Hearing of the Senate Commerce, Science and Transportation Committee - Lease of Boeing Tankers to the United States Air Force

Federal News Service

SECTION: CAPITOL HILL HEARING

HEADLINE: HEARING OF THE SENATE COMMERCE, SCIENCE AND TRANSPORTATION COMMITTEE
 
SUBJECT: LEASE OF BOEING TANKERS TO THE UNITED STATES AIR FORCE
 
CHAIRED BY: SENATOR JOHN MCCAIN (R-AZ)
 
LOCATION: 253 RUSSELL SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: PANEL ONE: JAMES G. ROCHE, SECRETARY, UNITED STATES AIR FORCE;
 
DOUGLAS HOLTZ-EAKIN, DIRECTOR, CONGRESSIONAL BUDGET OFFICE;
 
NEAL P. CURTIN, DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT, UNITED STATES GENERAL ACCOUNTING OFFICE;
 
CHRISTOPHER BOLKCOM, SPECIALIST IN NATIONAL DEFENSE, CONGRESSIONAL RESEARCH SERVICE;
 
PANEL TWO: LT. GEN. JOHN B. SAMS, JR., (USAF RETIRED), PROGRAM MANAGER, USAF 767 TANKER PROGRAM, MILITARY AEROSPACE SUPPORT, THE BOEING COMPANY;
 
DR. J. RICHARDSON NELSON, ASSISTANT DIRECTOR, INSTITUTE FOR DEFENSE ANALYSIS, COST ANALYSIS AND RESEARCH DIVISION;
 
STEVEN ELLIS, EXECUTIVE DIRECTOR, TAXPAYERS FOR COMMON SENSE;
 
ERIC MILLER, SENIOR INVESTIGATOR, PROJECT ON GOVERNMENT OVERSIGHT

SEN. MARIA CANTWELL (D-WA): Thank you, Mr. Chairman. I appreciate your holding this hearing and I appreciate the time and attention that you've given to this issue because clearly, the one thing we want to make sure of is that we do give the attention to the analysis of this proposal and that the public is comfortable that it is in the public's interest and is not only in good stead for what the military needs and is in the best interest of the taxpayers.

Not to get into a debate about when and where the tanker idea first came from, through I do think it is helpful to go through a few points, I first became involved in this issue more than two years ago when I went to visit constituents in my district, the Fairchild Air Force Base in Washington State, one of the premier sites and locations for refueling tankers. It was clear to me then, as it is clear now, that we were in need of help on these tankers. The base was proposing a budget approved by the Air Force that showed a huge increase to deal with this problem.

And at an average age of over 40 years, the KC-135 planes were the oldest in the Air Force, older than virtually all the commercial aircraft and older than most of the pilots that fly them. And unlike other planes in our military, these planes, their mission cannot be duplicated. As a result, we're dealing with aging planes that need to be replaced. The KC-135s were originally designed for a 25-year lifespan and now they are showing extreme wear and tear. That should be of no surprise for a plane that was supposed to be a 25-year lifespan. Corrosion and supportability and technical obsolescence are keeping many of these planes out of service and are leading to unreliable tanker fleet.

I think, due to the age of the tanker fleet, at one time, there are almost 200 KC-135 tankers, about 20 percent of the fleet on the ground waiting for maintenance and currently, these maintenance costs, they can average of 300 to 400 days for each plane. And these maintenance needs will only increase and lead to a decrease in availability. So how did we get into this situation and did we ever hear before about tankers before the 2001 legislative session? I would advocate that there was a lot of discussion about tankers prior to that and that this is not a new issue.

First of all, in fact, in 1989, the Air Force identified the need for modernization of equipment with the statement of need for KC-135 replacement.

Later in 1996, the GAO concluded that the aging KC-135 had led to a skyrocketing increase in maintenance costs and a decrease in availability. The report emphasized that the KC-135 may not satisfy the future requirements. It urged the Air Force to develop a plan to replace the tankers and it highlighted the KC-135's particular susceptibility to corrosion damage. It was surprising, but maybe not surprising to others who were here that also in 1997 the Rand Corporation identified the aging aircraft and specifically the corrosion issue as what it called a crisis on the horizon. And the National Research Council identified seven specific corrosion concerns for the KC-135 tanker.

Also we heard in 1998 the Air Force Deputy Chief of Staff of Installations and Logistics testify that the KC-135 had extensive structural corrosion and deteriorated electrical wings that went beyond its ability to be fixed. The Air Force, in 2001, found that the existing fleet, keeping it until 2040 which is something that I think deserves a lot of attention on how and why it was that we thought that this fleet could last until 2040, much beyond what we're talking about today, would add an additional $17.8 billion to the lifecycle of the plane and that the fleet will experience decreased availability due to the increase in time in depot maintenance.

So our military now depends on the KC-135s for 90 percent of its refueling for Navy, Air Force and Marine aircraft involved in regional conflicts around the world, not to mention our own increased homeland security issues. And, as we look to reshape our military posture by the base closures that we're talking about, we will need to increase our dependence on these tankers to ensure our dominance of the skies. So we cannot, I believe, Mr. Chairman, ignore the need to modernize the capable tanker fleet and make sure that we are upgrading these in the important time frame that is important to delivering the services that they were meant to do.

Now, we've heard a lot about numbers and I'm sure we're going to spend the next several hours hearing about lots of different prices, lots of different models and lots of different assumptions. And I doubt for a second that any of us will all be on the same model, the same assumption and the same prices for any of our discussions. That makes this very challenging. But I would like to be clear. I think the only reasonable comparison that should be made are the two options of leasing the plane or keeping the status quo. I say that because, while some have tried to compare the lease to a purchase, the fact of the matter is that we are in a fiscal situation in which an outright purchase of these aircraft is simply not feasible.

Indeed, an outright procurement of 100 tankers would require a 140 percent increase in the annual Air Force appropriations. Not only is that impractical but it would require us to put off other important procurement programs. We have a major system that Congress and the Air Force have put ahead of the tanker replacement and now we're in a situation that we are finding out that the need is more dire than maybe we had previously anticipated. The result has been this proposal that is before us today and that is not to say that any of the members of this committee or various other people haven't brought forward this proposal. I'm simply saying, as a member who went back prior to my two year time period here in the Senate to look at this issue, I found lots of evidence and lots of discussion about the tanker issue.

But is this a cost effective deal? And considering the cost effectiveness of this proposal, we must recognize the savings that we'll gain by not keeping on the status quo process, which I think is unacceptable. If we do not replace these aircraft now, we are facing skyrocketing maintenance and modification costs. For the modifications alone, keeping the old planes would cost the taxpayers over $5 billion to upgrade, not to mention the estimated $17.8 billion in additional maintenance costs increase attributed to the effects of aging if we keep the status quo proposal.

What are the protections for the taxpayers? In addition to what I think these costs savings are in maintenance, the lease proposal provides good protections for the taxpayers in that, first, they have gotten the lowest price on the 767 that has been offered in 17 years. It includes an MFN clause that ensures taxpayers will get the best deal offered on this plane at any time in the future. Fourth, it requires an independent audit of this information and it gives the Air Force the ability to make adjustment or to get out of this platform option if it so chooses.

I believe the tanker lease before us is the result of two years of hard work, a lot of discussion. Yes, Mr. Chairman, maybe not enough discussion here in the Senate. But I know the Armed Services Committee will have its opportunity tomorrow as well. But I think the American people can be proud that we were able to find a solution that brings substantial cost savings and effective safeguards for the taxpayers. And I am particularly proud that the Air Force has found a solution in an American product. Boeing has been an industry leader in the tanker market for years and other points of my chart and, as the gentleman from Alaska has said, the 76 transport platform has become a solid product. It is being chosen by other countries as a tanker platform and I don't think that it should be lost on this committee that the alternative to this product comes form Airbus. Not that I want to get into a large discussion about unfair subsidies that Airbus receives at this time, but I'm sure that this committee is going to be discussing that in a great deal in the future.

However, at this time, I do believe that it's important that the American people know that we are giving our fighters, our men and women in the Air Force, a product that we should be proud of and that it will be made by American workers. I think the taxpayers should know that they are getting a good deal at a moment when national security is important to all of us and that we give the men and women the best product and the most cost effective product that we can give them today.

I do applaud you, Mr. Chairman, for having this hearing. It has given all of us more time to focus on this issue and to realize that this is a good deal for the taxpayers and a good deal for national security.

BREAK IN TRANSCRIPT
SEN. CANTWELL: Thank you, Mr. Chairman.

Secretary Roche, you were just now making a comparison to if you wanted to get more KC-135s to the 767. But obviously getting more KC- 135s isn't really an option, correct? Getting --

MR. ROCHE: No, ma'am. No, no. Those are long since out of production and the spare parts for them are long since out of production except in small amounts.

SEN. CANTWELL: Right. So you're making a good point about the difference in the new model and its increased capacity, but I just wanted to point that out for people, that you can't go back to the KC. In fact, wouldn't you say that one of the great benefits of this proposal is that we are getting the engineering and production costs that would—I think even by CBO's own estimate, that designing and building a new tanker would probably cost more and take longer if we didn't have the 767 as the model to go from. Isn't that correct?

MR. ROCHE: Yes, ma'am. That's the parallel for the KC-10, wherein the taxpayer can benefit from commercial investment over many years and pick up a plan as it's near its commercial life in terms of new production. However, the infrastructure around the world, the spare parts, the inventories, the people who know how to maintain them are still very much around.

SEN. CANTWELL: I'm not sure that any of these many, many models and assumptions are taking that into consideration, are they, other than just the overall net effect of it.

MR. ROCHE: No, ma'am. We had to approach the rules from OMB in terms of a purchase versus lease very specifically, and a number of these were set to the side. I believe they add to the reason why I think this is a good thing to do.

SEN. CANTWELL: The apples and apples comparison that was thrown out to net present value, you sort of answered this question but not in great detail. Why is an—which basically net present value today in an outright procurement, why isn't that possible?

MR. ROCHE: I'm sorry, ma'am, why we couldn't procure it immediately?

SEN. CANTWELL: Yeah.

MR. ROCHE: Because we simply don't have the budget authority to do that, and also our rules that we have to follow would have us go through a development program, we would pay all the development costs up front. And then even as the inspector general notes, who would like to see us have a prototype, fly it, learn that, that's all time. Time is money. And that means we'd be living on the same existing fleet for even longer. We're not sure of what a 767 might cost if it was not leased in terms of asking a line to stay warm if the line ran out or if it might just run out. It's a commercial company. It can make decisions based on its shareholders' needs.

SEN. CANTWELL: Isn't that part of the reason why maybe the decision had been delayed or prolonged before, because of the huge cost of an out and out procurement?

MR. ROCHE: I think—yes, ma'am. In the case of the—up until the year 2001, the budget in the Pentagon was down. There were a number of conflicting priorities. We have found examples where the Congress, for instance, discovered how little attention was being paid by spare parts, and even prior to the election of this administration did a lot to start putting money towards spare parts to get mission capability rates up. There was an expression called buying down readiness, which was to in fact defer readiness, not put in parts so as to free up moneys to procure, because the procurement budget was so low. And I think the tankers viewed—with the missions expected for them, were not viewed as an important priority item. I think the world has changed, and I believe that they are a very high priority item now.

SEN. CANTWELL: On that point --

MR. ROCHE: At least to hedge against the fleet.

SEN. CANTWELL: On that point that the world has changed, two of your co-panelists, Mr. Curtin, who had admitted the GAO should report before, saying we have a big problem coming at us and may have a huge bow wave of maintenance costs. And Mr. Bolkcom also mentioned what's changed in the last couple of years. They both mentioned not sure enough has happened or the risk assessment of what the next several years would be like. Could you elaborate on that, because it seems clear to me in all the things that have happened in the last couple of years that the increase in sorties must be dramatic. And the projection about increased sorties is not slowing down anytime soon.

So if the Air Force hasn't made that clear, I don't—there seems to be a disconnect why that perspective isn't more certain as to the increase in demand. I'm asking Secretary Roche --

MR. ROCHE: I'm sorry, ma'am.

SEN. CANTWELL: -- if you would comment on what that actual increase in demand of sorties are, because as I say, you have two panelists here who are following this and aren't quite clear—haven't heard that message, and are saying, yes, we believe the need is there for new KC—for the new 767, for the new tanker. But we're not sure what's transpired in the last couple of years. I'm asking you to further explain what's transpired --

MR. ROCHE: Thank you, ma'am. I didn't realize it was directed towards me.

SEN. CANTWELL: Thank you.

MR. ROCHE: The planning models that were used in the Department of Defense up until 2001, this administration, were basically two major wars and that's all. And a lot of the planning went for that. So our AWACS, for instance, are based on that. But the reality of life is we're in many more places at the same time. There was a point in time when a conflict in Afghanistan was viewed as one of the most stressing, and we'd probably never do it because it's a landlocked country. From the shore to the beginning of Afghanistan is 300 and some miles. And therefore it's not the sort of normal place you'd ever want to have a conflict in.

There was not the plan to be able to have a lot going on at the same time, and it turns out they're all far away and they all place great demands on aircraft. Not just Air Force aircraft, but naval aircraft as well as the Marine Corps aircraft. And for a Navy plane to take off in the North Indian Ocean and fly into Afghanistan requires land-based tankers in addition to its own indigenous tankers onboard the carrier, which are very small. But once you get over land and get going, you need land-based tankers. That was a demand we had not seen and a demand I do not believe was forecasted.

Noble Eagle was obviously never forecasted. The fact that we have to have multiples of tankers available and on alert, filled on any given day to be able to service aircraft overhead here. There are a number of other cases where the tankers were planned at a much reduced rate of usage, and that's gone up because we are flying in these other places. As I said, of 69,000 sorties, we have almost as many tanker sorties as we have Air Force fighter/bomber sorties.

SEN. CANTWELL: And do you have a number on the percentage of increase that we've seen?

MR. ROCHE: I don't have the percentages in my head, ma'am, but we can get back to you for that one.

SEN. CANTWELL: Thank you.