Secretary Wilson raised concerns that a December 2018 meeting was improper because SpaceX and Boeing compete for Air Force launch services contracts.

WASHINGTON — A report released on Thursday by the Department of Defense Office of Inspector General reveals that on December 6, 2018, then Deputy Defense Secretary Patrick Shanahan met with SpaceX CEO Elon Musk. Air Force Secretary Heather Wilson told IG investigators she believed Shanahan should not have met with Musk because Shanahan, a former Boeing executive, was bound by an ethics agreement to recuse himself from any official business related to his former employer.

Wilson raised concerns that the meeting was improper because SpaceX and Boeing compete for Air Force launch services contracts. Boeing owns 50% of United Launch Alliance, Musk’s archrival since SpaceX entered the national security launch market in 2015.

When Shanahan was nominated to be deputy secretary of defense, he signed an ethics agreement stating he would not participate in matters where Boeing was involved, unless authorized.

The April 25 IG report was the result of a six-week investigation into allegations that Acting Secretary of Defense Shanahan took actions to promote his former employer, Boeing, and disparage its competitors.

The report clears Shanahan of any ethics violations.

The portion of the report that deals with Wilson’s concerns about the meeting with Musk provides previously unknown details about Shanahan’s discussions with Musk, and illustrates the acrimony between Wilson and Shanahan, who have repeatedly clashed over the reorganization of military space agencies.

Shanahan and Wilson were scheduled to meet with Musk, separately, on December 6, 2018.

The IG said Shanahan’s staff on November 29, 2018, in preparation for the meeting with Musk, sought advice from the DoD Standards of Conduct Office (SOCO) regarding the proposed meeting. The SOCO acting director responded in an e-mail to the IG that he had “no ethics objection to the proposed meeting” as long as discussion did not involve an ongoing procurement.

Wilson told IG investigators that on the day of the meeting she told Shanahan that he “probably needed to recuse” himself from the meeting because Boeing had just competed with SpaceX for Air Force Launch Service Agreement contracts. The Air Force had made LSA contract awards in October. United Launch Alliance was one of three winners, and SpaceX was not. Wilson informed the IG that Shanahan told her that Musk was not going to talk to him about the LSA contract.

According to the report, Shanahan told the IG that he did not recall Wilson recommending to him not to meet with Musk, but Shanahan recalled her telling him that he should not talk about acquisition issues.

When Wilson met with Musk, they discussed the LSA contract that SpaceX did not win, he IG report said. Later that day, Shanahan met with Musk for an hour. A member of Shanahan’s staff attended and summarized the meeting in a memorandum for the record (MFR). According to the MFR, Musk discussed increased competition from China, his plans to self-fund and launch communication satellites, and his production experience at Tesla. The report said Musk noted that SpaceX was not successful in the Air Force competition for a launch service contract and commented that SpaceX had written a poor proposal that “missed the mark.” According to the MFR, Shanahan did not comment on the bid competition.

The MFR provides the first known comment by any SpaceX official on why it did not win an LSA award.

When interviewed by the IG, Shanahan said he met with Musk because he “thought it would be interesting to talk to him about his views of the future,” the report said. Shanahan said he and Musk discussed his views on electrification and autonomous vehicles.

After Shanahan’s meeting with Musk, Wilson shared her concerns about the meeting with Thomas Ayres, the Air Force General Counsel. Ayres spoke to the SOCO acting director about the meeting. The acting director told Ayres that Shanahan’s staff had contacted him prior to the meeting as part of Shanahan’s screening process, and that SOCO determined that the meeting did not violate Shanahan’s ethics agreement.

The SOCO acting director determined that Shanahan “did not participate personally and substantially in any particular matter involving specific parties that [were] directly and substantially related to Boeing,” the IG report said. SOCO told Ayres that Shanahan’s ethics agreement “does not prevent him from receiving information. It only limits Shanahan’s personal and substantial participation.”

Ayres told the IG that the information from the SOCO acting director addressed his concern about the meeting between Shanahan and Musk, and he later told this to Wilson.

The DoD OIG concluded that Shanahan’s meeting with Musk did not violate his ethical obligations.

During the investigation that started March 15, the IG office interviewed Shanahan and 33 witnesses under oath. It reviewed more than 5,600 pages of unclassified documents and approximately 1,700 pages of classified documents. The report’s conclusion: “We did not substantiate any of the allegations. We determined that Mr. Shanahan fully complied with his ethics agreements and his ethical obligations regarding Boeing and its competitors.”