HEADLINE: PANEL ONE OF A HEARING OF THE SENATE ARMED SERVICES COMMITTEE
SUBJECT: THE PROPOSED LEASE OF 100 KC-767 AERIAL REFUELING TANKER AIRCRAFT BY THE AIR FORCE
CHAIRED BY: SEN. JOHN WARNER (R-VA)
PANEL 1: JAMES ROCHE, SECRETARY OF THE AIR FORCE; MICHAEL WYNNE, ACTING UNDERSECRETARY OF DEFENSES; AND JOEL KAPLAN, DEPUTY DIRECTOR, OFFICE OF MANAGEMENT & BUDGET
LOCATION: 216 HART SENATE OFFICE BUILDING, WASHINGTON, D.C.
BODY:
SEN. BILL NELSON (D-FL): Mr. Chairman, gentlemen. The question for me is not, Mr. Chairman, whether or not we need these tankers. The question -- which I think we do, the new tankers -- the question for me is that question that the senator from Arizona, as my chairman of the Commerce Committee, probed yesterday in the Commerce Committee, the question of leasing versus the purchase.
And so my question would be to you, Mr. Secretary. Yesterday you sat at a table with three other folks in the Commerce Committee -- somebody from GAO, someone from Congressional Budget Office, and someone from the Institute for Defense Analysis. And they all said that they thought it was a better deal to purchase than lease. Could you respond to that, please?
SEC. ROCHE: Briefly, Senator, the same point I made yesterday is that it depends on the -- (inaudible) -- the net-present value calculation has two streams of outflows of money. One is lease and one is acquiring. How you acquire -- what models you -- when you can do it, how you can do it becomes very important, and the underlying assumptions there are quite important. We used the current situation, where there was no additional money, and we had to go in the normal acquisition manner, and on that basis we saw the comparison to be very close, favoring purchase by 1.5 million an airplane. If you could take some extraordinary measures for acquisition, which we could only hypothesize but not really say would be approved by the Congress, then you could in fact favor a purchase by as much as 1.9 billion (sic), but it would require such things as a lot of up-front money we don't see, changes to how -- for the rules of when you can amortize non- recurring and non-amortized, colors of money, other things. If those all could be put in place, then the purchase is favored. But under normal acquisition process, you have to spend all the money up front without getting anything, and then you start to buy airplanes.
SEN. BILL NELSON: There was a question, Mr. Secretary, yesterday, about a part that was not competed, a part that between -- okay, it was special purpose entity. Could you respond to that, why that was not competed?
SEC. ROCHE: Special purpose entity was a mechanism to be able to effect a lease and it's a non-profit entity, so there is the sense of competing for someone to be that. It doesn't feel compelling. We did look around and agreed with the manufacturer of what would be a sensible third party, detached third party. I can get you more details as to how that party was chosen, and I'd be glad to provide that for the record.
SEN. BILL NELSON: Thank you, Mr. Chairman.