Weekly interest and loan rates | Northwest stock contest 2003 Tax tips | Consumer affairs | Home values

Boeing's Air Force lease deal flew around obstacles

By R. Jeffrey Smith and Renae Merle
The Washington Post

E-mail this article Print this article Search archive Related stories Boeing, Air Force used many tactics to promote deal Critics call Air Force negotiator too cozy with industry

WASHINGTON — Boeing's campaign to win federal backing for a lucrative new military airplane contract was in trouble in October 2002.

The head of the Office of Management and Budget (OMB) had just told the Air Force and Congress that the acquisition plan — which featured the most costly government lease in U.S. history — was not urgent and would squander billions of dollars.

Then White House Chief of Staff Andrew Card Jr., acting at what officials say was the direction of President Bush, told the Air Force and OMB to resolve their differences. Bush had been lobbied hard by House Speaker J. Dennis Hastert, R-Ill., and Rep. Norm Dicks, D-Wash., whose districts are in states that include, respectively, Boeing's headquarters and key production facilities.

Given the depth of the speaker's feelings about it, Bush really hoped something could be worked out, Card told others, according to a participant in the internal deliberations.

And with Card's intervention, obstacles to the deal eventually fell away. Vehement objections raised by OMB and Pentagon budget analysts — that the planes were too expensive and that leasing would set a bad precedent — were muted or withdrawn.

Card's intervention was but one fruit of a two-year lobbying campaign, mounted jointly by the Air Force and Boeing, that has brought the $21 billion to $25 billion deal within one congressional hurdle of being passed.

An examination of that campaign, based on dozens of interviews and thousands of internal e-mails Boeing gave to the Senate Commerce Committee, shows how Boeing circumvented the usual route of Pentagon acquisitions — and, with it, many of the rules and regulations enacted over the past three decades to forestall defense-contracting abuses.

"This thing," Senate Armed Services Committee Chairman John Warner, R-Va., said at a Sept. 4 hearing, "is a very skillful, really, Hail Mary pass, long run around the process." His panel is the only one of four congressional committees that has yet to approve the tanker acquisition — and it may be only days away from doing so.

Under the contract, Boeing would produce 100 refueling tankers based on its 767-model airliner, a deal Dicks predicts would be expanded and eventually bring Boeing $100 billion. That would make it one of the most expensive military programs this decade.

Leasing, rather than buying, is the key to the deal: The Air Force, under current budgeting, cannot afford to buy so many aircraft at once. Leasing would permit it to pay less up front, although it would ultimately pay as much as $5.7 billion more overall. And Boeing would be able to keep its 767 production line active despite a decrease in commercial orders for the plane.

Sen. John McCain, R-Ariz., and others have denounced the program as corporate welfare born in backroom dealing. Air Force Secretary James Roche has said it is a cost-effective way to modernize an aging tanker fleet.

In getting this far, the Air Force never conducted a formal study of alternatives to leasing new tankers, as is standard, and it did not formally study the degree of age-related damage to its existing tankers. It never conducted a formal competition before signing the contract, or arranged to test the new tankers before committing to lease all of them.

The deal was approved by a new Pentagon leasing-review panel that operates with a fraction of the oversight and regulatory control associated with such recent military acquisitions as the Joint Strike Fighter, the FA-22 attack fighter and Stryker armored vehicle. It is the first in a series of big leases the Pentagon is contemplating, all of which push costs into the future.

Some Pentagon officials remain convinced that the tanker-leasing agreement, signed by the Air Force in July, does not meet federal accounting standards, a view shared by the General Accounting Office. Two weeks ago, the nonpartisan Congressional Budget Office said it was actually a purchase disguised as a lease, making it "significantly more costly" than a normal purchase.

Ordinarily, such costly military systems are procured after being included in formal budget proposals, which lead to hearings and votes in committees and on the House and Senate floors. In this case, no hearings were held or committee votes taken before the deal was approved in the House and in the Senate Appropriations Committee.

In December 2001, language authorizing the deal — but providing no money — was inserted into the defense appropriations bill after the bill had passed the House and Senate, during closed negotiations between conferees. It was then approved as part of a compromise bill.

Senate Appropriations Committee Chairman Ted Stevens, R-Alaska, a longtime supporter of expanding federal leasing, has claimed credit for inserting the language. One month before he did so, he received $21,900 in campaign contributions from 31 Boeing executives at a fund-raiser in Seattle.

Thirty of those contributors — including executives from the Boeing division that makes 767s — had not contributed to Stevens in the previous decade, according to records collected by the nonpartisan Center for Responsive Politics and first reported by Defense Week. Stevens spokeswoman Melanie Alvord said there is no connection between the contributions and the legislation.

Stevens is hardly the only supporter of the deal to receive Boeing campaign contributions. About 55 percent of the company's expected revenue of $49 billion this year will come from the federal treasury, and the company has been generous to Congress and the administration.

Over the past decade, its employees and political-action committees have given $925,000 to members of the four House and Senate committees that handle defense matters, according to the watchdog group Common Cause. The company also gave $100,000 for Bush's inauguration.

Last week, Boeing's congressional supporters sought to include money for the leasing deal in the administration's high-priority $87 billion appropriation bill for Iraq and Afghanistan. If they succeed, the provision will emerge this week from House-Senate conference without having been considered beforehand by either chamber.

Copyright © 2003 The Seattle Times Company