Rumsfeld Delays Tanker Decision
In a setback to Boeing Co., the Pentagon said Tuesday that Defense Secretary Donald H. Rumsfeld had decided to delay an Air Force deal to lease and buy 100 aerial refueling tankers from the aerospace giant.
The decision to postpone the $23-billion deal until at least November came amid growing criticism over the way the contract for the converted Boeing 767s was completed.
The Pentagon said it would conduct “an analysis of alternatives” before reconsidering the contract, leaving open the possibility that the Air Force could consider other tanker proposals and derail Boeing’s long-sought contract.
The delay is necessary to give the Pentagon’s inspector general and the Defense Science Board more time to evaluate alternatives to the Boeing proposal, the Defense Department said.
“We firmly believe that the 767 tanker is the only solution that fulfills all 26 of the Air Force’s stated requirements,” Boeing spokesman Douglas Kennett said in a statement.
Chief Executive Harry Stonecipher remains convinced that Boeing will win the contract this year, and the company’s financial forecasts through 2005 assume that. Losing the order would hurt Boeing’s effort to increase defense sales.
Chicago-based Boeing said in a quarterly filing last month that it might have to write off as much as $300 million in costs related to research and development if the Pentagon rejected the proposal. Its tankers would replace a fleet of 500 KC-135s that have an average age of 43 years.
The Defense Science Board concluded that a corrosion problem on existing KC-135 tankers, which the Air Force initially said would require immediate replacement, “can be managed and operating and maintenance cost growth on the tanker fleet may not be as large as earlier estimates,” the Pentagon said.
Based on the board’s conclusions, the Defense Department said, Rumsfeld directed that the analysis of alternatives and a separate study on military transportation requirements be completed by November.
Rumsfeld first delayed the contract last November after Boeing fired Chief Financial Officer Michael Sears for having held talks with a former Pentagon official, Darleen Druyun, about hiring her while she was still negotiating the tanker contract for the Air Force.
Druyun was fired by Boeing the same day. She pleaded guilty last month to conspiracy charges.
Boeing said the delay until November would not affect its 767 production line, which has a backlog of 24 commercial jetliners. A review of the 767 line’s future will not be necessary until spring, the company said.
The Pentagon made its announcement after the close of regular trading. Boeing shares, which had risen 14 cents to $44.70 on the New York Stock Exchange, fell to $44.01 in after-hours trading.
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Bloomberg News was used in compiling this report.
