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POGO Applauds Decision on Boeing 767 Leasing Deal: Senator McCain Prevails in Battle Against $26 Billion Pork Provision

May 10, 2002 


Today Senator John McCain prevailed in his effort to prevent the $26 billion Boeing leasing deal from moving forward without Congressional approval. According to a release from McCain's office today: "Senator John McCain won Senate Armed Services Committee approval this week on an amendment that requires the Secretary of the Air Force to obtain authorization and appropriation of funds before the Secretary can enter into any lease for 100 Boeing 767 tanker aircraft."

Eric Miller, POGO's senior defense investigator commented on this victory for the taxpayer:

"Thanks to Senator McCain, this outrageous back room deal will now be subjected to much-needed public and Congressional scrutiny. Every independent analysis of this deal has concluded it is a monumental ripoff that will create a shortfall in Air Force tanker fleet - from the General Accounting Office, the Congressional Budget Office, Office of Management and Budget, and the Department of Defense Inspector General."

Earlier this week, POGO released a report on the leasing deal, "Fill 'Er Up: Back-Door Deal for Boeing Will Leave the Taxpayer on Empty" . Summary of facts about the Boeing 767 leasing deal from the report:

The plan to lease 100 commercial Boeing 767 wide body jets and convert them into refueling tanker aircraft would cost at least $26 billion, according to the Office of Management and Budget (OMB). OMB says to purchase the tankers outright would only cost $18 billion.

Not only would the lease with Boeing be more costly, it could, in the end, actually leave the Air Force with fewer tankers than it currently has. The leased 100 Boeing tankers are slated to replace 127 older KC-135 tankers. The lease would require the Air Force to return the 767 tankers to Boeing after only six to 10 years. That would leave the tanker fleet with a net loss of 100 or more tankers after the Boeing 767s are returned.

Because the lease idea was a hastily drawn addition by the Senate-House Conference Committee to the FY 2002 defense authorization bill, there was no public debate on its merits. It was a deal enacted without going through normal legislative channels that invite public discussion during committee and subcommittee hearings.

The tanker lease deal is a textbook case of favoritism to a single defense contractor. The legislative add-on brashly subverts the competitive bidding process by authorizing the Air Force to procure the tankers only if it leases them from Boeing. Boeing could not have structured a better deal had it drawn the lease proposal itself. After being publicly chastised, the Air Force put out a request for information from Airbus but only gave the company two weeks to respond. To accept an offer from Airbus, Congress would have to amend the Boeing leasing deal language.

This lease deal could be the first of many more to come. In a November, 2001 memo, Department of Defense Under Secretary of Defense Pete Aldridge and Comptroller Dov Zakheim encouraged military department heads to explore multi-year leases "as a means of acquiring capital assets where it makes good business sense." The DoD is attempting to repeal statutory and regulatory changes to eliminate "impediments" to leasing, rather than purchasing, military weapons. It also has established a special Leasing Review Panel to help identify possible future lease deals.

A new report by the U.S. General Accounting Office (GAO) pokes a hole in the notion that the lease of 100 new tankers is the only, or even best, way to ensure the recapitalization of the Air Force tanker fleet. The GAO concluded that with relatively cheap engine and avionics upgrades, the current fleet of 545 KC-135 tankers would not need to begin being replaced until 2040.

Although the Air Force has recently complained that its fleet of airborne gas stations is aging, its top brass never requested funding from Congress until recently. The purchase of the 100 tanker aircraft was not even on the Air Forces's list of top 60 budget priorities last year. The Air Force budget wish list included requests for such areas as bomber and fighter upgrades, aerial drone targets, military family housing investment, a new C-130J, and readiness spare parts.

Even if the Air Force's claims that there is an urgent need to replace KC-135 E models were true, the GAO says the quickest - and cheapest - solution may be to replace the engines of the older tankers and upgrade to R models at a cost of $29 million each. That means the bill to upgrade all 127 E models otherwise being replaced would only total about $3.6 billion, more than seven times cheaper than the $26 billion estimate to lease 100 new Boeing 767 aircraft.

While the leasing of major weapons systems, aircraft, and ships are rare, the Boeing 767 lease proposal is not without precedent. It bears a striking resemblance to a handful of Navy long-term lease deals to quickly put several dozen tanker ships into commission during the 1970s and 1980s. Although at the time, the leases were purported to be cheaper than buying the refueling ships outright, the GAO has since concluded the leases actually resulted in a higher cost to the taxpayers.

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO's investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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