Pentagon defers decision on Boeing tanker lease deal

By on Wednesday, May 26th, 2004

AFP, WASHINGTON: US Defense Secretary Donald Rumsfeld has deferred a decision on whether to go ahead with a 23 billion dollar deal to lease and buy 100 aerial refueling aircraft from Boeing until further studies are completed in November, the Pentagon said Tuesday.

Rumsfeld acted after a Defense Science Board study concluded that there was “no material or financial reason” to begin a program to replace the air force's KC-135 tankers before an analysis of alternatives and a study of air mobility capabilities are completed, a senior official said.

“He's going to have both of those studies accelerated,” he said. They are to be completed by November, a second official said.

Rumsfeld suspended the deal in November and ordered an inspector general review following revelations that a top Boeing official had offered a job to the air force official negotiating the controversial contract.

Championed by the air force as a way to begin replacing its ageing KC-135 fleet more quickly, the contract was fiercely opposed by Senator John McCain as a sweetheart deal for Boeing.

A task force of the Defense Science Board, a top-level advisory panel, “concluded corrosion problems with the KC-135 can be managed, and the operations and maintenance cost growth may not be as large as previously estimated,” a Pentagon official said.

“The DSB concluded a decision would be better informed by having the Air Force analysis of alternatives, as well as a PA and E (Program Analysis and Evaluation) study on (air) mobility,” the senior defense official said.

“We respect the secretary's decision to defer his decision until November,” Boeing spokesman Doug Kennett said in a statement.

“We believe the analysis of alternatives and mobility capability study are important. We firmly believe that the 767 tanker is the only solution that fulfills all 26 of the air force's stated requirements,” he said.

The task force found that while the air force needed to begin recapitalizing its tanker fleet in the near term, it did not necessarily have to be done with new aircraft.

It suggested converting mothballed DC-10s into air refueling tankers.

Or, it said, the air force could work with major airframe manufacturers to develop new tanker options with more modern airframes than the 20 year old Boeing 767 design.

That would open the door to competition by Airbus, the European aerospace giant, which was locked out earlier when the air force turned to Boeing as a single source for tanker planes.

The air force has a total active inventory of 539 tanker planes, 480 of them the older KC-135 and 59 KC-10, which have nearly two and a half times the capacity of a KC-135.

“If you are willing to tolerate manageable growth in KC-135 O and S (Operations and Service) costs, you can defer major near-term recapitalization investments,” the Defense Science Board concluded in a set of briefing slides.

“But such a decision also pushes the block obsolescence problem to the right,” it added.

“Corrosion is manageable,” it said.

However, it said “some” recapitalization should begin in the near term, possibly fiscal year 2007.

“If compelled to do something now, there are several options — 767 lease/buy, re-engine the KC-135Es, convert retired commercial aircraft, encourage commercial sources for CONUS (continental United States) tanking,” it said.

In March, the Pentagon's inspector general concluded that the air force used “an inappropriate procurement strategy” in negotiating the deal.

It advised the Defense Department “not to proceed with the tanker program until all issues are resolved,” a defense official said at the time.

Inspector General Joseph Schmitz, however, also concluded that there was no compelling reason not go through with the deal despite the disclosure of a possible conflict of interest.

Boeing fired its chief financial officer Michael Sears and Darlene Druyun, a former deputy assistant air force secretary for acquisitions who joined the aerospace giant in January, 2003, after learning she was offered the job while negotiating the tanker deal.

Boeing chairman and chief executive officer, Phil Condit, also stepped down.

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