Wall St. And Business Wednesdays: For Boeing The Purse Is Now Open by Michelle Ciarrocca

Since 1997, when Boeing acquired defense giant McDonnell Douglas,
Boeing has ranked as the Pentagon's No. 2 contractor, second only to
Lockheed Martin. Last year, Boeing received more than $16 billion in
Pentagon contracts, up from $13 billion in 2001 and $12 billion in 2000.
In addition to its defense business, Boeing is the world's largest
commercial jet producer and NASA's biggest contractor. Boeing is also
the largest U.S. exporter, with customers in 145 countries. Boeing's
total revenues for 2002 were $54.1 billion. International sales account
for 33 percent of Boeing's business.

In the aftermath of 9/11, all talk of reducing defense spending because
of a shrinking surplus and a weakening economy was brought to a halt.
Instead, the Pentagon asked defense contractors to get ready to ramp up
production in support of pending operations. Boeing Vice Chairman Harry
Stonecipher was quoted in The Wall Street Journal saying "the purse is
now open" in regards to military spending. He added that the Pentagon
would not have to make "hard choices" among competing weapons projects.

Unfortunately, no hard choices were being made in the first place, but
Stonecipher was right. Immediately following the terrorist attacks,
Congress passed not only a $343.2 billion defense budget for 2002 -- a
$32.6 billion increase above 2001 levels, but also a series of emergency
supplemental spending bills, which totaled more than $30 billion for the
Pentagon. And defense spending continues to increase. The defense budget
for 2003 is $392.9 billion. The President's military budget request for
2004 is $399.1 billion, but costs for the war in Iraq are not included
in the request. President Bush submitted a separate $74.7 billion
supplemental request to Congress in March, $62.6 billion of which is for
military programs.

The new influx of money for homeland defense ($38 billion for FY 2003)
has been another bright spot for Boeing. All of the America's major
defense contractors are trying to tap into the new market of homeland
security. The New York Times reported that Boeing was looking into how
its sensors designed to track enemy missiles could be used to locate and
identify hijacked planes. Boeing's annual report says that the company
has "successfully helped the Transportation Security Administration meet
its Congressional mandate to ensure 100 percent checked baggage
screening in the nation's commercial airports by year-end 2002. Because
of our expertise, we anticipate additional opportunities in the homeland
security addressable market valued at $80 billion over the next 10
years."

While Boeing's defense and homeland security sector may be booming,
it's commercial division is hurting. Orders for commercial aircraft were
at a 10-year low last year for Boeing, and production has been halved
from the pace prior to Sept. 11, 2001. Sales to commercial airlines make
up 60 percent of Boeing's business, but with orders down Boeing had to
lay off 30,000 employees in 2002. The headline of a recent article in
The Seattle Times summed it up best saying, "2,000 'smart bombs' equal
only one 737."


WHAT THEY MAKE

Boeing's Integrated Defense Systems unit is involved in everything from
developing fighter planes and precision munitions, to operating the
Space Shuttle, creating new satellite-based information and
communications services, and overseeing many of the Pentagon's missile
defense programs.

Specifically, Boeing is the prime contractor for both the Ground-based
Midcourse Defense system and the Airborne Laser program. Boeing also
provides guidance systems for the Minuteman and Peacekeeper missiles. It
manufactures a variety of precision munitions including the Standoff
Land Attack Missile-Expanded Response (SLAM-ER), Joint Direct Attack
Munition (JDAM), Conventional Air-Launched Cruise Missile (CALCM),
Brimstone and Harpoon missiles.

Fighter aircraft and military helicopters manufactured by Boeing
include: the F-15 Eagle, described by Boeing as the world's most
sophisticated fighter plane and the "backbone" of the U.S. Air Force;
the C-17 Globemaster, the Air Force's "premier" airlifter; and the
AH-64D Apache Longbow, the most "lethal, survivable, deployable and
maintainable multimission combat helicopter in the world." Working with
Bell Helicopter Textron, Boeing is developing the troubled V-22 Osprey
aircraft for the Marine Corps, while Sikorsky and Boeing have joined
together to build the RAH-66 Comanche combat helicopter. Boeing also has
a role in all three of the Pentagon's advanced fighter plane programs:
the F-22 Raptor, the Joint Strike Fighter/F-35, and the F-18.

Buying nations include the United Kingdom, Turkey, Israel, Egypt, Saudi
Arabia, Greece, South Korea, Taiwan and Brazil.


BOEING AND THE WAR: THE OLD AND THE NEW

Defense Secretary Donald Rumsfeld commented on the weaponry being used
in Iraq saying, "the weapons that are being used today have a degree of
precision that no one ever dreamt of in a prior conflict -- they didn't
exist." Rumsfeld must have overlooked Boeing's B-52.

The B-52 Stratofortress, which was first put into action during the
Korean War, is being called the "workhorse" of today's war in Iraq.
Instead of dropping nuclear weapons, as it was designed for, the B-52
bomber has been upgraded to deliver "smart bombs" and precision-guided
weapons. It can carry up to 70,000 pounds of bombs. While the last B-52
rolled off the assembly line in 1962, the bomber has been continually
upgraded with new electronics, engines, and weapons. The Air Force has
plans to use the B-52s until 2040.

Both old and new bombers in the U.S. arsenal can drop Boeing's Joint
Direct Attack Munitions (JDAMs), which is at the core of the United
States arsenal of "smart bombs" on display in Iraq. JDAMs are relatively
inexpensive, $22,000 a piece, and convert older, "dumb bombs" into smart
bombs by fitting them with guidance devices. Jim Hasik, a military
consultant in Atlanta, estimates the Pentagon has on hand 30,000 of
Boeing's satellite-guided bombs.

The first JDAM bombs were dropped in Kosovo. According to Pentagon
spokeswoman Victoria Clarke, of the 12,000 bombs the U.S. dropped on
Afghanistan, 7,200 (about 60%) were precision-guided. Of these, 4,600
were Boeing's JDAMs. In Iraq, officials are estimating that 80% of the
munitions being used are precision-guided, so far about 8,000 bombs have
been dropped.

The US Air Force has started flight testing a lighter 500-pound version
of the JDAM on the B-2 bomber. The B-2 can carry 80 of the lighter
bombs. The JDAMs currently in the U.S. military's arsenal weigh either
1,000 pounds or 2,000 pounds. Boeing JDAM program manager Kim Michel
said, "The smaller warhead means less collateral damage as well as
increased quantity on the aircraft."

USA Today reported that military officials concede that JDAMs aren't
foolproof. About 2% experience mechanical or electronic failures, the
Air Force says. During the Kosovo war, a JDAM bomb killed several people
inside the Chinese embassy in Belgrade, triggering a diplomatic dispute.
Military experts blame intelligence reports that mistakenly targeted the
embassy, not JDAM. In Afghanistan, a JDAM bomb killed three U.S.
soldiers and wounded 20 others in December 2001. Again, military experts
say the cause was human error: The wrong coordinates were programmed
in.

Boeing spokesman Robert Algarotti says Boeing began producing kits in
1997, from September 2001 to October 2002, the JDAM program generated
more than $1 billion dollars worth of contracts. Boeing plans to boost
production 40% to 2,800 kits per month this summer, Algarotti says. USA
Today reported that Boeing also has contracts to make JDAM kits for five
other countries, but Algarotti wouldn't name them. The FY '03
supplemental appropriations request from the Pentagon includes $7.2
billion to "reconstitute" precision- guided munitions and other
"consumables," according to an official with the Office of the Secretary
of Defense.

Boeing's C-17 transport plane is also being praised as the only plane
capable of lifting the Army's heavy tanks, and has been working "a
virtual 24-hour-a-day, 7-day-a-week deployment that started in January"
ferrying equipment to staging spots around Iraq. The C-17 can haul M1
Abrams tanks, Apache helicopters, Humvees and Bradley fighting vehicles,
can maneuver rough terrain, and can carry up to 102 military personnel.
It's also been used in humanitarian missions in the past to drop food
rations and aid. Boeing recently won a $9.7 billion contract from the
Defense Department to build 60 more C-17s.


INFLUENCE PEDDLING: BOEING'S MONEY AND CONNECTIONS

Boeing has a lot of well-connected and important people looking out for
its interests. John M. Shalikashvili, retired Chairman of the Joint
Chiefs of Staff is on the Boeing board. Former Deputy Secretary of
Defense, Rudy de Leon heads Boeing's Washington office. After September
11th Boeing beefed up its political connections by hiring former Senator
Bennett Johnson (D-LA) and former Rep. Bill Paxon (R-NY). Former
Ambassador Thomas Pickering, Boeing's senior vice president for
international relations uses his forty years of experience to generate
business for Boeing with foreign governments and corporations. Boeing
tapped top K Street lobbying firm, Bonner & Associates, to help build
the case for missile defense, and decided to go to the 'source' by
employing Alan Myer, who helped write President Reagan's famous 1983
Star Wars speech.

Richard Perle, who until recently served as the Chairman of the Defense
Policy Board and is now serving as a member, is a managing partner in a
venture-capital company called Trireme Partners, L.P. The board serves
as an advisory group to the Defense Department. Seymour Hersh, writing
in the March 17 issue of The New Yorker, pointed out the possible
"conflicts of interest" in Trireme Partners, Perle's venture capital
company. The company, which invests in companies dealing in homeland
security and defense products, has raised $45 million in capital so
far-almost half of that coming from U.S. defense giant Boeing.

In terms of campaign contributions, the Center for Responsive Politics
listed Boeing as No. 66 in its list of the 100 biggest givers in
American politics since 1989. Over the past decade Boeing has doled out
$7.6 million in PAC and Soft Money contributions. For the 2002 election
year, Boeing gave $909,134 in PAC contributions and $700,482 in Soft
Money donations.

In regards to the 2000 elections, Boeing, like most corporations, was
handing out generous campaign contributions. Soft Money and PAC
contributions totaled more than $1.5 million, with 58% going to
Republican candidates. Boeing kicked in $100,000 for the Bush
Inauguration and $100,000 for the Democratic National Convention.

Clearly, these donations are paying off. The Korean Herald reported
that Senator Christopher "Kit" Bond (R-MO), who received $46,000 in PAC
contributions from Boeing in his 1998 election campaign, met with South
Korea's defense minister this past January to "pitch" the sale of F-15
fighter planes. The Boeing F-15 production line based in St. Louis,
Missouri is in danger of closing due to the lack of orders, but could be
saved with South Korea's $4 billion plan to upgrade its aging fleet.
While Senator Bond certainly has his constituents to think about, it
seems actively lobbying on behalf of Boeing for a foreign military sale
represents a conflict of interest.

CRP points out:

"The company regularly lobbies Congress to increase defense spending
and to win military contracts, although it lost the $300 billion Joint
Strike Fighter contract to rival Lockheed Martin in 2001. Boeing has
also supported expanding free trade, especially in Asia, where it hopes
to sell more commercial aircraft. The company also pushed for Congress
to reauthorize the Export-Import Bank, which gives loan guarantees to
businesses. In 2001, Boeing got $2.5 billion from the bank."

In addition to cultivating ties to members of Congress and the Pentagon
through campaign contributions and hi-paid lobbyists, Boeing also
provides financial support to such organizations as Frank Gaffney's
right-leaning Center for Security Policy. Former Senior Vice President
of Washington Operations for Boeing, Stanley Ebner, and Andrew Ellis,
Vice President for Government Relations at Boeing, are on the Center's
Board of Directors.


WEAPONS DEVELOPED BY BOEING FUNDED IN THE 2004 BUDGET REQUEST INCLUDE:

· $9.1 billion for missile defense
· $5.17 billion for the F-22
· $3.2 billion for the F/A-18
· $4.4 billion for the Joint Strike Fighter
· $1.65 billion for the V-22 Osprey
· $3.7 billion for the C-17
· $1.1 billion for the RAH-66 Army Comanche


RECENT CONTRACTS INCLUDE:

· $60.3 million contract for additional production of 120 Standoff Land
Attack Missiles Expanded Response (SLAM-ER)

· $378 million contract for an additional 18,840 Joint Direct Attack
Munition, or JDAM, kits by the JDAM Joint Program Office.

· Boeing and the Air Force are working out the details of a $17 billion
lease deal for 100 767-tanker aircraft to replace aging KC-135E tankers
currently in service.

· $3.3 billion deal for the sale of 40 F-15K aircraft and associated
weapons and support to the Republic of Korea

· Kuwait's ministry of defense has signed a letter of offer and
acceptance with the U.S. Department of Defense for the purchase of 16
AH-64D Apache Longbow combat helicopters. The total program, which is
expected to approach $900 million, includes the acquisition of the
Longbow fire control radar, ordnance-including Hellfire missiles-spare
parts, training services and maintenance support.

· Turkey has signed a $1 billion-plus contract with Boeing for the
design and development of a state-of-the-art 737 Airborne Early Warning
& Control (AEW&C) system also being developed for Australia.


RESOURCES:

· Boeing: 2001 in Review (or, What You Won't See in the 2001 Annual
Report) By Christian Stolz, St. Louis Economic Conversion Project
www.reachingcriticalwill.org/dd/stolz.html

· Boeing Company website www.boeing.com
· The Center for Responsive Politics www.opensecrets.org

Michelle Ciarrocca is Senior Research Associate At The Arms Trade Resource Center Of The World Policy Institute

Wednesday, April 9, 2003