Under the Radar
The inside story of a Pentagon deal that will cost taxpayers billions
Such complicated financing was alien to Air Force officials. Boeing's documents make clear that in crafting the financing plan, the Air Force played student to its contractor. "The USAF clearly does not understand financing and has asked for our help to educate them (in layman's terms)," wrote Robert Gordon, the vice president of Boeing Capital Corp., in an E-mail message in December 2001. Indeed, Gordon noted, an Air Force general "made a special comment to thank Boeing for all its work over the past months to try and help this leasing proposal make sense" to the government.
Investigators with the Commerce Committee, however, are not as awestruck. They are examining the financial vehicle that's the linchpin of the deal. "It's an Enron-like entity," says McCain. For one thing, U.S. News finds, there is a built-in conflict of interest in the arrangement because, documents indicate, it gives Boeing oversight of its own deal.
Boeing and the Air Force have sold the deal to Congress as a way to save money, but lease terms mean it's impossible to say today how much the government will pay tomorrow. Actual lease payments will be set as planes are delivered, and if interest rates rise more than expected, the government's costs will go up. Boeing's price will also be adjusted up for inflation; Boeing says that's standard procedure. One clause requires the Air Force to pay more if its new tankers spend too much time in the air; the Air Force says the service has negotiated far more flight hours than it will use. Still, Boeing and the Air Force can't shake the criticism that taxpayers are the losers. Last week, the Congressional Budget Office weighed in, saying that leasing the 100 planes will cost as much as $5.6 billion more than if they had been purchased. Boeing rejects the findings as flawed.
CLOSING THE DEAL
By the end of 2002, questions about price persisted. Air Force Secretary Roche told Boeing that Pentagon critics thought the company was overcharging. Boeing, he said, needed to do more to seal the deal with the White House and the secretary of defense's office.
The company got the message. Beginning on January 23, Boeing began a blitz. The E-mails show that Boeing put "a union strategy in play" aimed at getting labor to pressure Congress and "activated key suppliers" to work their government contacts. Former members of the Joint Chiefs of Staff, including associates of Defense Secretary Donald Rumsfeld, were enlisted as consultants.
Despite it all, the deal nearly died in April. All the lobbying hadn't answered a key question raised by a report from the Institute for Defense Analyses, a federally funded research center. It concluded that the planes should cost between $114 million and $125 million--not the $147 million Boeing was then asking. "We should afford Boeing this last opportunity, and then call it a day for the lease," wrote Mike Wynne, a top acquisition official in the Pentagon.
The critical moment was at hand. The Air Force--and Boeing--fought back. Boeing went to the White House to find out what price the president would accept. An official at the White House's budget office, Robin Cleveland, met with Boeing lobbyist Ellis and, according to Ellis's account, "She said Andy Card needs a `new' figure on tanker price . . . to take to the president in order to close this deal." And, according to Ellis, she reminded the Boeing executive that the first 100 planes could be followed by hundreds more.
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