Pentagon Warned McDonnell About Austerity Moves
A top Pentagon official told McDonnell Douglas Corp. Chairman John McDonnell earlier this year in a letter that the company was not yet taking “difficult but crucial austerity measures to overcome very serious cash flow problems” and raised the prospect of serious restructuring at the firm.
Donald Yockey, under secretary of defense, told McDonnell in a March letter that he wanted to be briefed on what steps the company was taking in such areas as selling divisions, halting new construction, postponing elective maintenance and suspending executive raises.
In addition, the letter asked about cost reductions the company was attempting by selling real estate, reducing lobbying costs, cutting corporate travel, temporarily cutting salaries, freezing hiring and closing the McDonnell Douglas Aerospace Information Systems unit.
The letter, which was marked “sensitive” by Yockey, was released Wednesday by the House Energy and Commerce Committee, whose staff said the letter appears to represent a serious effort by the government to lay down an agenda for the company to follow.
“What is the Pentagon doing micromanaging a defense contractor this way?” a committee staff member asked. The committee’s oversight and investigations panel is scheduled to hold a hearing on McDonnell today.
The Defense Department has historically taken a hands-off approach to managing its contractors. The Pentagon has consistently denied that it has any involvement in controlling the internal affairs of arms makers, but it is widely assumed that the Pentagon exerts significant control over the firms.
The letter by Yockey, a former Rockwell International executive, came on the heels of John McDonnell’s request to the Pentagon last January for an extraordinary $1 billion in special financial payments. Since that request was made, McDonnell has said its financial position has improved.
McDonnell Douglas spokeswoman Barbara Anderson said Wednesday that some of the issues raised by Yockey had already been adopted by the company in 1990, including selling portions of the McDonnell Douglas Finance Co.
“I am not familiar with the letter,” Anderson said. “But some of these elements are part of our cost reductions that we undertook last year.”
Separately, the committee also disclosed Wednesday a series of internal Pentagon reports that showed as recently as this summer that top government officials continued to have serious concerns about the condition of the firm, the nation’s largest defense contractor.
Last July, for example, the Defense Logistics Agency put the McDonnell Douglas Helicopters Co. on its “contractor improvement program,” a remedial plan for troubled firms.
In a letter to that unit’s president, Thomas Gunn, the government said it was concerned about “a lack of proactive management and a lack of discipline and . . . compliance with company procedures and contractual requirements.”
