One item of curiosity during this election cycle has been Mitt Romney’s persistent calls for expanding the current Navy fleet. But questionable ties between Romney and an advisor bring the GOP nominee’s motivating factor into question.
John Lehman is former Secretary of the Navy under President Reagan, where he oversaw the last major naval expansion. Today, he’s one of Romney’s chief defense advisors and the brains behind the proposed shipbuilding plans.
“Our Navy is old…That’s unacceptable to me,” Romney would reiterate during Monday night’s debate at Lynn University . “I want to make sure that we have the ships that are required by our Navy.”
Romney’s proposal calls for current shipbuilding efforts to rise from nine Navy vessels a year to 15 a year.
Besides his previous calls for naval expansion, Lehman possesses strong ties to the shipbuilding industry, and has benefited financially in the past from his insider connections, netting a profit of $180 million in Navy-related business deals.
The head of a private equity firm — J.F. Lehman & Company — would build his fortune in unusual fashion.
Lehman was crucial in the 2003 establishment of Hawaii Superferry, a Honolulu-based company that offered passenger service between Maui and Oahu, where he served as chairman. Soon after its 2003 founding, Superferry received a $136 million federal loan and was aided by a state infrastructure project totaling $40 million. Lehman’s own firm would contribute $85 million in seed money to get Superferry up and running.
But it wasn’t soon after its 2007 launch that Superferry flopped, and in 2009 the company declared bankruptcy. Lehman lost his $85 million investment and according to him, much more.
Yet, it’s what Lehman did in the years between 2003 and 2007 that would prove crucial to his windfall.
First, Superferry purchased prototype vessels with military capabilities, hitherto unused by the Navy. The ferry service’s 2007-2009 run would serve as quality control for the ships, which Superferry aggressively lobbied the Navy to use as transportation for the military.
All of this worked wonders for the maker of the Superferry vessels, Austal USA. In 2008, the Navy contracted the Alabama-based shipmaker to build 10 military versions of the vessel for $1.6 billion.
Even in 2009, suspicions were raised. “The fact that the Superferry was already in the water, proving its seaworthiness while the JHSV [Joint High-Speed Vessel] contract was being considered, suggests that it may have always been intended as a prototype or demo model for the larger deal,” wrote Koohan Paik and Jerry Mander in The Nation.
J.F. Lehman & Co. board member and Superferry president Thomas Fargo denied the charges at the time.
The second, and final key to Lehman’s $180 million payday goes back to 2006, when Lehman purchased five commercial shipyards for $170 million, including one adjacent to Austal USA headquarters in Alabama.
The shipyards would remain assets of the private equity firm until 2010, when they were sold to BAE Systems, the giant defense contractor, for $352 million.
The transaction allowed Lehman to double his original losses from Superferry, earning a reported $180 million profit.
Observers note BAE’s strong ties to Austal USA.
Whether Lehman’s strategic acquires and the Superferry were part of a broader plan, remains unclear.
Don’t tell that to corporate watchdogs, though. “[Lehman’s] involvement with the Hawaii Superferry suggests his expertise lays in the strategic deployment of taxpayer resources for personal gain,” Ryan Sibley, an editor at the Sunlight Foundation, tells Wired.
Lehman calls the allegations “kind of amusing.”
Regardless, his profiteering from the Navy doesn’t stop there.
Lehman still owns shipyards in Boston and Philadelphia, recent recipients of Navy ship repair contracts. All it takes is a victorious Mitt Romney to put money where his mouth is for those contracts to multiply.
Wired has the full story.