Boeing Tanker Lease Remains "Complicated"

Yahoo finance | 5/9/2003 | Reuters, Jim Wolf

[aShepard]

Reuters:

Boeing Tanker Lease Remains 'Complicated'

Friday May 9, 2:03 pm ET

By Jim Wolf

WASHINGTON (Reuters) - Boeing Co.'s (NYSE:BA - News) multi-billion proposal to lease 100 jets to the U.S. Air Force as refueling tankers remains a 'complicated issue,' the Defense Department said Friday. ADVERTISEMENT

The department, which must endorse any deal before it goes to the White House budget office and ultimately to Congress, cannot rush its work because of the issue's complexities, said Cheryl Irwin, a Pentagon spokeswoman.

'This is a complicated issue and one that deserves the closest attention to make certain that we make the best use of taxpayer money, while at the same time meeting the Air Force's critical needs,' she said.

The proposed lease of 100 767s would give the service new planes more quickly than waiting to have the funds to buy them outright, the standard way of procuring such big-ticket items.

Boeing has offered to sell the 767s at the end of a six- year lease for $4 billion in addition to the lease cost. Knowledgeable sources said recent negotiations had cut this cost by an unspecified sum from the $17 billion tentatively agreed to by the Air Force and Boeing.

Critics, including Senate Armed Service committee member John McCain, an Arizona Republican, have denounced the proposed deal as a handout to Boeing.

An alternative proposal involves putting new engines in the aging KC-135 tanker fleet, delivered between 1957 and 1965.

A stumbling point appears to be a risk premium factored into the deal by Chicago-based Boeing.

The federally funded Institute for Defense Analyzes, which has studied the matter for the Pentagon, reportedly has concluded that each aircraft should cost $20 million to $30 million less than negotiated by the Air Force.

IDA held that Boeing's risk in building the aircraft was minimal and should not be included in the price, Defense News, a trade publication, reported Thursday. IDA also has produced evidence that Boeing gave a 'huge discount' to a major domestic commercial carrier to buy its 767-ER model, Defense News said.

Boeing and IDA did not return repeated requests for comment. An Air Force spokeswoman, Gloria Cales, said the service was 'still working with the Defense Department. And we're waiting for its approval' of the deal.

A week ago, the Pentagon's chief weapons buyer, Edward Aldridge, told Reuters the Defense Department was trying to 'resolve the cost differences' at issue. Aldridge is retiring May 23. Some congressional backers of the deal consider his impending departure an important deadline for moving a decision to Defense Secretary Donald Rumsfeld quickly.

Congress authorized the tanker-lease after the Sept. 11, 2001, hijacked-airliner assault on the United States, which hurt Boeing's commercial airliner sales.

Bob Gower, Boeing's vice president for 767 tanker programs, told a May 1 news briefing Boeing had not seen the Institute for Defense Analyzes' numbers.

'Like you, we hear that there's significant difference between the number that the U.S. Air Force has negotiated with us and what IDA has done,' he said. 'Quite frankly that perplexes us a little bit' in light of the tentative agreement with the Air Force and in light of Boeing's deals to sell 767 tankers to Italy and Japan.

'I would question the methodologies that they're using.'

[Paleo Conservative]

coverted = converted

[dozer7]

I bow to your superior knowledge. You must have information I do not have. You are like a boomer, have copius knowlege on drogue refueling, ageing airframes, models on turbulance on center engine platforms as it relates to heavy movers, avionics upgrades, life cycle costs of the KC-10, SF-88 criteria as it applies to existing aircraft (flight 800 brought this about), requirements on new aircraft to automate the refueling evolution, perhaps you could give me your thoughts on distributed systems and open architecture as dictated to me. Maybe you could jump right in on the endless meetings I have on FAA certification and chapter 28 requirements on cockpit design as it applies to the -200 cockpit as opposed to the -400 cockpit, and don't forget the implications of the EICAS box that eliminated the flight engineer as it applies to aerial refueling. We will skip the part when the tanker has to take on fuel through the UARSSA. Hell refueling that big boy on the ground and then making it look like taking on fuel in the air and faking out the airplane is a cake walk right. Buy some new slippers and enrole in some ballet classes.

regards

forgive the typos i did this in hurry

[Fixit]

For future reference:

The tanker deal with Boeing was approved, at $16,000,000,000.00 with a $4,000,000,000.00 buyout option at the end.

[Fixit]

Further update:

Hardball tactics backfire on Boeing