McCain’s Boeing Battle Boomerangs

Michael Isikoff | NEWSWEEK

One of John McCain's most celebrated achievements in recent years was his crusade to block a Pentagon contract with Boeing for a new fleet of midair refueling tankers. Incensed over what he denounced as a taxpayer "rip-off," McCain launched a Senate probe that uncovered cozy relations between top Air Force officials and Boeing execs. A top Air Force officer and Boeing's CFO ended up in prison. Most significantly, the Air Force was forced to cancel the contract—saving taxpayers more than $6 billion, McCain asserted.

But last week, McCain's subsequent effort to redo the tanker deal was dealt a setback. Government auditors ruled that the Air Force made "significant errors" when it rebid the contract and awarded the $35 billion project to Boeing's chief rival, partners European Aeronautic Defense and Space Co. (or EADS) and Northrop Grumman. It's likely the Air Force will have to redo the bid yet again, which analysts say will delay the replacement of the fleet's 1950s-era refueling tankers. The auditors' ruling has also cast light on an overlooked aspect of McCain's crusade: five of his campaign's top advisers and fund-raisers—including Tom Loeffler, who resigned last month as his finance co-chairman, and Susan Nelson, his finance director—were registered lobbyists for EADS.

Critics, including some at the Pentagon, cite in particular two tough letters McCain wrote to Deputy Secretary of Defense Gordon England in 2006 and another to Robert Gates, just prior to his confirmation as Defense secretary. In the first letter, dated Sept. 8, 2006, McCain wrote of hearing from "third parties" that the Air Force was about to redo the tanker competition by factoring in European government subsidies to EADS—a condition that could have seriously hurt the EADS bid. McCain urged that the Pentagon drop the subsidy factor and posed a series of technical questions about the Air Force's process.

"He was trying to jam us and bully us to make sure there was competition by giving EADS an advantage," said one senior Pentagon official, who asked for anonymity when discussing a politically sensitive matter. The assumption within the Pentagon, the official added, was that McCain's letters were drafted by EADS lobbyists. "There was no one else that would have had that level of detail," the official said. (A Loeffler associate noted that he and Nelson were retained by EADS after the letters were drafted...............