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Pentagon Freezes Boeing Contract - 2003-12-02

The Pentagon has put a hold on implementation of a controversial multi-billion dollar deal with aircraft maker, Boeing, for new tanker aircraft pending an investigation into possible improprieties in connection with the contract.

Pentagon officials describe as "highly unusual" the decision to slap a hold on the huge, more than $27 billion Air Force contract to lease 20 Boeing 767s and buy 80 more for use as mid-air refueling tankers.

The decision was disclosed in a letter this week to the Senate Armed Services Committee from Deputy Defense Secretary Paul Wolfowitz.

Mr. Wolfowitz had earlier asked the Pentagon's inspector general to determine whether there was any compelling reason not to go ahead with the deal. No timetable was set for completion of the investigation. But Mr. Wolfowitz ordered the probe after Boeing fired a senior executive for discussing a possible job with the chief Air Force negotiator in the tanker contract. The negotiator was hired by Boeing but subsequently dismissed.

Defense officials say Mr. Wolfowitz wants to know whether improper conduct by the two negatively affected the contract negotiations.

The officials, speaking on condition of anonymity, say Mr. Wolfowitz has offered to share drafts of the Boeing contract with members of Congress and also to brief them on the deal. The officials say the Pentagon wants the process to be transparent and open, especially in light of the possible ethical violations.

The deal has been controversial since it first surfaced. The initial plan would have seen the Air Force lease all 100 tankers. But a government investigation found that plan could have been more costly than an outright purchase arrangement. The plan to lease 20 and purchase a further 80 was a compromise.

The Air Force had wanted a plan to acquire new tankers quickly to replace its aging and heavily-used fleet. Many of the Air Force's KC-135 refueling aircraft entered service in the late 1950s during the Eisenhower administration.

Word of the Pentagon's decision to freeze the contract follows an announcement by Boeing's chairman and chief executive officer, Phil Condit, that he is resigning to put an end to what he termed the "distractions and controversies" that have dogged the company.