Cost doubts on a Boeing deal

Wednesday, August 27, 2003

By MATTHEW DALY
THE ASSOCIATED PRESS

WASHINGTON -- A plan to lease 100 Boeing refueling tanker planes could cost as much as $5.7 billion more than buying them outright, the Congressional Budget Office said yesterday.

The unusual deal, in which the Air Force would lease specially outfitted 767 jets for six years, with an option to buy after that, would cost at least $21.5 billion, compared with $15.9 billion for a direct purchase, the report said.

"The proposed transaction would essentially be a purchase of the tankers by the federal government, but at a cost greater than ... the normal appropriation process," the report said.

On average, the Air Force would spend $161 million per plane to lease and then buy the aircraft, compared with $131 million per plane through an outright purchase, the report said.

In a report to Congress last month, the Air Force calculated that leasing the 100 refuelers would cost $17.2 billion, compared with $17.1 billion to buy the planes outright.

If the option to buy is exercised, as expected, the total cost for the deal would rise to more than $21 billion, the Air Force said.

The Air Force has acknowledged that the leasing deal -- which is subject to approval by Congress -- is more expensive, but it says leasing would speed replacement of aging air tankers and keep money available in the short run to buy other military equipment.

In a statement late yesterday, the Air Force called the congressional report incomplete.

"While the report addresses cost issues, it fails to recognize the critical and significant operational and maintenance advantages gained by obtaining a more capable aircraft five years earlier than by purchasing," the Air Force said.

The Air Force wants the planes to replace 544 aging KC-135 jets which form 90 percent of the service's refueling fleet. The youngest of the planes entered service in 1965, and officials worry about increasing mechanical problems.

Sen. John McCain, R-Ariz., the deal's most outspoken critic, said the CBO report "reinforces our concerns that this is a bad deal for American taxpayers."

McCain contends the deal is a sweetheart deal for Chicago-based Boeing, which has been hurt by plunging commercial aircraft sales. McCain is a senior member of the Senate Armed Services Committee, which has scheduled a Sept. 4 hearing on the tanker deal.

The House Armed Services Committee and the House and Senate appropriations committees have already approved the leasing plan.

The report by the General Accounting Office said the true cost of the deal is difficult to determine because of its complexity and a variety of assumptions used.

Taxpayers for Common Sense, a Washington-based watchdog group, said the report showed the folly of the leasing deal.

"No fiscally responsible person would enter a deal that would end up costing far more to lease than to buy," said Keith Ashdown, vice president of the group. "It seems the Air Force is more concerned with Boeing's profits than the taxpayers' pocket book."

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