Boeing redux

[Eubulides <paraconsistent@xxxxxxxxxxx>]

Thursday, July 24, 2003
Air Force deal for 767s, nearly a sure thing, is called too costly
By CHARLES POPE
SEATTLE POST-INTELLIGENCER WASHINGTON CORRESPONDENT

WASHINGTON -- An expert on aircraft leasing told a House committee
yesterday that the price the Air Force has agreed to pay to buy 100 Boeing
767 tankers at the end of a six-year lease is too high.

"A 767 in today's market would not have much residual value," John
Pleuger, president of International Lease Finance Corp. told the House
Armed Services Committee.

Under a contract made final with Boeing last week, the Air Force has
agreed to pay $44 million per plane, or $4.4 billion, to own the planes at
the end of the lease. Air Force authorities say the government will
exercise the option to buy the planes when the six-year lease ends.

Residual value is the term given to the price that must be paid to buy a
car, a boat, a home or an airplane at the end of a lease.

The price is often negotiated before the lease is signed and estimates the
fair-market value of the item in the future.

With a glut of airplanes and airlines experiencing severe economic
problems, the price of planes is plummeting, said Pleuger, who heads the
largest aircraft leasing company in the nation. Selling used aircraft in
today's market is similar to finding somebody to pay top dollar today for
a Yugo automobile.

He qualified his estimate, however, by saying markets change and what
today is a bad price could be a better deal in the future and that the
market for used military planes may be different than the market for used
commercial airliners.

Air Force officials also acknowledged for the first time that the true
cost of each plane is $210 million. That price includes $138 million to
lease each plane, $44 million to buy it at the end of the lease and $8
million for operation and maintenance. The remainder would be the cost of
inflation.

Despite Pleuger's assessment and continuing criticism of the deal, the
contract is virtually assured of being approved. Under law, four
congressional committees much sanction the contract for it to go into
effect. Two of those committees already have signed off on the deal, a
third is expected to do so before the end of the week and the final one is
expected to give its permission when Congress returns from its August
recess.



Critics seized on Pleuger's comments as further proof that the unique deal
between Boeing and the Air Force does not make economic sense and is a
waste of tax dollars.

"The more we learn about this garbage, the more it stinks," said Keith
Ashdown, vice president for Taxpayers for Common Sense.

But the complicated tanker deal involves more than just financial
considerations, supporters say. Rep. Norm Dicks, D-Wash. and other backers
point out that the existing tanker fleet is aging and needs to be replaced
soon. Leasing is the only way to accomplish that because there is not
enough money to buy the planes outright.

" There are few who question the fact that our KC-135 fleet is old and
needs to be replaced," said committee Chairman Rep. Duncan Hunter,
R-Calif.