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Flying in the Face of Reason

October 18, 2003

You wouldn't know it from the recent space business contracts Boeing Co. has won, but the Air Force in July suspended the aerospace giant from seeking new rocket orders. So why is Boeing still winning contracts? The federal government says its hands are tied because only Boeing can boost these particular satellites into orbit.

The government's inability to enforce the rare suspension of a major defense contractor should trouble taxpayers who are picking up the $1.8-trillion tab for 1,500 current weapon systems now in development or production. (Track the parade of contracts at www.dod.mil/contracts.) The Pentagon's inspector general faults the department's financial statements as "generally unreliable" and the secretary of the Air Force worries that the increasingly small circle of defense contractors has accumulated enough political muscle to design and build weapons based on what's best for shareholders rather than soldiers in the field.

Such a scenario wasn't envisioned when the Defense Department encouraged a post-Cold War defense industry consolidation meant to cut costs, keep important production lines open and still foster the competition needed to produce cutting-edge weapon systems. What taxpayers instead got was a clubby atmosphere in which "winners" serve as prime contractors and "losers" sign on as subcontractors.

The federal government generates nearly 80% of Lockheed Martin Corp.'s 26.6 billion in annual revenue and its $70-billion order backlog. Northrop Grumman Corp. builds everything from nuclear aircraft carriers and submarines to unmanned aircraft and the B-2 bomber. Military and missile contracts now generate about half of Boeing's revenue (in part because the commercial aircraft market is so slow now).

The Defense Department can take short-term steps to ensure the integrity of its defense contracts. The Air Force will lease a $220-million West Coast launch pad that Lockheed Martin is building in order to blunt Boeing's edge. Congress should honor its promise to investigate an Air Force bid to lease 100 modified 767 jets from Boeing, which critics pan as a sweetheart deal to help prop up the company during the commercial aircraft slowdown. And the government could transmit a clear message by sending any guilty individuals to prison.

Long-term solutions, though, are harder. The Defense Department auditing ranks were severely depleted during 1990s cost-cutting, and many remaining auditors are heading into retirement even as the government pushes more project supervision into the private sector. The growing federal deficit means less to spend on military research-and-development contracts that, in the past, sparked dramatic advances in weapon systems. And as the recent slap on Boeing's wrist proved, it's hard to punish offenders when they're the only game in town.

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