http://business.guardian.co.uk/story/0,,1983203,00.html
Defence companies go on the attack for $200bn Pentagon contract The fight between EADS and Boeing will largely depend on their lobbyists David Gow Friday January 5, 2007 The Guardian "Defence companies are the biggest lobbyists in the world," says Sam Adcock, head of government relations at EADS North America, the US arm of the European aerospace group. "It's their life-blood, their mother's milk, and if they don't lobby, they're dead." This month, the final stages of one of the most ferocious lobbying campaigns in recent history will be played out - the battle between EADS, owner of Airbus, and Boeing, for a $200bn (£100bn) contract to supply the US armed forces with 400 new air-to-air refuelling aircraft. EADS is also gunning for a Pentagon contract for new light military transporters, know as joint cargo aircraft, and is desperate to expand its presence in the world's biggest defence market. The European group wants to offset its heavy dependence on Airbus for sales and earnings. But, like other overseas groups operating in America's tightly regulated, highly protectionist market, it has had to resort to extraordinary lengths to get a foothold. The endgame of the five-year campaign for the Pentagon contract sees EADS, with its American partner and chosen prime contractor, Northrop Grumman, and Boeing send teams of lobbyists to Capitol Hill and the Pentagon to cajole senators, house representatives and senior procurement officials into choosing their product - a revamped Airbus A330 or a Boeing 767 commercial plane. The Pentagon is due to announce the winner in October. It is already being billed in Arlington, Virginia - the American home of domestic and overseas defence contractors such as BAE Systems - as a battle between David and Goliath, with the European company cast as David. Boeing, which employs more than 50,000 mainly unionised staff in the US, is said to have a foot in every congressional district and, according to EADS insiders, has at least 50 lobbyists. The Europeans have five. Boeing contributed more than $1m in the recent mid-term elections, while EADS, which employs 2,000 people in the US, spent $56,000. "They [Boeing] have a very strong Democrat constituency and I don't think we can out-Democrat them," says Mr Adcock, a conservative Republican who was director of defence and security policy for Senator Trent Lott, then Republican majority leader. With the Democrats now controlling Congress, Mr Adcock will be beating a path to the door of Carl Levin, a Michigan Democrat likely to chair the Senate's powerful armed services committee and a supporter of open competition. Already, the protracted dispute between the US and EU over alleged illegal state subsidies to Airbus and Boeing, which is due to be decided by a World Trade Organisation panel in Geneva in September, has infected the lobbying for the biggest Pentagon contract. The draft "request for proposal" (part of the tender process) issued by the Pentagon last autumn contained references to the WTO spat. EADS, suspecting Boeing's hand in the drafting, immediately contacted senators John McCain and John Warner, the architects of a more competitive defence procurement policy, who promised the reference would be taken out. To compete for US defence contracts EADS, like BAE Systems, has had to set up a separate defence division whose all-American board is answerable not to the parent group but to a Pentagon agency. The head of its defence division, Dave Oliver, a retired rear-admiral, had to resign from EADS North America. Ralph Crosby, a former Northrop senior executive now in charge of EADS North America, says he has to sign in for security clearance when he goes down one floor to the defence operations. European companies competing for lucrative military contracts based on classified material and top-secret stealth technology need to operate under a "special security agreement". Mr Crosby says: "If you can't be secret you can't be successful." And even BAE, which owns the company supplying Bradley tanks for US forces in Iraq (an agreement it has had for years) has found it almost impossible to get access to the stealth technology in the F-35 joint strike fighter aircraft which it is co-building. It was the victim of the US's international traffic in arms regulations (Itar) governing the export and import of defence goods. It was only in December, after appeals from Tony Blair to President Bush, that the US safeguarded BAE's participation in the F-35 programme. But, under Itar, it is British government ministers and not BAE who get access to the plane's secret workings. EADS faces even stiffer hurdles: its main owners are German and French, with the French state's 15% holding unpalatable to US political leaders - a point underlined in Boeing's lobbying. European contractors are now counting on a mood swing in the US to stand a chance of success. They are playing up the need for genuine competition among suppliers, a point won by Mr McCain when he undid a 2001 leasing contract for Boeing to supply tankers to the US Air Force. Boeing's case was not helped when it emerged that Darlene Druyan, a senior Pentagon procurement official, was leaking EADS documents and was then hired by Boeing. She and Mike Sears, Boeing's then chief financial officer, went to prison. EADS is also taking a leaf out of Boeing's book by stressing the economic benefits, including new jobs, of its investment in the US. More than half the content of its tankers will be made in the US and the planes will be assembled in Mobile, Alabama, where it is building a new plant. It is already assembling helicopters for the US armed forces at Columbus, Mississippi, where the Republican state governor, Haley Barbour, is a key weapon in its lobbying campaign. Alan Spencer, chief of staff of Alabama congressman Jo Bonner, a key player on Capitol Hill, says competition and jobs are the issues that help level the playing field between EADS and Boeing but concedes the Europeans have a big "perception" issue to overcome. But, he says: "Procurement after procurement has shown that competition saves money and produces products faster ... and we are stressing that the European product is better ..." EADS hopes this will sway the vote in the Pentagon in its favour. But Mr Adcock says: "We don't want to compete if we are just a stalking horse." +++ -------------------------- Want to discuss this topic? 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