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Critics: Tankers lease just won't fly

They wonder whether the refueling planes are even necessary and say it would be cheaper to buy them.

Published July 27, 2003

[Last updated 7/29/03 | 14:46]

TAMPA - Shortly after the Sept. 11 terrorist attacks, a unique plan to provide the Air Force with 100 new refueling tankers flew in under the radar.

There were no congressional hearings or competitive bids. Yet powerful allies in Congress enabled the Boeing Co. to land a contract worth at least $17.2-billion to build the KC-767 tankers that would be located at MacDill Air Force Base in Tampa and two other bases.

House Speaker J. Dennis Hastert of Illinois and Sen. Ted Stevens, the Alaska Republican who chairs the Senate Appropriations Committee, agreed in late 2001 to insert language into a 2002 funding bill to negotiate the contract with Boeing. The deal would save thousands of jobs for one of the nation's largest defense contractors.

Last month, House Appropriations Chairman C.W. Bill Young of Largo proudly announced that the agreement with Boeing had been completed. The announcement thrilled Tampa Mayor Pam Iorio and other MacDill supporters, who believe the 32 new tankers that would be based at MacDill would ensure the base's future.

Yet the deal for the tankers is not quite sealed.

Led by Republican Sen. John McCain of Arizona and an array of public interest groups, critics are raising questions. Some concerns are aimed at the financing, which calls for the Air Force to lease the tankers for six years before buying them. Even Mitch Daniels, the recently departed budget director for President Bush, once derided the deal as "irresponsible."

The government has always bought military planes up front, and the leasing plan would be more expensive in the long run. But the federal government doesn't have the money to buy the planes now, the Air Force says. And Boeing has seen its commercial sales drop and badly needs the business.

There also are questions about whether the new tankers are needed, despite concerns by the military about corrosion on the aging KC-135 fleet.

"If this isn't a boondoggle, I'm not sure a boondoggle exists," said Ken Boehm, chairman of the National Legal and Policy Center, a conservative group in Washington that studies corporate ethics.

Sen. Bill Nelson, the Florida Democrat who sits on the Senate Armed Services Committee, said he supports replacing the tanker fleet. But he is not sold on the leasing plan.

"I think the jury's still out on that," Nelson said, "but I have not seen the documentation that would be a slam-dunk to say that you should not proceed with the lease."

An aging fleet

The Air Force has 544 KC-135 tankers, including 12 based at MacDill. The lumbering tankers, which refuel aircraft in flight, gained prominence when they were used to help keep fighter jets constantly in the air over U.S. cities after Sept. 11. En route to Afghanistan, B2 stealth bombers based in Missouri relied on the tankers to refuel five times.

Congressional Research Service says 182 tankers flew more than 6,000 sorties during Operation Iraqi Freedom, pumping more than 300-million pounds of fuel into U.S. and coalition aircraft. Six of the MacDill tankers operated in Iraq.

But the tankers are getting old.

On average, they have been part of the Air Force inventory for 43 years. At any one time, about 40 percent of the KC-135 fleet is down for maintenance. The main problem is corrosion.

"These Eisenhower-era aircraft are the oldest combat weapons system in the inventory and have been experiencing ever-increasing maintenance costs and serious corrosion problems, which equate to decreasing availability and less bang for the buck," Col. Scott E. Wuesthoff, chief of the Air Force global mobility division at the Pentagon, said last month.

Yet maintenance crews say they could keep the aircraft flying at least until 2040.

In an interview with Defense Week last week, John Over, chief engineer at the Oklahoma Air Logistics Center, which helps maintain the tanker fleet, said that "from a purely technical and theoretical standpoint, you could rebuild these forever."

The issue, he said, is economics.

"Every part can be replaced," Over told the publication. "The question is, do you want to make that kind of investment?"

Air Force officials say they do not have the money to replace the tanker fleet all at once. And they like the Boeing tanker's technology.

The KC-767, the world's newest and most advanced tanker, can offload 20 percent more fuel than the KC-135 and can itself be refueled in flight. It also will have the capability to refuel Air Force, Navy, Marine and allied aircraft.

Lease or buy?

In spring 2001, with its 767 production line foundering, Boeing pitched its plan to the Air Force to start replacing the tanker fleet.

The terrorist attacks bolstered the pitch from Boeing, whose commercial workforce has dropped from 127,000 to 65,000. With backing from Hastert and Stevens and a direct appeal to President Bush, Boeing landed the deal.

Sixty planes are projected to be available by 2009; all 100 are expected to be delivered by 2011.

Critics question whether the Air Force needs the aircraft.

The General Accounting Office, the investigative arm of Congress, says the Air Force has no up-to-date study on what type and how many tankers it needs.

"The tankers were never requested by the Air Force before an authorizing provision was slipped into an appropriations bill," McCain said in a statement. "There was never a needs assessment or formal competitive bid process.

"With this proposal, America's security and fiduciary responsibilities are apparently being subordinated to what's in the best interest of the Boeing Co."

McCain and others also question the wisdom of signing a significant lease with Boeing at a time when the Air Force and the Justice Department are investigating allegations that Boeing engaged in serious misconduct regarding government contract practices. The Arizona senator plans to hold hearings on the lease agreement in the Commerce Committee.

Critics say taxpayers will pay more to lease the tankers than to overhaul them or buy them. Cost estimates of overhauling the existing fleet range from $3-billion to $5-billion, compared with the $17.2-billion lease-and-buy plan.

The Air Force says buying new tankers would cost from $159-million to $1.9-billion less than leasing the planes for six years and then buying them. The difference in the cost is based on assumptions about the upfront purchase costs, interest rates and inflation.

The Air Force also says it would save $5-billion in maintenance costs by replacing old planes with new ones.

Taxpayers for Common Sense, a Washington-based advocacy group, recently distributed Air Force documents indicating the costs associated with the tanker lease could bring the price tag to nearly $30-billion, if training, maintenance and military construction are taken into account. In addition to the new tankers, for example, MacDill would get $202-million for construction, 103 officers and 252 enlisted personnel.

Bob Gower, vice president for tanker programs at Boeing, said the leasing idea came from military officers and senators such as Stevens and Daniel Inouye of Hawaii. He said it was first proposed shortly after 9/11.

"Our business is selling airplanes. We're neutral," he said.

"We said the same thing everybody did when we first got called up, "Hey, do you really want to lease airplanes?' It wasn't a Boeing concept to start with."

With the leasing arrangement, the Air Force gets more planes sooner than it would if it bought fewer planes over a longer period of time. And by ordering 100 planes, Gower said, the price is lower than buying a few at a time.

Gower acknowledged the deal is important to Boeing, which has been hurt by declining commercial sales. But he said there are protections for taxpayers built into the contract:

- Boeing's profit would be capped at 15 percent, triple its margin on commercial planes.

- If Boeing sold 767s to someone else at a lower price, the government's price would drop by that amount.

- The Air Force can buy the planes at any point at a predetermined price.

"This is a large order for Boeing," Gower said. "It's great for us. It's great for our supply base. So we've put a lot of unprecedented terms in this to try to overcome the political arguments we've been hearing."

Opposites in opposition

The leasing deal has been approved by the Senate and House appropriations committees. The Senate and House armed services committees must still approve the package.

In the meantime, the debate continues.

Boehm, of the National Legal and Policy Center, noted that interest groups with opposite political leanings rarely take similar positions.

Yet his group has banded with six other advocacy groups to oppose the Boeing deal, including Citizens Against Government Waste, the Project on Government Oversight, Citizens for Tax Justice, Taxpayers for Common Sense, Public Citizen, National Taxpayers Union and the Council for a Livable World.

"It just doesn't pass the straight-face test," said Boehm, adding that the deal short cuts the procurement process for big-ticket Pentagon projects. A running joke in Washington, he said, is whether the Pentagon should lease aircraft carriers or bombs.

McCain has said he will try to derail the leasing deal. Boehm said he expects opponents will at best slow down the project to allow a thorough public examination.

Young's aides said they see nothing that would block the project.

Gower, the Boeing executive, agreed.

"We remain highly confident the deal will go forward," he said, "because the merits of the deal will sell themselves."

- Times staff writer Tim Nickens contributed to this report.

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