The U.S. Air Force has a real problem. Its fleet of 500 KC-135E tankers is more than 40 years old, but it does not have the up-front money to begin replacing these aircraft through a traditional procurement approach -- estimated to be $8 billion in the next five to six years, according to Department of Defense officials.
So how did the Air Force address the problem of providing fair value to the taxpayer while quickly putting a critical military asset into the hands of its men and women in uniform? The best answer came directly from the commercial aviation industry -- leasing.
Commercial aircraft manufacturers sell 25 to 40 percent of the aircraft they build to leasing companies, while commercial airlines may lease as much as 30 to 40 percent of their fleets at any one time. Leasing gives this highly competitive business segment the flexibility to use scarce capital for operational costs or other expenses. But while leasing is a common, recognized and fully credible commercial practice, it is relatively new to the military.
Consequently, the proposal to lease 767 tankers has taken into account concerns and questions raised by the administration, the Congress and the media. During the past 18 months, the Department of Defense, the US Air Force, The Boeing Company [NYSE: BA] and the Office of Management and Budget have worked to address those concerns in developing the innovative leasing program that the Air Force submitted to Congress on July 10, 2003.
The proposed program makes good business sense. Here's why:
The tanker lease program puts an essential military asset into the hands of the US warfighter five years earlier than under traditional procurement processes. Under this proposal, the Air Force will be able to accelerate the planned retirement of the oldest KC-135 tankers and will save $5.5 billion in maintenance and upgrade costs -- more than offsetting lease-related costs. The final lease proposal is 50 percent less than the original Congressional Budget Office estimates in May of 2002. The warfighter, the taxpayer and the nation all benefit. That's good business in the nation's interest.