Jewish World Review June 10, 2003 / 10 Sivan, 5763
Defense on lay-away
http://www.NewsAndOpinion.com | Anyone in the market for a new car has been pulled into the debate of whether it's better to lease or buy.
That debate took a bizarre twist when the Pentagon announced recently that it will start to lease military hardware in a type of superpower lay-away plan. The contract with Boeing Co. not only raises troubling questions of a defense boondoggle, but it suggests a fundamental change in the relationship between the Pentagon and its suppliers.
Under the contract, Boeing will first lease 100 tanker aircraft to the government at more than their market worth. Boeing will receive a whopping $16 billion for its lease and, when it runs out, the government may buy the planes for an additional $4 billion. It turns out the converted 767 aircraft could be purchased outright for $14 billion.
To make matters worse, the Air Force admits that it would be relatively cheap to simply upgrade our current fleet of KC-135 tankers, only six of which are to be retired before 2040. There are 127 of them now.
While these planes are 40-years-old, the fleet has the highest reliability ranking for Air Force aircraft. A study by the General Accounting Office, the investigative arm of Congress, found that modernizing 127 of the old planes would cost only $3.6 billion. This would yield 27 more modernized planes than the Boeing contract at one-sixth the cost.
Even for a city overrun by lobbyists and special interests, the Boeing deal left many people in Washington breathless. Various members of Congress, including Republican Sen. John McCain of Arizona, have denounced the deal as a scandalous windfall for a defense contractor with friends in the Bush administration.
This dubious contract is the brainchild of James G. Roche, the outgoing Air Force secretary who is awaiting confirmation as the new Army secretary. He has defended the deal by noting that Boeing has promised to keep its profits to only 15 percent. This is something of a classic Washington spin. The percentage of profit is meaningless if the base contract is overly generous. Boeing would have likely put on a cap of 7 percent if the price were raised to $32 billion.
For Mr. Roche, the deal has made him a virtual patron saint of Washington lobbyists. Of course, for many members of Congress, the ability of a single official to give away so much public money is nothing short of an inspiration. After all, Congress just squabbled for weeks over a measly $350 billion tax cut while Mr. Roche gave away the equivalent of $68 for every man, woman and child in the United States.
Putting aside the gross waste of taxpayer dollars, the Roche contract represents a novel and troubling approach to military appropriation.
Since 9/11, the military has experienced a massive increase in its budget. But with occupation costs in Iraq and worldwide military operations, expenses are also rising. Military hardware appropriations present significant economic and political problems in this environment. To buy new aircraft, the military has high up-front costs that must be approved by Congress and often force trade-offs with other military hardware purchases. This, in turn, triggers interservice fights.
For military brass, leasing allows them to avoid many of the logistics and politics of outright purchases. Just as consumers can be enticed into leasing expensive cars by promises of little or nothing down, defense contractors can offer generals the ability to drive out a tank today if they commit to long-term lease arrangements. While big-ticket items would be controversial if their total costs were presented in a traditional appropriations bill, they can be spread across many years as an operating cost, like a lease of office space.
The military has used leases of office material and space before, but the Boeing deal notably extends this practice into combat equipment. The concern is not that a repo man will show up to reclaim M-1 tanks in arrears at Fort Dix. But the build-to-lease contract will fundamentally change the relationship between the Pentagon and its contractors, further blurring an increasingly uncertain line between military and private interests.
This change mirrors similar changes in contracts for private personnel. The Bush administration has increased its use of private companies to supply personnel in hot spots, including active combat areas. These companies are made up of former military personnel who sell their expertise to the United States or the highest bidder. Some of the contracts already come dangerously close to a private mercenary force, with some contractors performing quasi-combat functions in places such as Bosnia and Iraq.
Congress should hold hearings on the implications of these changes. The potential is for the creation of a shadow military establishment of private companies supplying military equipment and personnel. The economic interests of these companies would be to maximize the use of their products and personnel -- a dangerous incentive when the ideal market conditions are measured in military operations.
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05/23/03: Innocence doesn't pay, either