McCain presses for inquiry on Boeing tanker lease deal

Senate Commerce Chairman John McCain, R-Ariz., is seeking records from Boeing's financial adviser, Salomon Smith Barney, in an effort to learn more about specific costs related to the Air Force's plan to acquire Boeing 767 aircraft for use as airborne tankers.

In a letter sent Monday to the company's parent company, Citigroup, McCain asked Chief Executive Officer Charles Prince to produce a series of documents that he hopes will provide an accurate accounting of any hidden lease costs in an agreement negotiated earlier this year between Boeing and the Air Force for the lease of 100 tankers. A compromise altered that agreement in the fiscal 2004 defense authorization conference report to allow for the lease of only 20 aircraft. But McCain is concerned that the costs related to the lease may be applied to the remaining 80 tankers, which were authorized in the conference report to be purchased through the more traditional procurement process, a McCain aide told CongressDaily.

Under the terms of the original leasing arrangement, Boeing and the Air Force negotiated a price of $131 million per plane plus more than $7 million each to cover construction costs, bringing the total to $138.4 million. This was significantly more than the $120.7 million price tag determined earlier this year in a study conducted by the Institute for Defense Analyses, a nongovernmental research organization that performs studies for the Pentagon. McCain, an outspoken critic of the 100-plane lease, has been investigating the deal for months and has concluded that the pricing arrangement reached between Boeing and the Air Force includes $5.5 million per plane in lease-unique costs that should not be applied to any planned acquisition of the tanker aircraft through purchases, the aide said.

McCain called on the Pentagon to shed some light on the justification behind these costs in a Sept. 11 letter to Defense Secretary Donald Rumsfeld, in which he requested any e-mail exchanges or other records between Boeing and two top Defense Department officials-acting acquisition chief Michael Wynne and Air Force Secretary James Roche-that might reveal "when, how or why the decision was made to use the $138.4 million figure." And in a Sept. 4 letter, Senate Armed Services Chairman John Warner. R-Va., called on Rumsfeld to explain the Air Force's decision "to pay $10.3 million per aircraft more" than the $120.7 million price determined by IDA. But in an October memo to McCain from Deputy Defense Secretary Paul Wolfowitz, McCain's call for internal records related to Wynne and Roche was rebuffed, and aides say Warner's request for cost data related to the lease has not been addressed.

Now McCain is asking Citigroup to hand over any draft or final contract documents between the Air Force's so-called special purpose entity, established to finance the lease of Boeing's tanker aircraft, and holders of any securities issued. In addition, McCain also called for any draft or final contract agreements between the special purpose entity and Boeing, the Air Force and the trustee, as well as any draft or final prospectuses, placement memorandums or records related to the proposal. McCain asked Citigroup to hand over the information by Nov. 17. A receptionist at Citigroup's public relations office said that a request by CongressDaily for a comment could not be met today because of the Veterans Day holiday.

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