Military Wants to Lease 100 Boeing 767 Jets

In a major boost to Boeing Co.’s ailing commercial aircraft business, the Pentagon approved a controversial plan Friday to lease Boeing jetliners for use as aerial refueling tankers.

After haggling for more than 18 months, the Pentagon and Boeing came to terms: Under the deal, which Congress must approve, the company would build and modify 100 of its 767 passenger jets and the Air Force would lease them for $16 billion -- about $1 billion less than the company wanted.

The unusual deal, structured much like a car lease, would let the Air Force buy the aircraft for $4 billion after the six-year lease expires. Critics say it would be cheaper for the Air Force to buy refueling tankers outright.

Boeing shares on Friday rose 89 cents, or 3%, to $29.99 on the New York Stock Exchange.

The lease deal has to pass muster with four congressional panels and will face stiff resistance from members who have criticized it as a handout to Boeing.

Sen. John McCain (R-Ariz.) has called the deal a “military industry rip-off” and has pushed for the alternative of having the Air Force refurbish its existing fleet of refueling tankers.

Pentagon and Boeing officials said Friday that they were confident Congress would approve the deal. They said they were already talking about future lease pacts for additional aircraft.

The deal couldn’t come at a better time for Boeing, which has seen its commercial aircraft sales plummet since the Sept. 11 terrorist attacks. With air travel slumping, airlines have slashed their orders for Boeing’s commercial aircraft from 600 in 2001 to 251 last year.

One of the biggest losers has been the 767. Orders for the twin-aisle jet have fallen from 45 two years ago to eight last year, and Boeing hasn’t received any orders this year.

The Pentagon lease deal would create about 2,300 jobs at Boeing’s operations in Everett, Wash., where the 767 is built, and at a plant in Wichita, Kan., where the plane would be converted into an aerial refueler. A small number of Southern California suppliers that make 767 parts might also see a small pickup in orders.

“It’ll be a real shot in the arm for Everett and for our military people who work in Wichita,” said James F. Albaugh, president of Boeing’s Integrated Defense Systems.

For the Air Force, the lease would help replenish its fleet of aging KC-135 airborne tankers. “The KC-135s are over 40 years old and are experiencing corrosion and structural problems,” said Edward C. “Pete” Aldridge, undersecretary of defense for acquisition, technology and logistics.

The new aircraft, dubbed the KC-767, would carry 20% more fuel than the KC-135 and would have the ability to refuel aircraft from any branch of the U.S. military during a mission. The KC-767 would itself be capable of being refueled in the air.

Refueling aircraft have become crucial military tools: In the Iraq war, a B-2 bomber was able to fly nonstop from Missouri to Afghanistan and back by taking on fuel from tankers a dozen times.

Under terms of the lease, the Air Force would be able to take delivery of six or seven tankers in the first year of the program, starting in April 2006, compared with one aircraft under the typical lease procurement process, Pentagon officials said.

By leasing the aircraft, the Air Force could string out payments over several years, allowing it to have more aerial refuelers in its fleet than if it were to purchase them outright. Aldridge said leasing rather than buying would save the Pentagon $8 billion over the life of the program.

Technically, the Air Force would lease the jets -- which would cost $138 million each -- from a special purpose entity that would be set up to issue bonds and purchase the jets from Boeing.

The total $16-billion bill would include maintenance and repair costs.