MercuryPilot
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Boeing deal with Pentagon worth $16 bil.
May 24, 2003
BY LYNN SWEET Sun-Times Washington Bureau Chief
WASHINGTON--After last-minute haggling cut the price 12.5 percent, the Pentagon announced Friday a controversial $16 billion tentative deal for the Air Force to lease airborne refueling planes from Boeing.
The pending leases for Chicago-based Boeing were deplored by Sen. John McCain (R-Ariz.) as "favoritism to a single defense contractor'' because, he said, it would be cheaper to buy new planes or modernize the aging fleet of KC-135 tankers.
Boeing had considerable political muscle behind its bid, with House Speaker J. Dennis Hastert (R-Ill.) its central champion. Hastert brought up the Boeing leases multiple times in conversations with the president, vice president and defense secretary, his staffers said.
White House Chief of Staff Andrew Card called Hastert near 7 p.m. Thursday to tell him that the White House was signing off on the lease plan, said Hastert spokesman John Feehery.
The anticipated agreement provides for leasing 100 KC-767 aircraft from Boeing for six years, with the first planes delivered in 2006.
The lease price is $131 million per plane, with an additional $7 million for financing costs.
The deal may amount to less than $16 billion, depending on costs, the Defense Department said. The Air Force could buy the planes for $4 billion when the lease ends in 2017.
At present, the Air Force has 544 of the KC-135 tankers, bought from Boeing between 1957 and 1962. The tentative deal covers the lease of 100 commercial Boeing 767s to be built in Everett, Wash., then flown to Wichita, Kan., for modifications to make them combat refueling tankers. In Defense Department jargon, the "K" designates a tanker and the "C" marks a cargo plane.
Boeing agreed to a lower price for the leases at the insistence of the White House Office of Management and Budget and after the Pentagon changed some specifications and dangled a sweetener for the company, the prospect that it may eventually build and lease more than the 100 planes that will be ordered.
"This could easily grow beyond the current number,'' Philip M. Condit, Boeing's chairman and chief executive officer, said in an interview with the Chicago Sun-Times. "So in that sense, it is an extremely important contract."
"The speaker played an extraordinarily powerful role," Condit said. "He understood the importance of getting new tankers into the inventory."
Boeing landed on Hastert's radar after the company moved its world headquarters from Seattle to Chicago in 2001.
"The first order of business is, is this the right thing for the country?" Condit said. "I think the second piece clearly is, he is supporting a company that is there in Chicago, and I think that is important as well."
Citizens Against Government Waste, a taxpayer watchdog group, said in a statement that the Pentagon caved in to political pressure by approving the deal it calculated to be worth $21 billion, instead of refurbishing the existing fleet.
McCain said "every analysis has shown that it would be considerably less expensive to either modernize our existing tanker fleet or purchase new tankers. The only reason to lease new tankers is that they are more, not less, expensive and, thus, a greater windfall to the Boeing Co."
Negotiations over the tanker leases have dragged on for 20 months.
Triggering the debate was the passage by Congress, with a boost from Hastert, of legislation specifying that new tankers would be leased, not purchased, and would be manufactured by Boeing.
The negotiations started to conclude 2-1/2 weeks ago when the Air Force and Boeing shook hands on a deal with a base price of $146.5 million per plane.
The Office of Management and Budget said that price was too high and Boeing dropped to $134 million.
The budget office insisted on yet another price cut and the final price went down to $131 million, with the understanding that Boeing may get more than the original 100 orders.
"We're not going to stop at 100,'' said Undersecretary of Defense for Acquisition, Technology and Logistics Edward C. "Pete" Aldridge on Friday.
Boeing's profit is supposed to be capped at 15 percent of the deal. Boeing is forming another company to actually own and lease the planes, which officials called a nonprofit trust.
Boeing stock closed at $29.99, up 89 cents.
May 24, 2003
BY LYNN SWEET Sun-Times Washington Bureau Chief
WASHINGTON--After last-minute haggling cut the price 12.5 percent, the Pentagon announced Friday a controversial $16 billion tentative deal for the Air Force to lease airborne refueling planes from Boeing.
The pending leases for Chicago-based Boeing were deplored by Sen. John McCain (R-Ariz.) as "favoritism to a single defense contractor'' because, he said, it would be cheaper to buy new planes or modernize the aging fleet of KC-135 tankers.
Boeing had considerable political muscle behind its bid, with House Speaker J. Dennis Hastert (R-Ill.) its central champion. Hastert brought up the Boeing leases multiple times in conversations with the president, vice president and defense secretary, his staffers said.
White House Chief of Staff Andrew Card called Hastert near 7 p.m. Thursday to tell him that the White House was signing off on the lease plan, said Hastert spokesman John Feehery.
The anticipated agreement provides for leasing 100 KC-767 aircraft from Boeing for six years, with the first planes delivered in 2006.
The lease price is $131 million per plane, with an additional $7 million for financing costs.
The deal may amount to less than $16 billion, depending on costs, the Defense Department said. The Air Force could buy the planes for $4 billion when the lease ends in 2017.
At present, the Air Force has 544 of the KC-135 tankers, bought from Boeing between 1957 and 1962. The tentative deal covers the lease of 100 commercial Boeing 767s to be built in Everett, Wash., then flown to Wichita, Kan., for modifications to make them combat refueling tankers. In Defense Department jargon, the "K" designates a tanker and the "C" marks a cargo plane.
Boeing agreed to a lower price for the leases at the insistence of the White House Office of Management and Budget and after the Pentagon changed some specifications and dangled a sweetener for the company, the prospect that it may eventually build and lease more than the 100 planes that will be ordered.
"This could easily grow beyond the current number,'' Philip M. Condit, Boeing's chairman and chief executive officer, said in an interview with the Chicago Sun-Times. "So in that sense, it is an extremely important contract."
"The speaker played an extraordinarily powerful role," Condit said. "He understood the importance of getting new tankers into the inventory."
Boeing landed on Hastert's radar after the company moved its world headquarters from Seattle to Chicago in 2001.
"The first order of business is, is this the right thing for the country?" Condit said. "I think the second piece clearly is, he is supporting a company that is there in Chicago, and I think that is important as well."
Citizens Against Government Waste, a taxpayer watchdog group, said in a statement that the Pentagon caved in to political pressure by approving the deal it calculated to be worth $21 billion, instead of refurbishing the existing fleet.
McCain said "every analysis has shown that it would be considerably less expensive to either modernize our existing tanker fleet or purchase new tankers. The only reason to lease new tankers is that they are more, not less, expensive and, thus, a greater windfall to the Boeing Co."
Negotiations over the tanker leases have dragged on for 20 months.
Triggering the debate was the passage by Congress, with a boost from Hastert, of legislation specifying that new tankers would be leased, not purchased, and would be manufactured by Boeing.
The negotiations started to conclude 2-1/2 weeks ago when the Air Force and Boeing shook hands on a deal with a base price of $146.5 million per plane.
The Office of Management and Budget said that price was too high and Boeing dropped to $134 million.
The budget office insisted on yet another price cut and the final price went down to $131 million, with the understanding that Boeing may get more than the original 100 orders.
"We're not going to stop at 100,'' said Undersecretary of Defense for Acquisition, Technology and Logistics Edward C. "Pete" Aldridge on Friday.
Boeing's profit is supposed to be capped at 15 percent of the deal. Boeing is forming another company to actually own and lease the planes, which officials called a nonprofit trust.
Boeing stock closed at $29.99, up 89 cents.
