Navy Lobbyist, Contractor & Advisor

SOURCE: Koohan Paik (kosherkimchee@yahoo.com)
SUBHEAD: Romney’s Big Navy guru, millionaire John Lehman, was the man who built the Hawaiian Superferries.

By David Axe on 23 October 2012 for Wired Magazine -
(http://www.wired.com/dangerroom/2012/10/big-business-romneys-navy/all/)


Image above: John Lehman's face at a congressional hearing. From original article.

[Source's note: The following article really spells out Lehman and the Superferry, doesn't it? But it left out this: that Lehman had already agreed to become John McCains Chief of Staff, should he win the Presidency.
    This is why Lingle gave Superferry all kinds of breaks and State money and exempted them from environmental review - in order to curry favor with Republican Party insiders - to pave the way for her entry into national Republican politics and her Senate run......... or even (in her demented mind) the Vice President nomination.
     In the last Debate, all of Romneys blustering about the diminished Navy echoes Lehmans rantings over the past 2 decades. There is absolutely no doubt that all of Romneys Navy talk is coming from Lehman.
     Lehman was so extreme in his exaggerations of the Soviet threat, and his insistence on building a 300-ship Navy, that he was kicked out of the Reagan Administration. When the Soviets collapsed, Lehman created new bogiemen, and started calling for "modernizing" the Navy - code language for High Speed Vessels - which led to his involvement with Austal and Superferry.
     Incidentally, BAE Systems is Tig Krekels company (former Boeing Space Systems Pres, and Lehmans VP- and the guy who attended Superferry meetings in Hawaii and personally harassed and threatened Superferry opponents.
     But Jeff, I would like all of your readers to take away the most important point for us in Hawaii : That if Romney were to win - and if Lingle were to beat Mazie Hirono and go to the Senate - she will become the Senate point man for Lehmans buildup of the Navy.]

Republican presidential candidate Mitt Romney has vowed to boost the size of the Navy by roughly 15 percent as part of a broader defense buildup. “Our Navy is smaller now than at any time since 1917,” he complained in Monday night’s debate. “That’s unacceptable to me.”

But for one of Romney’s most important advisers on Navy issues, a man who oversaw a massive naval expansion for Pres. Ronald Reagan, there’s more at stake than U.S. national security. John Lehman, an investment banker and former secretary of the Navy, has strong and complex personal financial ties to the naval shipbuilding industry. He has profited hugely from the Navy’s slow growth in recent years — raising the prospect that he could make even more if Romney takes his advice on expanding the fleet.

That doesn’t mean that a bigger or better Navy is necessarily a bad idea. But it does complicate Romney’s claim that a larger Navy would merely be “matched to the interests we need to protect.” A bigger maritime force has the possibility of personally enriching one of the candidate’s top advisers. In fact, it already has.

Lehman is the founder and chairman of J.F. Lehman & Company, a private equity firm. He also sits on several corporate boards.

Lehman invested in a government-backed “Superferry” in Hawaii — a business that ultimately failed, but not before boosting the standing of Austal USA, an Alabama shipbuilder that constructed the ferry service’s ships. Austal USA’s rising fortunes in turn benefited international defense giant BAE Systems, which then bought up shipyards owned by Lehman in order to work more closely with Austal USA.

When all was said and done, the roundtrip deal helped net Lehman’s firm a reported $180 million. And besides that, Lehman continues to own shipyards that do lucrative maintenance work for the Navy. Even leaving aside the intricate ferry-and-shipyard series of deals, Lehman still stands a decent chance of profiting from the naval buildup he is helping to plan.

Lehman, through a Romney campaign aide, calls any suggestions that he benefited from shipbuilding operations “kind of amusing.” Lehman says he lost enormous sums of money on the Superferry deal, rather than earning it.

But Ryan Sibley — an editor at the Washington, D.C.-based watchdog Sunlight Foundation who has closely tracked the former Navy Secretary’s investments — says that ”Lehman’s involvement with the Superferry shows that he is no stranger to using personal connections to influence costly decisions.”

Build-Up

Today the Navy possesses 285 frontline warships, up from a low of 279 under Pres. George W. Bush. For the past five years, the Navy has slowly added ships in order to better meet expanding responsibilities. The goal was 313 combat vessels until early this year, when the Obama administration scaled back shipbuilding plans. Today the Navy aims to grow to around 300 war-ready ships by 2019.

But Lehman said that under Romney the Navy would grow even larger: to a total of 350 warships by 2022. A Romney administration would build 15 ships a year, Lehman added, compared to an average of nine per year under Obama. As Navy secretary from 1981 to 1987, Lehman oversaw the growth of the Navy from 490 combat vessels to a modern peak of 568.

Obama’s shipbuilding plan for the next four years is projected to cost between $17 billion and $22 billion per year, according to the Navy and the Congressional Budget Office. Romney’s plan would certainly cost more — thought how much more is unclear. “I wouldn’t put a number on it,” Lehman told Defense News.

Lehman added that a Romney administration would “fundamentally” reorganize the Navy to be more efficient in order to direct more resources into shipbuilding. “We’re not talking about we’re going to run faster, jump higher, be more efficient. We’re talking about fundamentally changing the method of doing business.”

In any event, a bigger Navy would mean more contracts for ship construction and maintenance — two activities in which Lehman has had a huge financial stake.

Lehman was the chairman of Hawaii Superferry, a transportation startup based in Honolulu that briefly provided passenger service between the Hawaiian islands of Oahu and Maui. It relied on a new type of fast catamaran ferry built by Austal USA, a shipbuilder in Alabama specializing in speedy aluminum vessels.

Founded in 2003, Hawaii Superferry secured a $136-million loan from the Maritime Administration, a federal agency that oversees sea transportation. Lehman’s own equity firm, the controlling private investor, put $85 million into company. Hawaii Superferry also benefited from $40 million in port enhancements paid for by the state of Hawaii.

The ferry company bought two ships from Austal USA, each more than 300 feet in length and capable of carrying hundreds of passengers plus their cars at speeds in excess of 30 knots. The vessels cost $105 million apiece.

The first ferry entered service in mid-2007. But with low ticket prices and soft demand, the service was a money-loser. The company was also mired in controversy over the environmental impact of its facilities. In 2009 Hawaii Superferry declared bankruptcy. Lehman reportedly lost his entire $85 million investment, and says his total losses were much, much greater than that.

“The two Hawaii Superferrys that we built — on time, and on budget — were operated in commercial service, with no government customers,” Lehman tells Danger Room. “We were put out of service by the chicanery of the State Supreme Court and we lost over $300 million.”

Proof of Concept

But in another regard, the ferry was a smashing success. Austal USA, which builds aluminum warships for the Navy, was angling to build military versions of the Hawaii ferries to meet a new Pentagon requirement for fast transports called Joint High-Speed Vessels, or JHSVs. “Building the Superferry was very helpful in demonstrating that we can build these ships,” said Bill Pfister, Austal USA’s vice president for external affairs.

Out of direct public view, Superferry officials touted their ship’s military potential. Superferry’s pitch to the Hawaiian Public Utilities Commission included a slide claiming the ferry could haul the Stryker vehicles belonging to a Hawaii-based brigade. The company paid a lobbying firm $70,000 to try to convince the Navy to add the ferry to a program that assigns military transportation jobs to civilian vessels.

In late 2008, the Navy tapped Austal USA to build 10 military versions of the Hawaii ferry for $1.6 billion. Some critics have questioned whether Superferry was intended all along to serve as a proof-of-concept — admittedly, a money-losing one — for a much more valuable military program. “The fact that the Superferry was already in the water, proving its seaworthiness while the JHSV contract was being considered, suggests that it may have always been intended as a prototype or demo model for the larger deal,” Koohan Paik and Jerry Mander, who penned a book about the ferry controversy, wrote in The Nation.

Superferry president Thomas Fargo, also a J.F. Lehman & Co. board member, denied the claim. “We always get the question, ‘Was this designed as a military operation?’” he told The New York Times. “That’s absolutely not true.”

Regardless, the Hawaii ferries themselves did become military assets. In 2010 the Maritime Administration sued to take over the two ships in order to recoup some of its $150 million investment. The administration later sold both ferries to the U.S. Navy for a total of $70 million.

At first glance it’s not clear how Lehman could have benefited from his money-losing investment in Hawaii Superferry. The answer lies in another of the former Navy secretary’s investments: the Atlantic Marine family of shipyards. In 2006, Lehman purchased the shipyards in Alabama, Mississippi, Florida, Boston and Philadelphia for a reported $170 million. In 2009, the federal government awarded three of the yards $2.7 million in stimulus grants for improvements.

In 2010 international defense giant BAE Systems, which handles ship repairs among other specialties, acquired the Florida, Mississippi and Alabama yards for $352 million — ringing up an estimated $180 million profit for Lehman that more than makes up for his “failed” investment in Hawaii Superferry. Lehman held onto the remaining two yards in Philadelphia and Boston. Recently both have received lucrative ship-repair contracts from the Navy. They could receive even more such contracts if the sailing branch were to grow at a faster pace, as Lehman intends.

Today the Alabama yard, which is adjacent to Austal USA’s own facilities, plays a critical role in military programs on which Austal USA and BAE Systems collaborate. “We launch both their JHSV and [Littoral Combat Ship] vessels with our dry docks; we also support Austal with warranty repairs, if requested,” BAE Systems spokesperson Stephanie Moncada tells Danger Room. Austal USA did not respond to an e-mail requesting comment on the company’s relationship with BAE.

In addition, Austal USA does work on aluminum structures as part of BAE Systems’ ship-repair contracts with the Navy. Being in such close proximity to each other makes BAE Systems and Austal USA’s collaboration possible, or at least more efficient.

Even before the acquisition of the Alabama yard, BAE Systems enjoyed close ties with Austal USA, namely in providing guns and radios for the Littoral Combat Ships Austal USA builds for the Navy. That made BAE Systems an obvious prospective buyer for Lehman’s yards — the Alabama one in particular.

But Lehman’s investments in the partially taxpayer-funded Hawaii Superferry reportedly helped Austal score the military transport deal, thus improving the business case for a closer partnership between Austal USA and BAE Systems. That partnership is being facilitated by BAE Systems’ Alabama shipyard, purchased at a 100-percent markup from Lehman.

To put it plainly, Lehman’s investment in the failed, government-backed Superferry boosted Austal USA, whose rising fortunes also benefited BAE Systems, which in turn bought up Lehman’s shipyards — improved by stimulus funds — in order to work more closely with Austal USA. That roundtrip deal helped earn Lehman’s firm a reported $180 million profit. In that sense, Lehman in fact more than doubled his $85 million investment in Hawaii Superferry, with a big assist from the taxpayers.

“While I don’t know how typical Lehman’s conduct is, his involvement with the Hawaii Superferry suggests his expertise lays in the strategic deployment of taxpayer resources for personal gain,” Sibley, the watchdog, tells Danger Room.

Lehman calls the allegation “kind of amusing. We have never owned a shipyard that builds Navy ships. We have owned four shipyards that repair, not build commercial ships and Navy ships. The Navy business made up about 15 to 20% of the repairs. We still own two of those four, having sold the other two to BAE.”

Ultimately BAE Systems, whose shipyard purchases added significantly to Lehman’s already substantial personal worth, stands to earn potentially tens if not hundreds of millions from the ships specified in Lehman’s naval buildup scheme. Each LCS costs around $500 million; the Navy plans to acquire at least 55 of the ships. As Romney’s naval adviser, Lehman specifically promised to continue the program, and mentioned possibly adding more combat gear to the vessels — gear that could be built by BAE Systems.

In the meantime, BAE is investing heavily in political influence. The political action committee ”belonging to the U.S. branch of defense and aerospace giant BAE Systems topped all other foreign-linked PACs, giving $532,000 so far, 59 percent of it to Republicans,” according to the Center for Responsive Politics, a Washington, D.C. watchdog group. BAE Systems also sponsored events at this year’s Republic National Convention.

Perhaps none of this will have an influence on a Romney Pentagon. Perhaps the campaign’s talk of a massive naval buildup will fade as budget realities set in. But if a Romney administration does embark in such an enormous increase in military shipbuilding, it’s worth noting that one of the brains behind the expansion has profited rather handsomely by encouraging the Navy to build.

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