Abstract:
The September 2001 terrorist attacks in the United States precipitated US military actions in Afghanistan and Iraq, increasing demand for certain military assets. Domestically, the attacks crippled an already struggling airline industry, hurting domestic aircraft orders at Boeing Company, the only US producer of large-frame commercial aircraft. Boeing's supporters on Capitol Hill proposed procuring converted Boeing 767 airframes to replace the Air Force's aging fleet of aerial refueling tanker aircraft. Yet, the Air Force could not fit a purchase of the tanker aircraft into its budget without sacrificing other key programs. Leasing the aircraft through a special purpose entity was suggested as a solution. Critics questioned the cost, need, and structure of the tanker deal and pushed Secretary Donald Rumsfeld to reject the agreement.
Learning Objective:
The case addresses the issues surrounding adapting common business practices to government; the implications on costs and accounting treatment of leasing versus purchasing; and the process and purpose of government budgeting. It also raises the issue of the proper role of government in promoting domestic businesses relative to other government interests.
