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Trade-offs boost odds for Boeing tanker deal

By Katherine Pfleger
Seattle Times Washington bureau

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If the deal goes forward, it will save the jobs of thousands of workers at Boeing's Everett-based 767 program, which otherwise faced closure because airlines are no longer ordering commercial versions of the plane.

Instead of leasing 100 tankers, as Boeing and its supporters had proposed, the Air Force yesterday agreed to lease 20 planes and set aside money to buy 80 later. By agreeing to buy most of the planes outright, the Pentagon satisfied opponents, such as Sen. John McCain, R-Ariz., who argued the 100-plane lease was too generous to Boeing and too costly to taxpayers.

"Crank up that 767 line," said Sen. Patty Murray, D-Wash. "We are sending a 100-plane order your way."

But it's unclear whether Boeing is guaranteed a 100-plane order. If the plans to purchase 80 tankers are handled as a standard multiyear Pentagon acquisition, money to buy those planes would have to be approved each year by Congress, and the program could be canceled or scaled back.

Tanker compromise The deal: Air Force leases up to 20 Boeing 767 tankers and plans to buy 80 more. Cost: $27.6 billion, including $5 billion to Boeing for maintenance Timetable: 767-based tankers will be delivered from 2006 to 2014. The catch: Boeing and the Air Force may have to return to Congress for the money to purchase 80 tankers.

"Every time they bring a budget up, there is going to be scrutiny on this program," a Senate aide said last night.

However, Boeing has said the price it offered the Air Force — $131 million per plane — was heavily discounted based on a 100-plane order. To get that price, the Air Force may need to guarantee it will buy 100.

Crucial details were still in flux last night. Supporters of the deal have claimed victory at least twice before, only to face more roadblocks and negotiations. It's become a joke on Capitol Hill that the deal is "imminent."

The total value of the tanker program, if carried out in full, is $27.6 billion, including a $5 billion maintenance contract. The planes would be delivered from 2006 to 2014, stretching the previously announced delivery schedule three years longer.

John Feehery, spokesman for House Speaker Dennis Hastert, R-Ill., Congress' most powerful advocate for the tankers, said he was fairly confident the final details would be worked out overnight.

It is being tacked to a fast-moving defense-authorization bill President Bush wants to sign Tuesday, Veterans Day. But "you can't be completely confident of anything in this business," Feehery said.

The latest compromise, announced in a letter from Deputy Defense Secretary Paul Wolfowitz, follows months of back-and-forth that has involved the Pentagon, White House, Congress, Boeing and legions of lobbyists.

Initially, the deal's supporters pushed to lease a 100-plane fleet because the Air Force didn't have the money for an outright purchase. Critics questioned the added costs of leasing — as high as $6 billion — and the precedent such a big deal would set.

The latest proposal gives both sides some elements of victory. By only leasing 20 planes, the Air Force would save between $2 billion and $5 billion, depending on financial assumptions.

Wolfowitz said the department would commit an additional $3.8 billion to defense budgets for the purchases. "Our proposal strikes a necessary balance between the critical need for new air-refueling tankers and the constraints on our budget," he wrote in the letter.

The 20-80 compromise was on the ropes throughout the day over details about how to execute the deal with Boeing. Hastert tried to make the bill as clear as possible to prevent future attempts to scuttle the program.

But some say McCain and others balked at a suggestion from Hastert and senior defense officials to maintain a previously negotiated contract with Boeing to lease all 100 planes then buy out the leases of 80 quickly.

One of the key lease skeptics, Senate Armed Services Chairman John Warner, R-Va., endorsed the compromise yesterday as a way to follow traditional budget processes and save taxpayers money. The proposal is almost identical to one he put forward.

The Air Force and Boeing crunched numbers yesterday. Boeing spokeswoman Deborah Bosick said the company supported the lease-purchase proposal. The Air Force declined to comment.

Among concerns is where the money to buy the planes would come from. Ironically, some speculated yesterday that Boeing's C-17 cargo-aircraft program could be a possible target for trims. Others that have been mentioned include Lockheed Martin's Joint Strike Fighter and the F/A-22 fighter, which Boeing helps build.

But Rep. Norm Dicks, D-Bremerton, said the tanker funds would be available because the Pentagon, as well as senior Congress members, understands the need for new tankers. "It is a lot of money, but it is a small number in a $400 billion plus budget," said Dicks, the No. 2 Democrat on the defense-spending panel.

After roughly two years of work, the deal also looked like it could fall apart in September after senators tore at the price and the program's urgency.

They questioned whether leasing made more sense than buying and whether the existing fleet of KC-135s faced the maintenance problems the Air Force claimed. McCain relentlessly criticized the Air Force's negotiating process and Boeing's lobbying for the deal.

In September, the Defense Department's inspector general opened an investigation into whether a top Air Force acquisition official, Darleen Druyun, improperly gave Boeing a competitor's pricing while she was negotiating the tanker deal in 2002. Druyun has since taken a job with Boeing.

Even so, the compromise slowly came together. Murray and Sen. Maria Cantwell, D-Wash., lobbied Warner and others on the Senate Armed Services Committee.

Dicks and Hastert's aides met about ways to engage the White House. The agreement started to shake loose late last month after a meeting — spurred by Hastert — with White House Chief of Staff Andy Card.

McCain, the No. 2 Republican on the Armed Services Committee, called the 20-80 compromise "four-fifths of a victory."

Katherine Pfleger: 206-464-2772 or kpfleger@seattletimes.com

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