Forest Service’s Swap of Airplane Fleet Goes Awry : Firefighting: The transfer of 28 surplus aircraft becomes a giveaway. U.S. investigates the deal.

Nearly four years ago, the U.S. Forest Service handed over 28 surplus military aircraft valued at $67 million to five private companies in exchange for a like number of aged airplanes worth far less.

The Forest Service intended the surplus aircraft for use in fighting forest fires in the West but apparently failed to stipulate to recipients that their use was restricted. Some of the planes wound up ferrying cargo on the other side of the world. Others were stripped and sold for parts at a hefty profit. The businessman who engineered the trade made $1.1 million.

The controversial giveaway--now the target of an investigation to determine whether possible fraud or other criminal acts were committed--illustrates how a program intended to foster government cooperation with the private sector at a time of lean federal budgets can be twisted by improprieties.

“This was ill-conceived and it was not anything that was authorized,” James R. Lyons, the assistant agriculture secretary responsible for the Forest Service, said in an interview Wednesday. “It is not the kind of practice that we want in this Administration.”

The story of how the program went awry has been pieced together from interviews with participants and government officials and the results of internal investigations by the inspector general of the Agriculture Department, parent agency of the Forest Service.

The inspector general’s office, after completing an initial investigation last October, said that the Forest Service violated government regulations in making the trades. It also raised questions about the businessman who brokered the deal, as well as about the absence of restrictions on use of the aircraft.

Since then, the program has been suspended and the inspector general’s office has begun a second investigation to determine whether there were criminal violations. Lyons said that the report on the second inquiry will be turned over to the Justice Department later this summer.

“Clearly, the actions were illegal,” said Lyons, who came to the Agriculture Department after President Clinton took office. “Some of them may have been criminal.”

The controversy also has attracted attention in Congress, where Rep. Charlie Rose (D-N.C.), chairman of a subcommittee of the House Agriculture Committee, plans hearings on the matter.

“It smells to high heaven,” Rose said. “This was a windfall for private contractors.”

For 40 years, the Forest Service has used air tankers to drop retardant on fires and to support firefighters on the ground. Initially, the Forest Service owned and operated the planes. As the program expanded, the work was contracted out to private companies, many of them in California.

These companies relied on a fleet of former military aircraft purchased as surplus from the Defense Department. The planes were equipped with tanks to carry fire retardant.

As the planes aged in the 1980s, the contract companies wanted newer surplus aircraft. In stepped Roy Reagan, a former Air Force captain who had once worked for two of the companies as a pilot.

According to the inspector general’s office, Reagan proposed a trade with the Defense Department. In exchange for the companies’ old airplanes, which he said could be displayed in government museums, Reagan would obtain C-130A Hercules cargo planes from the Pentagon. Hundreds of the post-World War II planes are currently considered surplus.

Federal regulations permit the government to trade historic aircraft for planes of similar historic value. But the Defense Department turned Reagan down.

The director of the Air Force Museum in Dayton, Ohio, said that the aircraft offered in trade were worth only about $10,000 each and were of no historic value. In addition, C-130As are not considered historic aircraft and thus were ineligible for the exchange.

Reagan got a better reception at the Forest Service, where an internal study determined that fire-fighting costs could be cut if the contractors got more efficient planes.

By this time, Reagan had been hired by four companies. Three were from California: Hemet Valley Flying Service in Hemet; TBM Inc. in Tulare, and Aero Union Corp. in Chico. The fourth was Hawkins & Powers Aviation of Greybull, Wyo.

Attempts to reach Reagan at his Oregon home were unsuccessful. But, according to interviews and documents, he represented both the companies and the Forest Service in a second round of negotiations with the Defense Department.

This time, the deal went through. By 1989, the Forest Service had obtained 19 C-130As and six P-3A anti-submarine planes from the Defense Department. The planes were all traded to Reagan’s clients.

The Forest Service valued the C-130As at $15,000 each--the amount they could fetch as scrap metal. However, the inspector general said they were worth between $1 million and $3.5 million each, with an average value of $2.4 million.

For his role, Reagan received four of the C-130s from three of the companies, which he sold for $1 million, the inspector general’s office said. He was paid $97,912 by the fourth company, according to both the inspector general and the company. Reagan’s clients also obtained lucrative fire-fighting contracts from the Forest Service.

When word of the deal spread, there was an outcry among other firms that fight forest fires. Woody Grantham, the owner of an Arizona flying service that has worked for the Forest Service, said in a telephone interview from his office near Phoenix:

“I called the Forest Service to see if I could get planes but they said there weren’t any left.”

Grantham contacted several congressmen. Soon the Forest Service made three C-130As available to him.

In early 1990, the Agriculture Department’s general counsel warned the Forest Service that it did not have the authority to make the airplane exchanges. But the agency furnished seven more surplus planes to contractors.

Unlike Reagan’s clients, Grantham did not get a fire-fighting contract. However, at the height of the Persian Gulf War in February, 1991, two of his C-130s were hired to fly cargo to the Middle East, where he earned $925,000.

One of his planes was seen on a runway in Kuwait by the crew of a rival airline, Southern Air Transport. According to interviews Southern Air, which was once owned by the CIA and still has ties to the government, complained to authorities in Washington that Grantham’s planes were not licensed.

“Those airplanes were not licensed to carry cargo and we called it to the attention of the (George) Bush Administration and Congress,” said Edward Driscoll, a lobbyist and president of the airline trade organization that includes Southern Air.

Grantham was investigated by the Federal Aviation Administration, which concluded that his use of the planes in the Middle East was not wrong because the Forest Service had failed to restrict the use of the planes to fire fighting.

The inspector general at the Agriculture Department then opened a broader inquiry and discovered that other firms had used exchanged planes for more than just fighting fires.

For instance, Aero Union was paid $189,000 for testing an engine with one of its surplus P-3As. The company also collected $252,000 selling parts from one of the planes that it said was not needed for firefighting.

Victor Alvistur, general manager of Aero Union, refused to discuss the inspector general’s report. But he said the exchange program had saved taxpayers substantial amounts by putting more efficient planes in the air to fight fires.

His comments were echoed by Henry Moore, the president of TBM in Tulare, who said: “We’ve only used our planes for fighting fires, mostly in California, and I think it’s been a good program for everyone concerned.”

However, the Agriculture Department has stripped the Forest Service of its contracting authority and it is investigating whether the government can regain title to the airplanes.