GAO Questions Boeing Tanker Lease

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The General Accounting Office (search) Wednesday raised questions about U.S. Air Force plans to lease 100 Boeing Co. (BA767 refueling tankers (search), saying the purchase cost of the planes after the six-year lease was higher than that reported by the military.

GAO's $173.5 million per plane price is substantially higher than the $138.4 million — $131 million plus $7.4 million for financing costs — cited by the Air Force, said Neal Curtin, director of defense capabilities for the congressional investigative agency.

Curtin told the House Armed Services Committee he also had concerns about the "special purpose entity" created to own the aircraft and lease them to the Air Force.

The Air Force has said it will sell bonds to institutional investors to raise the money to buy the planes, but it has given few details about the non-profit entity, which critics say resembles ventures that figured prominently in the accounting scandal at bankrupt Enron Corp.

Curtin was joined at the hearing by the Pentagon's chief weapons buyer, Acting Undersecretary of Defense Michael Wynne, Air Force acquisition chief Marvin Sambur and a private leasing expert.

The House Armed Services Committee and its Senate counterpart must approve the lease deal, which the Air Force admits will cost more than an outright purchase but says will allow it to begin replacing its aging fleet of KC-135 (search) tankers more quickly.

The Air Force has already won the approval of the House and Senate Appropriations committees, and says it hopes to move forward on the deal by September.

But the Senate Armed Services Committee does not plan to vote on the deal until after it and the Senate Commerce Committee have their own hearings in September.

GAO's Curtin said Congress needed more information on the total cost of the lease deal, as well as the special purpose entity before it could make a decision.

"This is a new concept for the Air Force, and the details of the workings of this entity have not been presented in detail," Curtin said. He added that he had seen the actual draft lease only on July 18, and had not had sufficient time to prepare a full analysis.

New Air Force data released Tuesday put the cost of the lease payments, the purchase of the planes at the end of the lease, and related government costs at $22.4 billion.

Training, maintenance and military construction costs linked to the new tankers bring the total price of the program to $29.8 billion, according to the documents, which were prepared for delivery to the Senate Commerce Committee.

That compares with a price tag of $17.2 billion, plus $4 billion to purchase the planes — or $21.2 billion — that was included in the Air Force's report to Congress two weeks ago.

Sen. John McCain, an Arizona Republican, and several public interest groups question the wisdom of the deal, citing Air Force data that said the tanker fleet could still be used for many years, and arguing that it would be cheaper to buy the planes and phase them in slowly.