A Pentagon test for Boeing’s Mr. Fix-it

By Christopher Drew, New York Times News Service

Saturday, April 8, 2017 | 2 a.m.

In 2007, Boeing’s chief executive, W. James McNerney Jr., put out an SOS call to the head of the company’s military business. Boeing had bet its future on a revolutionary passenger jet, the 787 Dreamliner, and the project was imperiled by delays and cost overruns.

McNerney had singled out one man who could fix the problems: Patrick M. Shanahan, a 45-year-old executive with two master’s degrees from the Massachusetts Institute of Technology who ran Boeing’s missile-defense business.

“Jim said he needed a guy with Pat’s skills on the 787,” said James F. Albaugh, Shanahan’s boss at the time. “I was disappointed to lose Pat, but I knew Jim was right.”

Now President Donald Trump is asking Shanahan, who has been promoted to senior vice president at Boeing, to take on another job that others have found too big to handle. Trump plans to nominate him to be deputy defense secretary, the Pentagon’s second-ranking official and a point man for executing Trump’s plans to build up the military.

His selection comes at a moment when Trump has proposed the biggest increase in the Pentagon budget in years. He would like to add tens of thousands of soldiers and Marines, increase the size of the Navy and modernize the nuclear arsenal.

Most analysts say Congress is unlikely to go along fully with his proposal to strip $54 billion from domestic programs and give it to the Pentagon. But the military services have responded to the proposed increase by beefing up their shopping lists. If the wishes exceed the allocations, it would be Shanahan’s job to tamp down the expectations and settle disputes over the priorities.

While the defense secretary typically focuses on war-fighting policies and relations with Congress, the deputy secretary manages the Pentagon’s vast bureaucracy, rides herd on weapons contractors and tries to root out wasteful spending, tasks that have been legendarily difficult since President Dwight D. Eisenhower warned about the rise of the military-industrial complex.

And the job could become even more complicated under Trump, who has been personally negotiating deals with contractors like Boeing and Lockheed Martin in ways that his predecessors have rarely, if ever, done.

“I don’t envy Shanahan being in that position, with the president looking over his shoulder like that,” said Gordon Adams, who oversaw military budgets in the Clinton White House.

Under federal ethics rules, Shanahan would have to recuse himself for two years from dealing with Boeing, the No. 2 military contractor after Lockheed. Even before he took office, Trump fired off a post on Twitter questioning cost estimates for new Air Force One jets to be built by Boeing. Shanahan will have to leave oversight of that project, as well as big Boeing contracts for other planes and satellites, to others.

The Pentagon’s ethics lawyers will also have to decide how far he can go in helping rein in costs on Lockheed’s F-35 fighter jet, the Pentagon’s largest program, since the president is considering buying Boeing’s Super Hornets instead of some of the F-35s.

But such recusals are fairly common, given that other deputy secretaries and Pentagon officials have come from industry. President Barack Obama had to waive some ethics rules when he named a Raytheon lobbyist, William J. Lynn III, to the job in 2009.

And while every deputy secretary has sought to tame the military bureaucracy, analysts say, few have had significant success since David Packard, a founder of Hewlett-Packard, who agreed to take the job when the military’s finances were strained during the Vietnam War.

Trump would like to increase the base military budget to $603 billion — $54 billion more than the current level but only $18 billion higher than Obama had suggested in his last budget.The Pentagon receives an additional $60 billion in supplemental war-fighting money. It has hundreds of thousands of contractors and almost as many support people as uniformed personnel. And as the Pentagon shifts more of its focus from the wars in Iraq and Afghanistan to the need to stay ahead of more sophisticated rivals like China and Russia, it has undertaken technologically challenging programs to build new long-range bombers and ballistic-missile submarines, and update nuclear weapons.

Shanahan and top Pentagon officials declined to discuss his selection, saying he is still undergoing background checks and must be confirmed by the Senate.

His supporters say his work on high-tech projects at Boeing, where he oversees the company’s manufacturing operations and thousands of suppliers, will help him assess which technologies are worth the cost and keep projects from spinning out of control.

In that sense, his experience with the contracting side provides a good complement to the strategic expertise of Defense Secretary Jim Mattis, a retired Marine general who oversaw the fighting in Iraq and Afghanistan as head of the U.S. Central Command.

“To me, it’s a great Mr. Inside with Pat and Mr. Outside with Jim,” Albaugh said. “And I know that when Secretary Mattis asks Pat to do something, that is the last time Mattis will have to think about it.”

Still, his appointment does not come without concerns. Adams, the former Clinton administration budget official, said Shanahan might “find it darn difficult to turn the screws and wrestle more efficiency out of the military services at the same time as the president is doling out a budget with more money.”

And friends say Shanahan, a divorced father of three with a dry sense of humor and a taste for golf, has never shown much interest in politics. He was selected only after Mattis’ first choice for the job, Michèle Flournoy, an undersecretary of defense under Obama, withdrew from consideration, telling Politico that Mattis needed a deputy who “wouldn’t be struggling every other day” about some of the changes that Trump wants to make in national security policies.

Shanahan’s focus instead has been on building teams with “a roll-up-his-sleeves approach,” Albaugh said. “He says, ‘We’re in this together, so tell us what we can do as a team.’ We’ve gone through a lot, and I’ve never seen him get down about anything.”

Shanahan grew up in Washington state and earned a mechanical engineering degree from the University of Washington, where he is the chairman of the Board of Regents. He joined Boeing as an engineer in 1986 and earned master’s degrees in mechanical engineering and business from MIT while rising at the company.

He headed the 767 and 757 jet programs for Boeing’s commercial side before moving to its military business, where he ran its rotorcraft division in Philadelphia and then its ballistic-missile defense program.

The rotorcraft division supplied Apache and Chinook helicopters and helped build the V-22 Osprey tilt-rotor plane, and it suffered from low profit margins, said Albaugh, who was in charge of Boeing’s military business then. He said Shanahan increased profits through simple “blocking and tackling,” like managing subcontractors and work schedules more closely.

Shanahan took over Boeing’s missile-defense business in 2004 and worked on the kind of cutting-edge technology that often bedevils the military. He helped develop an airborne anti-missile laser that was later canceled by the Pentagon and a ground-based missile-defense system whose effectiveness remains under question.

Still, his ability to keep such complex programs moving forward caught the attention of top Boeing executives as they grew desperate in 2007 to save the 787 Dreamliner, the first commercial jet made substantially of lightweight plastic composites. Orders were pouring in from airlines interested in a potential 20 percent cut in fuel costs, but the project was running late and veering well over budget as suppliers around the world struggled to make the parts.

That is what prompted McNerney’s call to Albaugh about Shanahan.

Richard L. Aboulafia, an aviation analyst at the Teal Group in Fairfax, Virginia, said the project had also been hampered by “a disastrous command structure where information could not flow upward.” Engineers were having trouble making executives with marketing backgrounds understand what was causing the delays, he said.

Shanahan brought another manager from Boeing’s military business, Scott Fancher, to help him, and “they had to rip up the lines of communication and the work packages and start again," Aboulafia said. Shanahan also assigned teams of engineers to bring troubled suppliers up to speed. More delays ensued, and the overruns created a huge hole in Boeing’s finances. “But universally, Shanahan and Fancher are credited with saving the 787,” Aboulafia said.

Shanahan was later put in charge of all commercial airplane programs, where he was credited with smoothly ramping up production. He was elevated last year to Boeing’s top leadership council, overseeing suppliers and production facilities for the whole company.

But while he was managing the commercial jets, analysts said, Shanahan fell behind a friendly rival, Dennis A. Muilenburg, who became head of the military business and is now chief executive. So by the time Trump’s aides and Mattis began to consider him for the deputy secretary job, it was clear that he had gone “as far as he was going at Boeing,” Aboulafia said.

Loren B. Thompson, an analyst at the Lexington Institute, a research group funded by Boeing and other military contractors, said that “getting a person like this in the Pentagon’s No. 2 job has a real advantage. You’ll not be able to fool him if your project is not going well.”

Adams, the former Clinton administration budget official, said Shanahan must quickly get on top of the project to build the new bomber, the B-21, being developed by Northrop Grumman.

“Bomber programs have always misbehaved,” Adams said, noting that costs rose so high on Northrop’s B-2 bomber that Congress had to cut the order to 21 planes from 132.

And if Congress does not approve as large an increase in the budget as Trump wants, Shanahan would need to tell the services no on other pet projects if he wants to enforce any budget discipline, Adams said. “If history is any guide,” he added, “that will be an uphill battle.”