Boeing still in tanker hunt

  • Associated Press
  • Wednesday, May 26, 2004 9:00pm
  • Business

WASHINGTON – A $23.5 billion Air Force plan to lease and purchase 100 refueling tankers from the Boeing Co. is probably dead, but Boeing remains in a strong position to win an eventual contract to supply refueling planes, analysts said Wednesday.

It remains unknown how many planes the Air Force might eventually order and at what cost.

On Tuesday, Defense Secretary Donald Rumsfeld ordered a six-month delay in the tanker deal to allow for two new studies.

The delay was the second Rumsfeld has ordered since December, as the unusual lease-purchase plan draws increasing criticism in Congress as being tilted in Boeing’s favor.

The deal called for the Air Force to lease 20 767s for use as refueling tankers and buy an additional 80 planes.

Proponents said the plan was a way to get badly needed refueling planes in the air quickly, with less upfront cost, but critics called the lease deal overpriced and unnecessary.

Rumsfeld, who requested three separate reviews of the plan last winter, ordered two new studies Tuesday – including one that requires a comprehensive look at other refueling options.

The so-called analysis of alternatives could open up the tanker deal to competition from other bidders, including Airbus Industries, Boeing’s European rival.

Loren Thompson, an analyst with the Lexington Institute, a Virginia-based think tank, said Rumsfeld’s decision effectively kills the leasing aspect of the deal, which Thompson said had become a political liability and an easy target for critics.

“The lease is dead on Capitol Hill,” Thompson said. “Not only is it too hard to do politically, but because the number has been cut back, the business case for leasing has been severely impaired.”

Even with the new studies, the Pentagon is likely to determine that the aging tanker fleet needs to be replaced, and Boeing is still in the best position to win the contract over Airbus and other competitors, Thompson and other analysts said.

The current KC-135 tankers are on average 44 years old and have increasing risks of corrosion and other maintenance problems.

“There is going to be a modernization program, and Boeing is almost certain to be the supplier,” Thompson said.

Paul Nisbet of JSA Research in Rhode Island predicted that Pentagon officials will again look at other options, such as converting used aircraft to tankers, but will eventually decide to buy new 767s from Boeing.

“I think they’ll come up with the same conclusion they had before,” he said.

Even one of the plan’s sharpest critics conceded that the tanker deal is likely to survive in some form.

“My guess is that one of the numerous proposals … will be to buy commercially available planes that can be modified to tankers quickly. The company in front of the line to get that business is Boeing,” said Keith Ashdown, vice president of Taxpayers for Common Sense, a watchdog that group that has criticized the tanker deal.

Boeing spokesman Doug Kennett declined to comment on the leasing arrangement, saying the method of payment was up to the Air Force.

Sen. John McCain, R-Ariz., the deal’s leading critic, praised Rumsfeld’s action, calling the lease proposal flawed from the outset.

“Everything, including a complete investigation of possible Air Force misconduct, should be done to assure that this doesn’t happen again,” he said.

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