 The U.S. Air Force on July 11 launched a mandatory congressional review phase on a $15.5 billion plan to lease 100 Boeing 767-200 tankers, delivering a 13-page report to the defense committees that describes the more expensive lease option as "an opportunity cost trade-off."
Air Force Secretary Jim Roche is free to sign the lease contract after 30 days, but agreed to take no action until the defense committees approve a separate request to start the proposed 14-year program.
"We will not award a contract until the defense committees have approved the new start request," Roche wrote in a letter, dated July 10, that was attached to the report.
The Air Force concludes in the report that the cost of leasing the tankers exceeds a standard purchase option by about $150 million. A footnote, however, says that using a multi-year procurement contract for the purchase option would save up to $1.9 billion over the lease option, assuming such a package could be approved by Congress and the Pentagon.
Despite the increased cost, the Air Force's business case argues that an urgent need to replace the oldest KC-135Es in the tanker fleet outweighs the added burden.
Under a purchase plan, the Air Force's limited procurement funds would allow the service to receive only one of 21 aircraft ordered by fiscal 2009, the report says. But an operating lease proposes that Boeing would deliver 60 tankers by FY '09 and all 100 by FY '11.
Five years ahead
"In other words," the report says, "it is an opportunity cost trade-off ... the lease not only advances the first delivery by three years, it puts the 100 aircraft fleet at the disposal of our frontline commanders for combat operations by FY '11, five years ahead of the planned purchase."
In addition, the report clarifies that the total cost of the leasing option, including support and construction costs and adjusted for inflation, is $17.2 billion. The Air Force is expected to spend another $4 billion in FY '17 to buy the aircraft after the lease term expires.
The six-year lease payments alone amount to $11.4 billion, plus $4.6 billion for operations and support and $1.2 billion in construction costs, which include paying for redesigned hangars.
In FY '02 dollars, the direct leasing costs per aircraft total $138.4 million, which includes a $7.4 million charge for Boeing to pay off construction financing loans. Adjusted for inflation, however, the direct leasing cost per aircraft rise to $155 million per plane, said John Sams, Boeing's program manager for Air Force tankers.
Congressional reaction
The proposed deal is expected to face fierce opposition from several members, including Sen. John McCain, (R-Ariz.), an outspoken critic of the deal.
"With this proposal, America's security and fiduciary responsibilities are apparently being subordinated to what's in the best interest of the Boeing Company," McCain said in a statement issued July 11.
McCain vowed to fight the deal until the Air Force conducts an analysis of alternatives for its refueling needs. McCain also has called on Defense Secretary Donald Rumsfeld to withhold action on the deal pending the outcome of two federal investigations on misdeeds allegedly committed by Boeing during a bidding war for the Evolved Expendable Launch Vehicle competition.
"I question the appropriateness of the Air Force's entering into such a significant lease with Boeing, while the Air Force and the Justice Department are investigating allegations that Boeing engaged in serious misconduct regarding its government contracting practices," he said.
Sen. Maria Cantwell (D-Wash.) praised the report and the lease proposal for the aircraft, which she said will be assembled at Boeing's Everett plant in her home state.
"This deal will help modernize our tanker fleet without jeopardizing other critical weapons programs and military readiness," she said in a statement. "It will give the U.S. Air Force the immediate upgrade it needs."
House Speaker J. Dennis Hastert (R-Ill.), whose state hosts the Boeing Co.'s headquarters, reportedly is waiting to make appointments to the House-Senate conference committee for the fiscal 2004 defense authorization bill until he gets assurances that the House conferees will approve the tanker lease. Hastert's office did not return telephone calls seeking comment.
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