforming and redirecting military procurement always riles members of Congress trying to protect jobs in their home districts. Lawmakers are teaming up with Lockheed, Boeing, and other defense contractors to push back fiercely on certain targeted programs, even when the Pentagon says it doesn't need the weaponry in question. In some areas, organized labor has joined the fight.

The C-17 Globemaster offers one illustration of successful opposition to the Obama-Gates push for control of weapons spending. C-17s are large cargo planes produced by Boeing that cost $250 million apiece. They have been used heavily since 1993 to transport troops, tanks, and supplies. Every year since 2006, the Pentagon has said that it has enough C-17s. And every year, Congress overrules the military and authorizes funds for additional planes. In October the Senate approved $2.5 billion in the 2010 budget for 10 more C-17s, which would bring the fleet to 215.

"It's about political engineering," says Mandy Smithberger, a national security staff member of the Project on Government Oversight, a Washington nonprofit. "Companies design weapons systems to make them difficult to kill."

The C-17 by most accounts has served the Pentagon reliably and well. The cavernous Globemaster is flying in both Iraq and Afghanistan. But the real reason Congress wants more of them has little to do with military need. Boeing has built the C-17's industrial base for political survivability.

The company has spread manufacturing across no fewer than 43 states. C-17 production lines employ more than 30,000 workers, many of them relatively well paid by factory-wage standards. Many of those jobs would be at risk if C-17 work ground to a halt.

The White House understands the challenge. "The impulse in Washington is to protect jobs back home, building things we don't need at a cost we can't afford," President Obama said in August in a speech at the Veterans of Foreign Wars Convention in Phoenix. "The special interests, contractors, and entrenched lobbyists—they're invested in the status quo, and they're putting up a fight."

Enthusiasm for the Globemaster crosses political lines. "We're fighting two wars and meeting humanitarian needs; we need these planes," says Senator Kit Bond (R-Mo.). "It is a defense industrial-base issue, too. It produces jobs in 43 states. But that is secondary. We wouldn't push that unless there is a real need." Boeing's defense business has its headquarters in St. Louis.

Bond, Senator Barbara Boxer (D-Calif.), and 16 colleagues began circulating a letter in April urging members of the Senate Appropriations Committee to keep funding the plane despite clearly stated objections from the White House and Pentagon. In California, C-17 production employs 5,000 workers at a final assembly plant in Long Beach.

Bond's fellow Missourian, Senator Claire McCaskill, a Democrat, however, evinced ambivalence in comments to the media earlier this year about earmarking money for more Globemasters. Boeing noted that she didn't sign the letter to the Appropriations Committee. So the company mobilized to change her mind.

The aircraft manufacturer convened a strategy meeting with local labor leaders in mid-spring at its St. Louis offices. George C. Roman, a Boeing vice-president for government operations, helped lead the discussion. A key challenge described by the Boeing side was the need to shore up wavering support from legislators, including McCaskill, according to Robert A. Soutier, president of the Greater St. Louis Labor Council, who attended the gathering.

Shortly after the meeting, Soutier criticized McCaskill in the St. Louis media, questioning her support for thousands of local jobs. McCaskill responded quickly. She defended her C-17 bona fides and in May announced she was sending a letter to Obama and Gates emphasizing her backing for the Boeing cargo aircraft.

Since then, she has showed up at machinist rallies, met Boeing officials, and spoken out forcefully on the plane's behalf. Adrianne Marsh, a spokeswoman for McCaskill, called the earlier discord "a misunderstanding" and says the senator has advocated the program all along. McCaskill "believes the C-17 can stand on its own and compete for these dollars based on its merits," says Marsh.

Soutier says that communication has improved between Boeing and McCaskill and that he's pleased with the senator's support for the C-17. A Boeing spokesman declined to discuss the company's lobbying but said in a prepared statement: "We routinely meet with our employees, their representatives, elected officials, and other key stakeholders to provide updates on our business operations." The spokesman added: "We greatly appreciate the support the C-17 continues to receive. We look forward to continuing to work with both our customer and the Congress to ensure this valuable airlifter is available to support our war fighters and our nation's future airlift requirements."

In late September, as Congress restored money for 10 additional C-17s, the Administration stated that "it strongly objects to" the funding. White House spokesman Thomas Victor told BusinessWeek: "The President never thought this was going to be easy, but he and Secretary Gates are committed to pushing for these reforms."

Senator John McCain (R-Ariz.), a prominent critic of Pentagon spending, went to the Senate floor on Oct. 5 to make a last-minute effort to strip funds from the defense budget for the new C-17s. "One would have expected the President and Secretary Gates to be outraged," he said. "However, we have heard barely a word of opposition from them." The next day, McCain's motion was defeated, 68 to 30.

John Murtha (D-Pa.), the powerful chairman of the House Defense Appropriations Subcommittee, said on Oct. 21 that he expects the fiscal 2010 budget to provide for the 10 additional Globemasters. He urged Boeing to trim the price of the plane to about $200 million each, but it remains to be seen whether the manufacturer will lower its bill.

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Machinists Throw a Wrench

While it fights to preserve the Pentagon budget for more C-17 cargo planes, Boeing is struggling with International Assn. of Machinists leaders over a proposed no-strike agreement in connection with the 787 passenger liner. According to the Seattle Times, talks are "deadlocked and hindered by distrust on each side." The Machinists have said they would agree to a no-strike deal through 2020 if Boeing guarantees a second 787 assembly line in Everett, Wash., among other conditions, the Times reported.

For more on Boeing's labor situation, go to http://bx.businessweek.com/Boeing/reference/

Elgin is a correspondent in BusinessWeek's Silicon Valley bureau. Epstein is a correspondent in BusinessWeek's Washington bureau.