Air Force Secretary James Roche this week again defended the service's handling of a proposal to lease 20 Boeing KC-767 refueling tankers and buy 80 of the aircraft in the face of stepped-up attacks on the deal by its most vehement opponent, Sen. John McCain (R-AZ).
McCain, whose dogged opposition to the deal is a chief reason the circumstances of the proposal's negotiation are now being investigated by the Defense Department Inspector General, used the occasion of a March 2 Senate Armed Services Committee hearing on the fiscal year 2005 defense budget request to berate Roche about the Air Force's past and present handling of the deal.
The senator fought vigorously against the original $21 billion Air Force proposal to lease 100 tankers from Boeing, calling it "corporate welfare" and a taxpayer rip-off, despite Air Force contentions that it was the only way to affordably and quickly begin the recapitalization of a tanker fleet that has been wracked by corrosion.
After an intense fight was waged over the deal for most of 2003, however, McCain agreed to a pared-down compromise, in which the Air Force would lease just 20 of the aircraft and buy the other 80. The compromise was proposed by Senate Armed Services Committee Chairman John Warner (R-VA) and approved as part of the fiscal year 2004 Defense Authorization Act.
However, in the wake of that compromise, McCain again began criticizing the Air Force when alleged misconduct involving former service acquisition official Darleen Druyun came to light at the end of last year. Druyun, who left the Air Force in November 2002 and subsequently went to work for Boeing, was fired by the company last November for allegedly attempting to cover-up conversations she had with a Boeing executive about a job at the company prior to leaving the Air Force -- a potential violation of DOD acquisition policy, as Druyun was involved in Boeing business, including tanker lease negotiations, during that same period. The executive, Chief Financial Officer Michael Sears, was also dismissed by Boeing.
Deputy Defense Secretary Paul Wolfowitz ordered a pause in the Boeing deal in December while the Defense Department investigated the Druyun matter. At the time, McCain accused the Air Force of scheming to sign a KC-767 contract before a full investigation was completed (Inside the Air Force, Dec. 5, 2003).
In this week's hearing, Roche said the Air Force would make a decision about whether to go forward with the 80-20 deal after the DOD IG completed its investigation of the Druyun matter. In addition, a Defense Science Board review of tanker recapitalization -- ordered by Defense Secretary Donald Rumsfeld -- and "one or two other" Pentagon reviews would have to be completed before the Air Force makes a decision to go ahead with the lease, Roche said. That would not occur until "months from now," he added.
However, the Air Force would not wait until the completion of a planned refueling aircraft analysis of alternatives, Roche said. That AOA is required by the FY-04 Defense Authorization Act, and is related to a provision that limits to 12 the number of KC-135 tankers the Air Force can retire this year. The language requiring the AOA in the authorization act makes no mention of the proposed tanker deal, which was also approved as part of the FY-04 authorization bill.
"The way the analysis of alternatives is structured, senator, is that it assumes that there was the [national defense authorization act] approved" lease-purchase deal, Roche said in response to a question from McCain. "However, if there is continued delay, the work that is being done in that analysis of alternatives would also inform the initial purchase, as well as the KC-X program."
The KC-X is a future refueling tanker acquisition program the Air Force plans to start in FY-06, according to Roche. The Boeing lease deal, now a lease and purchase, was designed to accelerate the procurement of 100 tankers to act as a bridge between the forced retirement of quickly aging KC-135s and a full-fledged tanker procurement.
But McCain implied the AOA -- likely to take more than a year -- should be completed prior to any decision on the KC-767 procurement. He questioned Roche's assumption that it was unrelated to the lease-purchase.
Citing a memo from acting Under Secretary of Defense for Acquisition, Technology and Logistics Michael Wynne, an investment analyst with Wall Street firm Lehman Brothers rattled Boeing's stock price last week when he said the tanker deal would be delayed up to 18 months by the AOA. Pentagon spokeswoman Cheryl Irwin said March 3 that the analyst was incorrect, and had mistaken a Wynne memo about the AOA as relating to the tanker deal. "The AOA is a separate issue from the tanker lease contract," Irwin said.
In addition to the service's current plans for deciding on the tanker deal, McCain's questioning of Roche at the hearing extended to more serious accusations about the secretary's actions last summer, in the immediate wake of the original 100-aircraft proposal's approval by DOD officials.
McCain cited e-mails provided to his office by Boeing in accusing Roche of inappropriately trying to circumvent DOD opposition to the tanker lease last summer. McCain said Boeing e-mails show that Roche, in a June 24 meeting with Boeing "lobbyists," encouraged company officials to "put pressure" on Wynne to quash growing opposition to the deal in some department quarters.
On the day of the alleged meeting, June 24, 2003, the proposed lease had been approved a month earlier by then-USD AT&L Pete Aldridge as one of his last acts before leaving office.
"I did not call in any lobbyist," Roche told McCain. "The meeting you're referring to is a meeting with a [Boeing] executive; he was not called in. The meeting had been scheduled well in advance. I did not ask to put on pressure."
The subject of the meeting was an Air Force report that Roche was to deliver to Congress, Roche said. He said an unnamed official in the Pentagon directorate of program analysis and evaluation had objected to language that was used in that report. Roche admitted that he and the Boeing official discussed the validity of the report and PA&E's criticisms, but said internal discussions over the lease itself "had all occurred months earlier."
"The concern, and my upset, was the fact that it appeared there was a rear-guard action going on against my cover letter bringing the matter to . . . Congress," Roche said.
A congressional aide familiar with the tanker debate, who spoke to ITAF on condition of anonymity, said Ken Krieg, Pentagon director for program analysis and evaluation, was the author of a letter, sent to Wynne and DOD Comptroller Dov Zakheim last summer, that criticized the Air Force's estimates of the lease cost.
On July 14, 2003, the Air Force sent a report to Congress that estimated the cost of the proposed 100-aircraft lease over its lifetime at just $150 million more than purchasing 100 aircraft. A footnote in that report noted that different financial assumptions could yield a difference of up to $1.9 billion (ITAF, July 18, 2003, p1). Subsequent analyses by the Congressional Budget Office and the General Accounting Office said leasing the aircraft would cost at least $1.3 billion more than purchasing them, using even the most optimistic assumptions about interest rates and other variables.
McCain said at the hearing that Roche's testimony was "in direct contradiction to e-mails" that his office had received from Boeing. He expressed confidence that the ongoing Pentagon investigations would reveal what actually happened. He told Roche that the Air Force and DOD should release e-mails and other documents detailing internal communications about the tanker lease that the senator had requested. Wynne has said releasing such documents intrudes on DOD's need to shield internal debate from being quelled by political considerations. -- Hampton Stephens