Budget office criticizes proposed tanker lease deal

An Air Force plan to lease 100 Boeing 767 refueling aircraft to replace its aging fleet would be more expensive than the agency has let on and would violate federal leasing guidelines, the Congressional Budget Office said in a report issued Tuesday.

Air Force officials have sought congressional approval of a $17.1 billion deal, under which they would lease 100 KC-767A aerial refueling aircraft from Boeing at a rate of roughly $126 million per plane. After six years, the Air Force would have the option to buy the planes.

The plan, outlined in a July 11 report to Congress, has drawn criticism from a number of interest groups and skepticism from some lawmakers. Advocacy groups have attacked the plan as a "sweetheart deal" designed to bring 2,300 jobs to Boeing plants in the states of Kansas and Washington, and as a waste of taxpayer money.

In its report to Congress, the Air Force estimated a $150 million cost differential between leasing and purchasing the refueling aircraft. But despite this differential, the Air Force said it would prefer to lease the tankers because under this arrangement, they could be delivered quickly at a minimal, up-front expense.

But the Air Force has underestimated the amount of money it would lose by leasing, rather than buying, the tankers, CBO Director Douglas Holz-Eakin said in an Aug. 26 letter to Sen. Don Nickles, R-Okla. In early July, Nickles, chair of the Senate Budget Committee, asked CBO to analyze the Air Force's proposed tanker lease deal.

"CBO has concluded that the proposed transaction would essentially be a purchase of the tankers by the federal government, but at a cost greater than would be incurred under the normal appropriation and procurement process," Holz-Eakin wrote.

CBO predicted that it would actually cost $1.3 to $2 billion more (in today's dollars) to lease the tankers than it would cost to buy them. An upfront purchase would cost the Air Force about $16 billion, the letter said, whereas the lease would cost $17 billion, plus at least $400 million for insurance and other related expenses. If the Air Force decided to buy the aircraft at the end of the lease, it would pay an additional $4 billion, bringing the total cost to $22 billion, CBO determined.

Furthermore, the lease terms suggested by the Air Force are not in compliance with federal leasing guidelines, including those in Office of Management and Budget Circular A-11 and the 2002 Defense Department Appropriations Act, section 8159, Holz-Eakin said. The proposed lease fails to meet four of six criteria outlined in section 8519.

For instance, the regulations would only allow the Air Force to lease "general-purpose" products that are also produced for private sector buyers. Leased products cannot be "built to the unique specifications of the government," as the Boeing KC-767A is, the CBO report said.