US: Pentagon, Air Force Officials Criticized for Boeing Tanker Deal

June 7 -- The U.S. Defense Department's weapons buying chief and senior Air Force officials sidestepped regulations in a $23 billion proposal to lease and buy as many as 100 Boeing Co. tankers, the Pentagon's inspector general said.

The report is the Pentagon's fullest so far on the failed Boeing deal, shelved last year after questions about cost and conflicts of interest involving former Air Force official Darlene Druyun and former Boeing Chief Financial Officer Michael Sears.

The decision by Edward C. ``Pete'' Aldridge, the Pentagon's former undersecretary for acquisition, to exempt the Boeing tanker program from specific regulations ``was the major failure associated with managing and making decisions on the program,'' said the report by Inspector General Joseph Schmitz's office.

The inspector general's 256-page report, obtained by Bloomberg News, calls for ``cultural change'' and offers few specific recommendations. The Senate Armed Services Committee, which plans to release the report at a hearing today, has vowed to craft an acquisition reform plan.

The acquisition process takes on added importance as the Pentagon plans to boost annual spending on new weapons by 52 percent during the next six years, as at least 13 programs move into production, to $118 billion in fiscal 2011 from $78 billion this year.

No `Rigid Oversight'

Aldridge approved the original Boeing tanker proposal in late May 2003, days before retiring. Other officials cited by the report were just-retired Pentagon acquisition Michael Wynne, retired Air Force Secretary James Roche and his acquisition chief Marvin Sambur and Druyun. Both Druyun and Sears are serving prison sentences for violating federal conflict of interest laws during 2002 negotiations on the tanker proposal.

The Pentagon officials ``allowed the proposed tanker aircraft lease to move forward even though the program had not undergone the rigid oversight required for major acquisition programs,'' Thomas Gimble, deputy inspector general, wrote in the report.

``The failure to follow the prescribed rules resulted in the attempt to enter into a program that did not satisfy requirements and was not cost effective for the American taxpayer,'' the report said.

Cultural Changes

``The system of management internal control was either not in place or effective because the existing acquisition procedures were not followed,'' it said. ``The Defense Department must change the cultural environment in its acquisition community to ensure that the proper control environment is reestablished and followed for major acquisitions,'' the report said.

The report doesn't recommend any legal actions against the officials, nor does it imply anyone except Druyun took illegal action in pushing for the proposal first introduced by the Senate defense appropriations subcommittee in October 2001.

The congressional provision required the Air Force to lease and then purchase Boeing 767 aircraft for aerial refueling. That direction didn't preclude the Pentagon and Air Force from conducting proper oversight, the report said.

The inspector general's office didn't interview White House officials, congressional lawmakers or Boeing officials because the focus was on the Office of the Secretary of Defense and Air Force, the report said.

Push Unjustified

The problems started with the original justification to accelerate the program by more expensive leasing rather than traditional defense budgets, it said.

Air Force claims that the current fleet of KC-135 tankers was plagued by excessive corrosion didn't justify the push to lease new aircraft, the report said.

``A time imperative did not exist,'' it said. ``The Air Force managers used corrosion problems and higher-than expected maintenance costs as their reason to accelerate'' the program but independent assessments ``did not support the need,'' it said.

Among the deficiencies: the Pentagon and Air Force failed to conduct a formal analysis of alternatives to leasing and buying Boeing aircraft that might have lowered prices; didn't require the company to provide detailed cost and pricing data to back up their proposal on the basic aircraft; and didn't guarantee the Pentagon had full audit rights of Boeing's books, said the report.

Aldridge Role

Auditors were ``unable to interview'' Aldridge ``even after repeated attempts to contact him.''

Aldridge, in a June 4 telephone interview from his home in Arlington, Virginia, refused to say why he wasn't interviewed.

``I wasn't available,'' Aldridge said. ``I'm retired.'' He characterized the audit as the IG's attempt to ``dig up dirt.''

Aldridge said he hadn't read the report. He defended the Pentagon's approach to the tanker proposal as one not intended to ``violate'' acquisition regulations but as an ``exception'' that was ``in the best interest of the taxpayer.''

The Air Force's deal to buy aerial refueling tankers was shelved last year because of questions about cost and the illegal conduct of Druyun and former Boeing Chief Financial Officer Michael Sears.

Both are now serving prison sentences for violating conflict- of-interest laws during the tanker negotiations.

The scandal triggered a review of all Boeing contracts tied to Druyun. At least nine so far have been singled out for formal investigation.

The Pentagon also is reviewing its acquisition practices and conflict-of-interest regulations. So is the Senate Armed Services committee. Chairman John Warner, Republican of Virginia, asked Arizona Republican John McCain in April to craft an acquisition reform plan and present it to the Pentagon.

McCain in September 2003 raised the first questions about the tanker deal.

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