6 September 2003
Backers of new MacDill tankers remain optimistic

St. Petersburg Times


As a panel debates the cost, two members of Congress still expect a deal leading to 32 new refueling craft at the base.

WASHINGTON - House Appropriations Chairman C.W. Bill Young and U.S. Sen. Bill Nelson said Friday they still expect the Air Force to get 100 new refueling tankers despite the controversy over how to pay for them. "The only issue is are we going to purchase them, lease them or have a lease-purchase program," said Young, R-Largo.

MacDill Air Force Base in Tampa was expected to get 32 of the planes, but Senate Armed Services Committee Chairman John Warner delayed a committee vote on the $21-billion deal Thursday. The Virginia Republican suggested leasing 25 new tankers from Boeing instead of 100 and said the Air Force could buy more aircraft through the regular procurement process.

"At the end of the day," Nelson said, "we're going to get the 100 planes and MacDill will be protected."

In announcing the tanker lease deal in June, Young said placing the additional aircraft at MacDill would help secure the base's future during the next round of base closures in 2005. Fairchild Air Force Base in Spokane, Wash., and Grand Forks Air Force Base in North Dakota also would get 32 new tankers each.

But Young cautioned Friday that MacDill supporters should not let their guard down. "I would never say don't worry," he said.

During the committee hearing Thursday, Warner and several senators from both parties pointed to studies that show leasing the aircraft would cost up to $6-billion more than buying them.

"I never really supported the lease program," Young said. "I wanted to buy them."

He said buying would be more cost-effective. Young said he was overruled on the lease-versus-buy option but did not elaborate. Nelson, a member of the Senate Armed Services Committee, echoed Young's position.

"My question is not whether or not we ought to have the tankers," Nelson said. "My question is what is the cheapest finance method to the federal government and there is considerable doubt . . . that the lease is the cheapest cost."

Young agreed with Pentagon figures that show leasing 25 aircraft and buying the rest would be even costlier.

Marvin Sambur, Air Force assistant secretary for acquisition, estimated that the Warner proposal would cost 20 percent to 24 percent more than leasing all 100, in part because the Air Force would lose the advantage of a volume discount.

Young said he expected the issue to be resolved over the next several weeks. Several studies have questioned the cost of the lease arrangement. The Pentagon's inspector general's office also is investigating charges that a former Air Force official involved with the tanker program - and who now works for Boeing - may have shared information with Boeing about a competitor's bid.

Referring to the lease agreement, Nelson said, "I smell something in the woodpile."

The Senate panel also wants the Air Force to conduct a study to see if there are less expensive ways to modernize the tanker fleet. The committee also wants a study on the impact of corrosion on the current tankers.

The General Accounting Office, the investigative arm of Congress, also will review the cost per aircraft under the lease agreement.


5 September 2003
US lawmakers slam Pentagon's tanker deal with Boeing


WASHINGTON (AFP) Sep 05, 2003 -
Boeing, a leading US defense contractor, and the Pentagon faced blistering congressional criticism Thursday over a controversial 21-billion-dollar tanker-lease deal.

Members of both parties on the Senate Armed Services Committee ripped into the deal, saying the US Air Force and Boeing had bent procurement rules to sew up the unusual lease-to-buy deal.

Republican John McCain led the chorus of disapproval, calling the Air Force's plan to lease 100 767 refueling tankers from Boeing an "unsavoury deal" that reflected the cosy relationship between the Pentagon and major US defense contractors.

"Mr Chairman, the fix is in and it's really a remarkable and unfortunate kind of situation that we're here today asking the taxpayers to pay five billion dollars in additional funds," McCain told the committee.

Under terms of the deal, the Air Force would replace a fifth of its aging refueling fleet with 100 specially-modified Boeing 767s, shelling out 16.6 million dollars for the leases over a number of years, with an option to buy the planes for an extra four billion at the end of the contract.

Three federal watchdog groups, including Congress' own General Accounting Office, have concluded the deal will cost US taxpayers five billion dollars more than if the Air Force bought the tankers outright.

The Pentagon contends the deal allows it to modernise its fleet five years earlier than under a traditional procurement arrangement.

But several senators, including McCain, suggested the Pentagon and Boeing had structured the deal in such a way to avoid budget restraints by spreading the costs over 11 years, beginning in 2006 and ending in 2017.

"If the Air Force needs to begin to replace its tankers, it should do that, and Congress should provide the necessary funds," added McCain. "If that requires trade-offs with other programs, that decision should be made and made honestly, not put off for future administrations to deal with."

Republican Senator Wayne Allard said the deal "creates a hidden liability, disguising our true deficit and debt numbers."

McCain, a leading critic of the deal, had sharp words for the cosy relationship between the Air Force and Boeing -- the second largest US defense contractor.

"There's no distance between the two of them," said McCain, marveling at the incestuous relationship between the US military and the contractors that serve it. "They're all on first-name terms."

The Senate Armed Services Committee is the last of four congressional oversight panels to review the proposed deal, in line with a provision in the 2002 Defense Appropriations Act, which initially authorised the lease agreement.


4 September 2003
Critics howl, but Boeing deal for tankers still on

St. Petersburg Times


At a contentious Senate hearing, the Pentagon reveals it is investigating whether a former Air Force official helped Boeing. She later went to work there.

WASHINGTON - Sen. John McCain acknowledged Wednesday that a controversial deal that would bring nearly three dozen new refueling tankers to MacDill Air Force Base in Tampa probably will be approved by Congress.

And the Arizona Republican doesn't like it.

"I think the fix is in," said McCain, a Vietnam war hero who flew Navy jets.

The $21-billion plan for the Air Force to lease rather than buy 100 refueling tankers from the Boeing Co. and station them at MacDill and two other bases is expected to clear its final congressional committee today.

But the landing is bumpy:

- The Pentagon has launched an investigation into whether a former defense official acted improperly in giving Boeing, her current employer, financial information about a competing bid on the tankers.

- The nonpartisan Congressional Budget Office says it would cost $5.7-billion less for the Air Force to buy the planes outright.

- McCain complained Wednesday that the Air Force advocated for the deal rather than negotiated it, and another senator suggested the leasing arrangement is "out of the Enron playbook."

"It's not a lease, it's just a complex legal construct to help you avoid the procurement laws that we have around here, and I'm very troubled by that," said Sen. Peter Fitzgerald, R-Ill.

Despite those complaints, McCain and other critics expect the leasing plan to be approved. The proposal has strong support from House Appropriations Chairman C.W. Bill Young, R-Largo, and other Tampa Bay area officials. They view the new tankers that would be stationed at MacDill as a way to help ensure the base's future.

But there is still plenty of intrigue behind the scenes.

The Pentagon's inspector general will investigate whether Darleen Druyun acted improperly in giving Boeing Co. financial information about a competing bid on the tankers.

Over the weekend, the Senate Commerce Committee chaired by McCain released documents detailing how the package between the Air Force and Boeing was put together.

The documents included an April 2002 exchange between two Boeing officials. The exchange said Druyun, then principal deputy assistant Air Force secretary for acquisition and management, had told Boeing that Airbus had submitted a bid that was $5-million to $17-million less per plane than the Boeing offer.

Nine months later, Druyun joined Boeing. She now is deputy general manager of the company's missile defense systems.

Boeing spokesman Doug Kennett said Druyun had no comment. Kennett said Boeing is confident it received no improper information.

At the Commerce Committee hearing Wednesday, McCain chastised Air Force Secretary James Roche for failing to look at alternatives to the leasing arrangement.

The deal is expected to be approved today with the blessing of the Senate Armed Services Committee, which has scheduled a hearing. Three other congressional committees with jurisdiction over the proposal already have approved it.

The documents released by the Commerce Committee illustrate the aggressive strategy by Boeing and the Pentagon in securing the tanker lease.

The documents show that the White House assured Boeing it was poised to replace the entire tanker fleet, not just 100 aircraft.

In the e-mails, Boeing sketched ways to sway public opinion by ghost-writing opinion pieces on behalf of retired generals and members of Congress.

During Wednesday's hearing, critics pointed to the e-mails to illustrate the cozy relationship between the Air Force and Boeing. "From the beginning," McCain said, "the Air Force appeared not so much to negotiate with Boeing as to advocate for it."

Sen. Ted Stevens, R-Alaska, who said the leasing deal was his idea, said the arrangement was needed because it would take 30 years to replace aging KC-135 tankers by purchasing them outright. The Senate Appropriations Committee chairman said the age and poor condition of the KC-135s put the Air Force's refueling capability at risk and endangers the planes' crews.

Steve Ellis of Taxpayers for Common Sense, echoed McCain's sentiments.

"I have to state that even we were shocked and disturbed by the recent revelations of the backroom deals that got this lease deal inked," he said. "This is really an economic bailout masquerading as a national need."

Keith Ashdown of Taxpayers for Common Sense pointed out that in addition to the lease of the tankers, the Air Force would pay Boeing an additional $5-billion to service the aircraft.

Under the plan, the Air Force says it would pay $17-billion to lease 100 Boeing 767s for six years, with the option of paying $4-billion to buy the jets at the end of the lease.

Supporters of the plan say buying the planes upfront would be difficult because of budget constraints. Leasing and then buying the planes is only slightly more expensive than buying them outright, according to the Air Force.

Last week, however, the nonpartisan Congressional Budget Office criticized the plan, saying it would cost $5.7-billion more than if the Air Force bought the planes outright. The CBO report echoed a study released in June by the Pentagon.

The General Accounting Office, the investigative arm of Congress, also has taken issue with the deal. The GAO insists the current fleet of KC-135 aerial tankers can be updated at a cost far lower than acquiring a new fleet, regardless of whether the planes are leased or bought.

The CBO estimates the lease-buy strategy would cost $21.5-billion, while buying the aircraft outright would cost $15.9-billion.

In its report, the budget office said that "rather than eliminating difficult budgetary decisions," the lease arrangement "merely postpones them."

The CBO report also pointed to Boeing's strong interest in this deal. Without the Air Force order, Boeing would most likely have to close its 767 production line by 2011 in the face of sagging commercial orders.

According to the e-mails released by the Commerce Committee, public opinion has weighed heavily on the Pentagon. Boeing, in fact, according to the Pentagon, agreed to cap its profit at 15 percent to avoid the perception that it is "ripping us off."

The Boeing documents suggest the Air Force was right to be paranoid; even the White House questioned its credibility, because, Boeing said, "Air Force numbers change in every meeting - and have for months."

- Information from the Associated Press was used in this report.

30 August 2003
Backers of new MacDill tankers remain optimistic
By Andrea Shalal-Esa

WASHINGTON (Reuters) - Dozens of e-mail exchanges among Boeing Co, the Air Force and the Pentagon released on Saturday raised fresh questions about a controversial $22.5 billion deal to lease, then buy 100 Boeing 767 tankers. The documents were among over 8,000 provided to the Senate Commerce Committee as it investigated a deal its chairman, Sen. John McCain describes as a "military-industrial rip-off" and a government bailout of Boeing, whose commercial aircraft sales slumped after the September 2001 hijack attacks.

The documents contain no "smoking guns," congressional sources say, but they show a close relationship between Boeing and Air Force officials, including Air Force Secretary James Roche, as well as details of a rival bid by Airbus SA.

For instance, on Feb. 19, 2002, Gerald Daniels, then head of Boeing's military aircraft and missile systems, told Chairman Phil Condit he had "excellent discussions" with Roche and his chief of staff, Gen. John Jumper a week earlier.

"Question is the terms of the deal, not if there will be a deal ... All are willing to fight for this," Daniels wrote.

In other memos, Boeing officials say Air Force officials gave them details of the size and price of the Airbus 330 bid.

Boeing has denied receiving any proprietary information from the Air Force. Air Force acquisitions chief Marvin Sambur said he did not believe the Air Force had improperly shared any proprietary data with Boeing but said it would take appropriate actions if that proved to be the case.

McCain's aides released the documents just days before the Senate commerce, budget and armed services committees are due to review the deal and before a possible vote on the deal by the Senate Armed Services Committee as early as Thursday.

That vote is the last hurdle facing the deal, under which the Air Force will lease 100 Boeing 767s from a nonprofit trust for six years, with the chance to buy them for an additional $4.4 billion at the end of the lease period.


"This sets the stage for some very, very interesting hearings next week," said Keith Ashdown with Taxpayers for Common Sense. He said the documents raised serious questions about the Air Force's role in negotiating the deal.

"Instead of the Air Force acting as an independent reviewer of this nearly $30 billion deal, they've acted as a silent business partner of Boeing," said Ashdown.

The Air Force acknowledges it will pay more to lease the planes than buy them, but says the lease will allow quicker replacement of its 43-year-old fleet of KC-135 tankers.

Boeing says it is guaranteeing the Air Force the lowest price ever for the tankers and even agreed to give back funds if its profits exceeded 15 percent over the life of the deal.

The Congressional Budget Office says a lease will cost $5.7 billion more than a purchase over time, and said the deal violated four out of six requirements for federal leases.

Critics say the deal is being treated as an operating lease, rather than a lease-purchase, which means the full price will not be reflected in the federal budget. The Air Force says it wants to buy the 100 tankers, but it needs congressional approval before including it in its budget.

The Pentagon's Office of Inspector General, an in-house watchdog agency, will decide by next week if it should investigate whether Air Force officials improperly disclosed proprietary information to Boeing, defense officials said.

Boeing denied on Friday it might have obtained proprietary information while it negotiated the lease deal.

In an internal Boeing memorandum dated April 1, 2002, Darleen Druyun, hired by Boeing after leaving her job as a top Air Force acquisition official last year, is quoted as telling the Chicago-based company "several times" that Airbus's price was $5 million to $17 million less than Boeing's.

In a memorandum dated March 29, 2002, Boeing lobbyist Andrew Ellis, said Bill Bodie, an assistant to Roche, told him the Air Force opted against the Airbus partly because the A330 was 81 percent larger than the KC-135 without commensurate additional fuel capacity.

Both memos came after the Air Force decided on March 28, 2002 to reject the bid from Airbus, which is 80-percent owned by European Aeronautic Defense and Space Co. (EADS) consortium, and 20 percent by Britain's BAE Systems Plc (BA.L).


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