Pentagon fires back on allegations Shanahan is favoring Boeing 

January 11, 2019

By Tony Bertuca

The Pentagon says allegations that acting Defense Secretary Pat Shanahan, a 31-year executive at Boeing, has acted improperly to benefit his former employer or is biased in favor of the company are unfounded and untrue.

The allegations that Shanahan “intentionally or not, is putting his finger on the scale when it comes to Pentagon priorities,” were reported in a Politico story that quotes two unnamed former government officials as saying they heard Shanahan praise Boeing and denigrate rival Lockheed Martin, specifically its F-35 Joint Strike Fighter program.

Lt. Col. Joe Buccino, Shanahan's spokesman, said the acting defense secretary abides by a robust ethics agreement and is surrounded by staffers well aware of it.

“Under his ethics agreement, acting Secretary Shanahan has recused himself for the duration of his service in the Department of Defense from participating personally and substantially in matters in which the Boeing Co. is a party,” Buccino said. “As during his service as deputy secretary of defense, several members of acting Secretary Shanahan's executive staff are formally trained on ethics agreements and serve to screen Boeing matters to another senior DOD official.”

Buccino also noted multiple former deputy defense secretaries have had ties to the defense industry.  Bill Lynn, for example, the current chief executive of Leonardo DRS, served as deputy defense secretary from February 2009 to October 2011. He had worked as senior vice president of government relations and strategy at Raytheon just prior to joining the Obama administration.

Gordon England, who served as deputy defense secretary from January 2006 to February 2009, had a 40-year career as a senior executive and engineer, including as president of General Dynamics Fort Worth Aircraft Co. (which later became part of Lockheed) and General Dynamics Land Systems.

“This recusal process is nothing new,” Buccino said.

The stakes are high for Shanahan, whom President Trump has said could remain acting defense secretary for an extended period. Some Capitol Hill officials think Shanahan could become Trump's final pick to replace former Defense Secretary Jim Mattis, who resigned in December.

A Pentagon official who spoke to Inside Defense said the new scrutiny over Shanahan's ties to Boeing is the result of having spent two years publicly and privately criticizing defense contractors.

“It is clear that he is applying pressure to industry and demands performance,” the official said. “Sometimes this town and sometimes the defense industry would rather make a lot of money than actually perform.”

The official said Shanahan is an equal opportunity critic of the defense industry and has, at times, drawn heat from lawmakers who call the Pentagon and complain he is being hard on programs like the F-35.

“Because he comes from industry, he has an ability to sniff out bullshit,” the official said. “He knows how industry can make and hide their profits.”

For months, Shanahan, who spent much of his 31 years at Boeing working on commercial aircraft, has said Lockheed Martin must drive down the price of the F-35, which costs around $50,000 per flight hour.

“What I have heard him voice is a general frustration with the performance of the program,” the official said. “That's not rocket science. He's been pretty aggressive on saying that, as a customer, we should be very unhappy with the performance of the program. We're not going to survive and we can't afford to have many planes if it's going to be that expensive. There's systemic things we need to do to get after that.”

However, Shanahan has also publicly praised the F-35.

“The F-35 is our future," he said at the Air Force Association's Air, Space & Cyber Conference in September. "I tip my hat to its broad team of government, industry and international partners. Having worked on programs of similar size and complexity, I have enormous respect for your talent and commitment."

The Pentagon official also denied reports that Shanahan exercised his authority as then-deputy defense secretary to order the Air Force to spend $1.2 billion to purchase additional Boeing-made F-15 fighters. The decision, which the department has yet to officially confirm, was questioned by some analysts, who interpreted it as a slight against the F-35.

But the official said it was Mattis who signed off on the decision to purchase more F-15s after the Pentagon’s cost assessment and program evaluation shop presented analysis to the Air Force supporting the move.

“Shanahan was recused,” the official said. “Fourth- or fifth-gen fighter mix was a consideration we looked at in the budget, but that consideration was driven by CAPE.”

The Politico story about Shanahan also comes as Boeing has experienced high-profile success at DOD. It won three large contracts -- the MQ-25 unmanned tanker, Huey helicopter replacement and T-X trainer contracts -- last year, and Thursday the Air Force announced it has accepted delivery of the KC-46 tanker, despite concerns with the aircraft's remote vision system.

Smith, Thornberry back Shanahan

Though Shanahan was first questioned by the late Senate Armed Services Committee Chairman John McCain (R-AZ) about being a possible industry “fox” in the Pentagon "hen house," his past at Boeing is not generating new concern in Congress, where lawmakers say they are satisfied with DOD's ethics firewalls.

House Armed Services Committee Chairman Adam Smith (D-WA), whose state is home to a sizeable Boeing presence, has said he believes Shanahan will be able to “successfully serve” as acting defense secretary.

“His expertise in management, research and development, acquisition, and procurement are valuable and conducive to the operations of the Pentagon,” Smith said in a Dec. 26 statement.

Rep. Mac Thornberry (R-TX), ranking member on the House Armed Services Committee whose state is home to a large F-35 assembly plant run by Lockheed, told reporters Tuesday he is not concerned about Shanahan's Boeing experience. Instead, he said he's worried DOD could lose out on top private-sector talent if potential nominees shy away from government service because of perceived conflicts of interest.

“I worry if we go too far down the road that says anybody who has too much experience in the defense industry is not welcome at the Pentagon,” Thornberry said. “That's kind of like cutting off your nose to spite your face.”

Thornberry said he is confident Shanahan is abiding by ethics laws and guidelines.

“Yes, there ought to be ethical guidelines, recusing yourself from a company where you have worked for a long period of time, I think most people would say that makes sense,” he said. “But let's not get too carried away about being purer than thou or else you'll end up with a bunch of ranchers over there.”

Thornberry's family has operated a ranch in Texas since the 1880s.

“Is it possible to recuse yourself from every decision that could possibly affect Boeing in some way or another? I don't know,” Thornberry added. “They are one of the major defense contractors, they are involved in all sorts of programs. I think he has been very clear that he is not going to take part in any decision that directly affects Boeing.”

'He is pushing industry hard'

Arnold Punaro, a board member at the National Defense Industrial Association and a former Senate Armed Services Committee senior staffer for more than 20 years, told Inside Defense he has heard Shanahan criticize every major defense company, including Boeing, for lack of performance on one program or another at various defense industry association meetings.

“He doesn't pull any punches,” Punaro said. “That's his job. I have heard him say lots of negative things about Boeing and other companies. He's been a critic of all the CEOs of all these big companies.”

Punaro, who says he has been working with DOD ethics officials for years to vet defense nominees, said any suggestion Shanahan is somehow tipping the scales toward Boeing has “zero basis in fact.”

“These are tigers,” Punaro said of DOD's ethics team. “These are not people who look the other way.”

Meanwhile, Punaro said he hopes Shanahan doesn't “succumb to polite double-speak” and continues to criticize defense companies publicly and privately over cost and schedule issues.

“He is pushing industry hard,” Punaro said.