The Pentagon said yesterday that it will defer a decision for six months on a Boeing Co. contract for refueling tankers in order to consider other options, throwing into doubt the company's $23.5 billion proposal to lease and sell the planes.
The delay is yet another blow to a program that many expected would be quickly approved last year but has been mired in controversy over its cost and Boeing's acknowledgment that it illegally hired the former Air Force official who negotiated the deal. While the Pentagon stopped short of killing the contract yesterday, the lease-buy proposal is widely expected to be renegotiated if not scrapped.
Defense Secretary Donald H. Rumsfeld "has made the appropriate decision to return to square one and take a new look at the tanker issue from the ground up," Sen. John W. Warner (R-Va), chairman of the Senate Armed Services Committee, said in a prepared statement.
Boeing stood by the proposal yesterday. "We firmly believe that the 767 tanker is the only solution that fulfills all" of the Air Force's requirements, said Doug Kennett, a Boeing spokesman.
The Pentagon will decide after an analysis of alternatives and a study of the Air Force's tanker needs, the agency said. Boeing is likely to face tough competition for the 100-plane contract from rival Airbus SAS, which has already won two foreign tanker deals this year and is investing $80 million to bring its technology up to Air Force standards. Boeing also will have to fend off proposals for the purchase of used aircraft that would be modernized for a fraction of the price of building new planes.
The studies ordered by the Pentagon will likely not recommend approval of the lease-and-buy contract, said Sen. John McCain (R-Ariz.), the program's harshest critic in Congress. "So, the secretary's decision appears fatal to at least the lease component of the proposal," he said.
The Pentagon said Rumsfeld's deferral was based in part on a report by the Defense Science Board, a Pentagon advisory panel, which challenged contentions that the current fleet of planes was suffering from corrosion and needed to be replaced immediately. The Defense Department said in a prepared statement that the panel concluded "that the corrosion problem on KC-135s can be managed" and that the cost to operate and maintain the tanker fleet may not be as high as first projected.
The delay raises new questions about the future of Boeing's 767, which would be the aircraft used for the tankers. Commercial sales of the 767 have slumped in recent years. Boeing had said it needed to decide in the next few months on whether to keep the line open. But yesterday it said a decision was not needed until next spring. A shutdown could mean the loss of hundreds of jobs.
Boeing has said it will take a $300 million charge if the tanker deal is not approved.
The delays already have pushed back Boeing's earliest delivery date by more than a year, challenging the Air Force's argument that the planes would be replaced more swiftly through Boeing's lease-and-buy plan than through an outright purchase of all the aircraft. The leasing plan came under fire because it cost more than a purchasing arrangement.
The modernization program for the tanker fleet began in 2001, after the Sept. 11 terrorist attacks increased the military's use of the aircraft, which refuel other planes in midair. The Air Force argued that its 40-year-old fleet was in dire need of upgrading and that leasing then buying the planes from Boeing would save money during the next few years.
But critics pounced on the higher overall cost of the leasing plan. McCain, chairman of the Senate Commerce Committee, also attacked the Air Force for ignoring many of the traditional procurement rules while negotiating the deal, including its failure to conduct an analysis of alternatives. Critics also contended that the deal seemed aimed at boosting Boeing's flagging 767 production line at taxpayers' expense.
The deal was further complicated late last year when Boeing fired one of its senior executives, Darleen A. Druyun, who had negotiated the contract while still at the Air Force. Druyun pleaded guilty in April to illegally accepting a job with the company.
In a statement, the Air Force said it expects "a thorough evaluation and swift conclusion" from the new studies and supports the Pentagon's "guidance on the steps needed for recapitalizing the tanker force, a vital national asset."
Supporters have continued to work to save the 767 tanker program. Last week, the House Armed Services Committee voted to require the Air Force to renegotiate the contract by March 2005.