Acting Defense Secretary Gordon England told the Senate Armed Services Committee Tuesday the Pentagon was not looking too press charges against anyone involved in the deal.

"I believe in most cases people were trying to do what was right for America. Frankly, my emphasis will be to go forward," England said.

Had the leasing contract been signed with Boeing, five laws would have been violated by top executives at the Pentagon, England said. But that contract was not signed and therefore the laws were not broken.

For that the Pentagon should thank Sen. John McCain, R-Ariz., whose close scrutiny of the deal brought an end to a program that would have cost the taxpayers tens of billions of dollars without meeting military needs.

Despite the Pentagon's official blessing of the tanker lease deal -- it requested funding for it in two successive budgets -- the inspector general's report carefully sidesteps apportioning any blame to Defense Secretary Donald Rumsfeld, his deputy Paul Wolfowitz, or to the White House, without whose consent the program could not have gone forward to Congress. Rumsfeld put the program on hold in December 2003 only after Boeing fired two central players in the scheme.

Inspector general Joseph Schmitz admitted to Michigan Democrat Sen. Carl Levin he had interviewed no one at the White House's Office of Management and Budget -- which had allowed the leasing proposal to be included in the Pentagon budget request despite "grave" concern about the cost. Schmitz also said neither Rumsfeld nor Wolfowitz had anything of value to add to the report, although they were interviewed.

Schmitz agreed to White House requests to redact 45 e-mails or partial emails that appeared in the report.

"In the absence of this material, it is not possible for us to assess whether the responsibility of the officials named in the report is mitigated by the actions of other unnamed officials who are their superiors," Levin said. "You are required to issue a thorough and independent report. It appears to me that you have done neither."

The Boeing tanker program is a now benchmark in Pentagon bad acquisition lore: "the most significant defense procurement mismanagement in contemporary history," according to Senate Armed Services Committee chairman John Warner, R- Va., who called a hearing Monday to hear from Schmitz on the results of his probe into culpability. The tanker program itself has long since been abandoned.

What happened is this: the U.S. Air Force saw its fleet of KC-135 refueling aircraft aging and corroding through the 1990s, and took steps to inhibit the corrosion. In 1996 it pushed back the expected date of retirement of the aircraft from 2007 to 2013. The Boeing Co. was the original builder of those aircraft, and told the Air Force they could fly safely - absent the corrosion - well beyond the turn of the century.

In 1999 the Air Force began looking closely at the KC-135 and determined that maintaining the fleet would cost an additional $320 million in 2001 and rise steadily each year through 2040 to reach a high of $1.1 billion. However, studies also told the service with the annual purchase of a small number of refueling aircraft to replace the oldest ones, they would not need a wholesale new fleet until 2040.

Armed with that data, the service then began writing a document laying out the requirements for a replacement aircraft, including an examination of whether leasing aircraft would be cheaper than purchasing them outright.

The Pentagon's office of Program Analysis and Evaluation -- which provides independent assessments of service program plans -- in a February 2001 study came down squarely on the side of buying them outright, as leasing would be more expensive.

Nevertheless, on May 7, 2001, at the behest of President Bush's National Economic Council chairman Lawrence Lindsay -- whose name is blacked out at White House request from the inspector general's report -- a top Pentagon adviser met with Citicorp executives to discuss the possibility of the Defense Department using commercial leasing finance techniques to get funding to replace some of its aging aircraft, including the KC-135.

Four days later, Defense Secretary Donald Rumsfeld directed his comptroller Dov Zakheim to "get commercial financing techniques moving."

In the meantime, the Air Force launched what is called an "analysis of alternatives" to begin considering all the possible ways the service might fulfill its future refueling tanker requirement.

The Sept. 11 attacks changed that, according to the report. The Air Force saw immediately it had a war on its hands and knew the requirement to refuel large numbers of aircraft would tax the fleet.

By September 25, Boeing executives met with Darleen Druyun, the Air Force's powerful principal deputy assistant secretary for acquisition and management to discuss Boeings leasing proposal: The Pentagon could lease 100 Boeing 767s, beginning almost immediately, to "jump start" the KC-135 replacement.

What happened next was where the most serious violation of long-standing acquisition practices and U.S. law begins: the manipulation of laws and regulations to conform to terms dictated by a defense contractor, rather than forcing the defense contractor to conform to the laws and regulations.

In October 2001 an operational requirements document was written up in the Air Force that specifically described the Boeing 767, obviating the consideration of any other aircraft or approach to meet the refueling need.

The Office of the Secretary of Defense came out nearly concurrently with a memorandum saying the military services needed to consider using multi-year leases from major defense companies, rather than outright purchases.

The Boeing deal was put on a fast track, with Druyun working closely with senators and representatives on Capitol Hill to write language into the annual appropriations and authorization bills setting up the deal. Negotiations with Boeing for the price of the contract began in April 2002.

But the Office of Management and Budget was already balking.

In a December 2001 letter to an unnamed member of congress who asked the White House to include the leasing language in the Pentagon budget submission for 2003, the office wrote: "We have grave reservations about leasing these aircraft. Our analysis shows that over the long-term a lease-purchase program would be much more expensive than direct purchase of the same aircraft... (In the budget submission) programs are evaluated in terms of their cost and potential military benefit."

It would not be the last time the Office of Management and Budget challenged the Air Force and the Pentagon on the tanker program. Within the office, there appeared to be conflicting positions, according to e-mails reproduced in the report. Office of Management and Budget was aggressively pushing privately financed leases, but it was concerned the Air Force was not getting a fair price for the Boeing aircraft.

One internal Pentagon message from August 2002 said "the political leadership at (Office of Management and Budget) feels very strongly about the lease and has decided to take a public posture knowing the effect this might have... talk directly to Robin Cleveland (the office's national security chief) if you want more information on the politics of the lease."

The Office of Management and Budget was also not initially buying the Air Force's case for new tankers. It pointed out in meetings with Air Force officials that the service had been operating in Afghanistan for a year with the current fleet of tankers without a problem. It also pointed out that the Air Force was planning to retire KC-135s to save $1 billion at the same time it was claiming an urgent need for them, and the tanker deal would cost $1.7 billion.

A series of e-mails dealing with Office of Management and Budget were redacted, again at the White House's request. One is included however -- a note from Air Force Secretary James Roche to Druyun from Oct. 28, 2002 saying "once (Office of Management and Budget) and the White House take the lead, they own the responsibility!"

A week later, Druyun recused herself from further dealings with Boeing, and she retired mid-month -- to take a job with the company for about $250,000 a year.

She is now in jail, completing a nine-month sentence for contract fraud. She was negotiating her job with the company while also negotiating the Air Force leasing contract -- in a way that compromised taxpayer interests and was illegal.

On May 23, 2003, Defense Department acquisition chief Pete Aldridge gave the Pentagon's blessing to the Air Force to go ahead with the leasing deal with Boeing. Then he retired.

Aldridge -- now on Lockheed Martin's Board of Directors -- did not make himself available to the inspector general's investigation, and McCain said Tuesday the committee might subpoena him to force his testimony.

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