McDonnell Douglas knew in 1990 that its C-17 cargo jet program would incur a massive cost overrun, even while it was assuring shareholders and the Air Force that the program would stay within budget, a former McDonnell Douglas consultant is expected to testify in Congress today.
McDonnell did not acknowledge publicly until last year that the C-17 would bust the ceiling on its contract--about two years after, consultant William Jenne says, its internal estimates pointed to an overrun of more than $1 billion, and after it sharply disputed Defense Department projections of a big overrun.
Jenne is a 28-year McDonnell veteran who was brought out of retirement in 1990 to provide an independent cost assessment of several aircraft programs at Douglas Aircraft Co. in Long Beach.
As part of that effort, Jenne put together a "consensus estimate" of the C-17 cost overruns, which included separate estimates made by the company's C-17 program office, a prior company estimate done in 1989 and his own assessment, according to House Government Operations Committee staff.
McDonnell officials learned of the committee's plan to call Jenne late Tuesday, and they said they knew little about what he planned to say.
"I don't have enough background on the Jenne matter to comment on it," company spokesman Robert O'Brien said.
The committee is scheduled to begin a two-day hearing today to look into the troubled Air Force program and allegations that the service mounted a secret $500-million bailout of McDonnell in 1990.
Derek Vander Schaaf, the Pentagon's acting inspector general, will testify to findings of an investigation into the bailout. Vander Schaaf has called for disciplinary action against three Air Force generals for arranging the secret bailout.
Jenne is expected to provide a company document that shows at least three internal company estimates in 1990 projected the C-17 would go over budget. The consensus of these estimates was that the program would exceed its $6.6-billion ceiling by $1.6 billion.
The latest estimates by the Defense Department indicate McDonnell will exceed its contract to develop and build the first six C-17s by about $1.2 billion.
If McDonnell cannot refute Jenne's testimony, that will raise serious questions about whether McDonnell failed to disclose material information about its finances. Last April, the firm wrote off $80 million on the C-17, the first of two major financial hits.
McDonnell Chairman John McDonnell met with committee Chairman Rep. John Conyers Jr. (D-Mich.) on Tuesday. After the meeting, committee staff members said they expect McDonnell will testify at a hearing Thursday.
But O'Brien said: "He is not going to testify. He talked to Chairman Conyers this afternoon and they decided he would not testify. I think Mr. (David) Swain will testify."
Swain is McDonnell's program manager for the C-17.