Procurement: <b>October 13, 2004</b>

October 13, 2004

Darleen Druyun, former number two weapons buyer for the U.S. Air Force, has been sentenced to nine months in prison for illegally steering billions of dollars of defense contracts to Boeing. The ramifications of her court confession are just beginning to be sorted out by Boeing, its' competitors, and the Air Force. Already, one Air Force general has removed his name from consideration to be the commander for Pacific and East Asia due to his professional ties with Druyun. Other senior Air Force officials and at least one White House official are being investigated.

Druyun said she favored Boeing out of gratitude for hiring her daughter and her daughter's boyfriend (now son-in-law). In court testimony, she said she had influenced action by the Air Force on Boeing behalf for a $412 million payment for C-17 transport planes, $4 billion in avionics upgrades on the C-130 transport plane, a payment of $100 million for work on NATO AWACS's program, and the controversial Boeing KC-767 tanker lease. Druyun admitted giving Boeing a "sweetheart price" on the $20 billion dollar tanker lease and handing over proprietary data from rival bidder EADS.

The tanker deal proved to be her downfall. Congress expressed considerable skepticism at the terms of the tanker deal to lease 100 converted Boeing 767 passenger jets over a ten year period. After Druyun's sentencing, Congress moved to bar Boeing from the leasing deal and has opened up the contract to new bidders.

For Boeing, Druyun's courtroom confession is both shocking and likely to cause further recriminations for the company. It is already in the proverbial doghouse after Boeing employees had stolen proprietary Lockheed documents on rocket launcher costs in order to gain the upper hand for an Air Force contract to put satellites into orbit. Boeing is banned from bidding on new Air Force launch business and has also been stripped of a $1 billion contract for launch services. Several senior executives at Boeing have either been fired or resigned since Druyun was placed under investigation.

European airplane manufacturer and defense contractor EADS stands to benefit from Boeing's misfortunes. EADS would like to sell or lease the Air Force converted Airbus aircraft for its tanker needs, but still faces an uphill battle by "Buy American" forces in Congress. Lockheed Martin had originally bid on the C-130 avionics upgrades and was considered the likely winner; it is now considering options ranging from filing a formal protest to court action.

When the smoke clears, Congress and the Defense Department are likely to start re-evaluating their relationships with large defense contractors. After the end of the Cold War, Pentagon policy had been to allow defense contractors to merge together for greater efficiencies in an era of shrinking budgets. However, this policy has lead to a situation where there are only a few or at best two corporations that can successfully compete for large Pentagon contracts. The Pentagon prefers to have two contractors bid for business so it can conduct competitive bidding to keep the price down as well as have an available "second source" in case of production difficulties by the winning contractor. What will the Pentagon do in the future when it has only two corporations able to provide a particular weapons system or service, but one of the contractors has been banned from bidding due to unethical conduct? Doug Mohney