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A Boeing tanker deal seen flying eventually

A multibillion-dollar Boeing Co. drive to supply refueling planes to the U.S. Air Force is likely to fly in some form despite its bumpy past, experts on military purchases say.
/ Source: Reuters

A multibillion-dollar Boeing Co. drive to supply refueling planes to the U.S. Air Force is likely to fly in some form despite its bumpy past, experts on military purchases say.

On Tuesday, the Pentagon put off until at least November a decision on whether to reopen negotiations on a $23.5 billion plan to lease 20 and buy up to another 80 modified tankers based on Boeings' 767 commercial airliner.

"I believe that the Air Force is going to rearrange its weapons-purchasing priorities in the future to find money for tanker modernization," said Loren Thompson, an analyst with close ties to the military and the industry.

"The likelihood that Boeing will eventually provide the Air Force with aircraft to replace the existing fleet is greater than 90 percent," said Thompson, director of the Lexington Institute in Arlington, Virginia.

Others cautioned Boeing could end up with a deal smaller than it hoped, possibly involving used aircraft, amid growing concern over rising federal budget deficits.

Boeing's chief rival in the business is Airbus parent EADS , a French- and German-led company that says it is ready to compete if the Pentagon seeks new bids for tankers.

But many lawmakers have made clear they would oppose giving a non-U.S. company any such contract.

"For major programs, the Europeans are now buying European and not American, and for major programs the Americans have always been buying American," said Gordon Adams, the White House's senior defense budget official from 1993 to 1997.

"So for EADS to win a tanker contract would be flying in the face of history," he said.

The Pentagon said it would decide on how to modernize the military's aerial refueling fleet after an Air Force study of possible alternatives to the 767 and a Defense Department review of tanker needs, both to be wrapped up in November on orders from Defense Secretary Donald Rumsfeld.

Asked Wednesday whether the Boeing deal for 100 767s still could be signed, Pentagon spokesman Lawrence Di Rita said it "is conceivably one of the things that could occur."

But Sen. John McCain, an Arizona Republican who has led Senate Armed Services Committee opposition to what he calls a sweetheart deal for Boeing, said the studies "if done properly" appear fatal to at least the lease component.

Thompson predicted cuts in U.S. fighter jet purchases will pay for new tankers. "I think it's nearly inevitable that before the end of the decade the Air Force will commit to buy over 100 air frames" to replace aging tankers, he said.

Richard Aboulafia, of the Teal Group consultancy, said buying new 767s outright would be too costly for the Air Force in the near term in the absence of big cuts elsewhere.

A more likely scenario now, he said, was for the Air Force to buy used 767s from commercial operators.

This in turn would create more demand for Boeing's new 7E7 jetliner, billed as a fuel-sipping money saver for cash-strapped airlines, Aboulafia said.

But Adams, the former budget official, says the tanker purchase is likely to be curtailed by efforts to rein in government spending.

"That may mean not a lot of tankers right away," said Adams, now a defense procurement expert at George Washington University in Washington, D.C. "Fewer tankers, fewer money" for Boeing, at least initially.

The chairman of the House of Representatives Armed Services Committee, Duncan Hunter, on Wednesday urged jump-starting the process of acquiring Boeing 767s.

"The tankers are not only vital to our ability to project air power, but also to our industrial base," said Hunter, a California Republican. The House approved a 2005 defense authorization bill last week that expressed bipartisan opposition to further delays in acquiring the Boeing 767s.