Pentagon moving on deal for Boeing 767s
May 25, 2003
ARLINGTON, Va. — The Pentagon is moving forward with a controversial deal to lease 100 modified commercial Boeing 767 jets to replace the Air Force’s aging fleet of KC-135 tankers, a senior Pentagon official announced Friday.
In a meeting with Pentagon reporters, Undersecretary of Defense for Acquisition, Technology and Logistics Edward C. “Pete” Aldridge said that the Pentagon has negotiated a plan with Boeing that would provide for leasing 100 KC-767 aircraft for six years starting in 2006.
The cost per plane would be $138 million: $131 for the actual aircraft, and another $7 million in “lease-unique costs,” Aldridge said. The program would cost about $16 billion. In 2017, when the lease period is up, the Pentagon would have the option of buying all of the 767s for another $4 billion.
The KC-767 will have some advantages over the tanker it’s replacing. The modified commercial jet will carry 20 percent more gas; and unlike the KC-135, it can be refueled in flight, Aldridge said.
Congress must approve the $16 billion lease plan, which has gone through repeated delays thanks to staunch opposition, both from some members of Congress and from inside the Bush administration.
Leading the charge against the deal has been Sen. John McCain, R-Ariz., who has said that the agreement is a thinly veiled Pentagon bailout of a struggling defense contractor.
McCain told The Associated Press on Friday that he was extremely disappointed by “a profligate waste” of taxpayer’s money.
Boeing had originally proposed a price of $150 million per aircraft; an amount that led officials in the Office of Management and Budget to say the company was attempting to “gouge” the government.
Pentagon officials brought the cost down by eliminating some of the gold-plated features proposed by the contractor, capping some program expenses, and otherwise tweaking Boeing’s proposal, Aldridge said.
Even with the lower lease rate, “it’s a lousy deal for the Air Force and for the American taxpayer,” AP reported McCain as saying on Friday.
“In all my years in Congress, I have never seen the security and fiduciary responsibilities of the federal government quite so nakedly subordinated to the interests of one defense manufacturer,” McCain said.
Critics also say that the intricate leasing deal is suspect. Boeing has solicited a group of undisclosed investors to form a so-called “Special Purpose Entity” that will actually provide the upfront money to finance construction of the aircraft.
Using private investors allows the Pentagon to begin replacing the planes three years earlier than planned, while sparing the Pentagon from having to find the money in its next three fiscal budgets, Aldrich said.
“We had a plan in the Air Force budget to start recapitalizing [replacing the KC-135 fleet], but it didn’t start until 2006,” Aldrich said. “We’ve got to start the [replacement] process… . This is a beautiful opportunity.”
McCain is a formidable foe, but Boeing has some powerful Congressional friends in its corner, especially House Speaker Dennis Hastert, R-Ill., whose district includes the manufacturer’s headquarters.
Sen. Pat Roberts, R-Kan., chairman of the Senate Intelligence Committee, and Sen. Maria Cantwell, D-Wash., are also major supporters of the deal, because the tankers’ 767 airframes would be built at Boeing’s plant in Everett, Wash., and the military modifications would be done at Boeing’s Wichita, Kan., plant.
The lease deal is critical to Boeing. A double whammy — the weak economy and traveler’s worries about terrorism — has left Boeing struggling to keep its production lines humming.
Boeing already has two deals for the 767 tanker conversion, with Italy and France. But if the U.S. lease falls through, once those other planes are completed, Boeing might stop making the 767, Aldridge said.
That would be bad for the U.S. military, which is looking at using the 767 not only to replace the entire KC-135 fleet, but also as a platform for the Airborne Warning and Control System (AWACS) and other special-mission aircraft, Aldridge said.
“And if we don’t have a 767 in production, what are you going to turn to, [France’s] Airbus? I don’t think so,” he said.