Together, these provisions provide authority for a lease that departs from normal proceduresfor major DOD acquisition programs by:
specifying that a particular acquisition method can be used (i.e., a lease of acommercial asset, which would make it an operating rather than a capital lease or aprocurement);
specifying the number and type of aircraft to be leased (100 Boeing 767s and4 Boeing 737s);
exempting the lease from requirements and limitations that normally governDOD leases of ships and aircraft which are established in 10 USC 2401 and 2401a, includingfunding of termination liability;
exempting the lease from a limit established in 31 USC 1553(b)(2) on theamount of appropriations that, under certain circumstances, may be charged to closed-outappropriation accounts;
exempting the Air Force from the "Buy American" requirements of the BerryAmendment (10 USC 2533a); 
establishing a special congressional approval process for the lease whereapproval would be either through authorization and appropriation language, or through a new startnotification to be approved by the four congressional defense committees at anytime. TheSenate Armed Services Committee has not yet signaled its approval or disapproval. Is There an Urgent Need to Replace the KC-135? by [author name scrubbed] 
(707-2577)
Much of the Air Force's argument for leasing 100 KC-767s is based on its assessment thatit has an urgent need to replace the oldest KC-135s: that operations and support costs are too high,that mission availability is too low, that the aircraft is wearing out prematurely due to high operationstempo, and that it is vulnerable to catastrophic problems. (11) The Air Force argues that leasing the KC-767 will result in fasterdeliveries -- under the Air Force's self-imposed funding limits - than will purchasing them, whichmay be important if the need to recapitalize is urgent. (42) This unanticipated use,KC-767 lease proponents say, is wearing out the 42 year old aircraft even faster than anticipated justthree years ago. The KC-767 ismore flexible and more capable than the KC-135, supporters argue. Inmany ways, lease opponents admit, the KC-767 does compare favorably to the KC-135. KC-767 lease critics say that re-engining the KC-135E has many merits that should beconsidered as an alternative to leasing 100 new aircraft. (60) 
The second advantage of this approach is cost. Viability of the 767 Production Line. (73) 
Beyond February 2006, the viability of the 767 production line is less certain. Several of these factors could individually shiftthe result of the NPV analysis by hundreds of millions of dollars. If they put it atsomething lower than $100 million, thus would make the comparison more favorable to theprocurement option. The proposed tanker lease raises a number of broader policyissues, particularly, the visibility of full cost of planned defense programs in the Congressionaloversight process. Use of a Special Purpose Entity decreases visibility . Deviation from full-funding of the government's contractual liability. Locking in Resources When Program Costs AreUncertain. Appropriateness of Using An OperatingLease. As discussed previously, other changes in other assumptions that would affectthe comparison of costs made in the Air Force analysis were debated within theAdministration, including:
whether to assume a progress payment rate closer to standardrates for Air Force aircraft programs rather than the rates desired byBoeing;
whether to compute inflation based on progress payments ratherthan compounded to the amount experienced at the time when the entire set ofaircraft was completed as the Air Force assumed; and
whether to decrease the government's imputed cost of insurancebelow commercial rates to reflect lower risk. In the case of the tanker lease, Congress provided special authorities for thetanker lease and exempted the Air Force from the requirement to budget fortermination liability with the following requirements:
the Air Force must submit a report that outlines the terms andconditions of the proposed contract and "expected savings, if any," between a leaseand a purchase as well as annual reports thereafter;
a contract cannot be signed until at least 30 calendar days haveelapsed since submission of the report; 
the present value of the total payments of the lease cannotexceed 90 percent of the fair market value of the aircraft as required by OMBCircular A-11;
the Air Force must accept delivery and return aircraft in acommercial configuration; and
aircraft cannot be modified unless special authority is providedin an appropriations act or the aircraft is transferred to the Air Force, which requiresseparate authorization. Section 8159, FY2002 DOD Appropriations Act ( P.L.
The Air Force wishes to replace its KC-135E aircraft by leasing 100 new Boeing KC-767tankers. The Air Force indicates that leasing is preferred because it will result in faster deliveriesthan outright purchasing. Air Force leaders argue that a lease will allow them to husband scarceprocurement dollars by making a small down payment. Although Congress authorized the proposedlease in the FY2002 DOD Appropriations Act, it stipulated that the defense oversight committeesmust approve the lease -- only the Senate Armed Services Committee has yet to approve. The leaseproposal has been controversial and issues raised thus far include:
Whether there is an urgent need to replace the KC-135 fleet. The Air Force states that replacingthe KC-135 is urgent, citing high costs, aircraft vulnerability to catastrophic problems, and theimminent closing of the 767 production line. Opponents of the lease state that operating costs arecontrollable and will be far lower than the overall costs of leasing the 767; that the vulnerability isno more than depicted in a two-year old study which the Air Force found acceptable; and that the767 production line is viable until 2006-2008.
Whether the KC-767 is the right airplane. If acquired, the KC-767 may be in DOD's inventoryfor 50 years. The Air Force says that the KC-767 is much more capable than the KC-135. Opponents say that other aircraft are even better than the KC-767 in meeting the Air Force'srequirements. The Air Force opposes re-engining KC-135Es, but opponents say it merits attention,as does outsourcing aerial refueling.
Whether the Air Force cost comparison is authoritative. The Air Force's report to Congresscalculates that a 767 lease would cost $150 million more than a purchase on a net present valuebasis. This calculation, however, is sensitive to many assumptions. CRS analysis shows that severalassumptions built into the calculation, if treated differently than in the Air Force report, could changethe calculation by hundreds of millions of dollars each. Although some could change the calculationto favor either the lease or the purchase, others -- such as the discount rate used to calculate netpresent value and whether to use multi-year procurement for the purchase option -- could be morelikely to alter the comparison more in favor of the purchase option.
Whether this lease has implications for congressional budget oversight. The proposed leaseappears to be an unprecedented method of funding a major new defense procurement. Critics pointout that this approach is coupled with exemptions from longstanding laws on budgeting and defenseprocurement. The proposed lease raises policy issues regarding the visibility of full costs for DoDprograms in the congressional oversight process, including questions concerning locking inbudgetary resources when costs are uncertain, appropriateness of using an operating lease for thisproposal, the impact of a Special Purpose Entity, and the potential for deviation from full-fundingof the government's contractual liability.
This report will not be updated.