Defense IG recommends revamping tanker leasing program

This week, Pentagon Inspector General Joseph Schmitz will release a redacted version of his seven-page executive summary on the Air Force's controversial plan to acquire 100 Boeing KC-767 tankers, although copies of the unedited text have been floating around Washington since Senate Armed Services Committee staff and members were briefed last week.

Senate Armed Services Chairman John Warner, R-Va., is not planning any hearings on Schmitz's findings until early May, after three additional studies are completed by the Defense Science Board, the National Defense University and the Pentagon general counsel.

Meanwhile, Warner's committee will use the audit to bolster its case against the proposed $23.5 billion deal. Although the inspector general found no reason to block the plan to lease 20 and purchase 80 tankers, he recommends it not move forward until numerous issues are resolved.

Specifically, the report calls on the Air Force to discontinue its commercial-item, fixed-price contract and use a more traditional, military procurement approach, a factor that could trim at least $3.5 billion from Boeing's anticipated revenue, according to the summary's figures.

This approach would require Boeing to reveal cost and pricing data to the Air Force, something one Senate aide said the company has made clear it is loath to do. The inspector general also insists the first 100 tankers be capable of refueling more than one Navy aircraft at a time, a requirement that could increase the cost.

In addition, the Air Force cannot allow Boeing's independent auditor to assess the company's profit, a task generally reserved for the Defense Contract Audit Agency, which has statutory authority.

And the Air Force cannot lease the first 20 tankers until independent statutory authority is provided or the deal is restructured to meet the requirements of an operating lease under OMB guidelines.