House and Senate conferees agreed late on Thursday to ban the leasing of aerial refueling aircraft as part of a final deal on a $422 billion defense authorization bill, killing a proposed $23.5 billion Air Force deal with Boeing Co., congressional sources said.
The House of Representatives is due to vote on the measure on Friday, with the Senate expected to put off a vote until after the Nov. 2 elections, said the sources, who asked not to be identified.
The agreement follows recent developments in the tanker case, including an expanded federal investigation, and a decision by the White House to withdraw its nomination of Air Force Gen. Gregory Martin to head the U.S. Pacific Command to avoid a long confirmation battle sparked by the tanker deal.
Last week Darleen Druyun, the former No. 2 Air Force weapons buyer, was sentenced to nine months in jail for illegal job talks with Chicago-based Boeing while still overseeing the tanker deal and other Boeing business. She admitted favoring Boeing to help get a job with the defense company.
The bill authorizing defense spending in fiscal year 2005 allows the Air Force to enter into a multiyear agreement to buy refueling tankers — rather than leasing them — after two additional studies are completed. But it says the deal cannot be based on the 2002 defense bill, which told the Air Force to negotiate a deal specifically with Boeing, the sources said.
They said the bill maintains $100 million of funding to begin the multiyear effort to begin replacing the existing fleet of aging KC-135s, but expressly bans the retirement of any of the existing tankers in fiscal year 2005, they added.
In addition, the bill stipulates that the contract to maintain any new tankers purchased by the government should be open to competition, rather than being awarded on a sole-source basis to Boeing, as the Air Force had planned.
Big victory for McCain
The agreement marks a huge victory for Sen. John McCain, the Arizona Republican who led three years of congressional debate over the Air Force plan to lease 100 Boeing tankers, a deal already scaled back sharply last year to the lease of just 20 aircraft and the purchase of 80 more last year.
McCain and other opponents argued that leasing the tankers would cost billions of dollars more than if the U.S. Air Force bought the tankers directly and called it a sweetheart deal for Boeing. The Air Force insisted a lease would allow it to begin replacing the tankers sooner than under a direct purchase.
It marks another setback for Boeing, which had hoped to be well into production of the new 767 tanker aircraft by now, and the Air Force, which has continued to insist that it needs to begin replacing its current tanker fleet, due to its advanced age and increasing maintenance problems and costs.
Congressional sources said Boeing could still win a deal to build the new tankers for the Air Force, but it would have to compete for the work with other companies, including Europe's largest aerospace and defense company, EADS.
Several studies, including one by the Pentagon's highly regarded Defense Science Board, have concluded that corrosion problems with the current tanker fleet are more manageable than the Air Force has claimed, undercutting its argument for a speedier replacement of the tankers.
Defense Secretary Donald Rumsfeld put the Air Force's proposed agreement with Boeing on hold last December after Boeing fired Druyun and the company's chief financial officer. Boeing Chief Executive Phil Condit resigned a week later.
Rumsfeld is awaiting the results of a formal analysis of the alternatives and a comprehensive study of the Air Force's air mobility needs, which should be completed in November. Air Force officials had expected a decision in early 2005.
Meanwhile, federal prosecutors are investigating possible tanker-related conflict-of-interest violations involving Air Force Secretary James Roche, Air Force acquisitions chief Marvin Sambur and Robin Cleveland, an associate director of the White House Office of Management and Budget.
EADS is also considering possible legal action over Druyun's admission last week that she gave Boeing pricing data on the rival Airbus tanker offered by EADS, Ralph Crosby, chief executive of EADS North America, said on Wednesday.
Boeing has said it believes it never received proprietary information from Druyun or anyone else in the Air Force.