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Letter from Douglas Holtz-Eakin, Director Congressional Budget office to John Warner with attachment: Assessment of the Department of Defense's Analysis of Alternative Strategies to Acquire 100 Boeing Tanker Aircraft 1 (October 2003)

handle is hein.congrec/cbo9859 and id is 1 raw text is: October 16, 2003 Honorable John W. Warner Chairman Committee on Armed Services United States Senate Washington, DC 20510 Dear Mr. Chairman: As you requested in your letter of September 25, 2003, the Congressional Budget Office (CBO) has evaluated the Department of Defense's response to your request that it examine alternative strategies for acquiring 100 Boeing KC-767A tanker aircraft. According to the department's analysis, implementing the options described in its response would save from $0.8 billion to $5.5 billion in acquisition costs when compared to its initial proposal to lease and subsequently purchase 100 KC-767A tanker aircraft. While the Department of Defense (DoD) continues to describe the proposed financing arrangement as a lease (and for consistency, CBO uses the same term to refer to the proposal), CBO believes the proposed transaction would not be a lease, but rather a purchase of the tankers by the federal government, because the special-purpose entity that has been established to buy the aircraft would be substantially controlled by and act on behalf of the federal government. This arrangement is also significantly more costly than acquiring the tankers through the normal appropriation and procurement process. As a result, the more tankers the Air Force purchases outright, the less costly the acquisition will be. The least-expensive strategy would be a direct purchase of all of the tankers. We estimate that a straightforward purchase of 100 tankers under a new contract that takes full advantage of market conditions and the department's unique position as a large buyer to obtain the best price from Boeing would cost $14.8 billion in current dollars, a savings of $6.7 billion compared to the proposed financing arrangement.

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