Undersecretary of Defense for Acquisition, Edward "Pete" Adridge, said buying the modified Boeing 767s outright on a quick delivery schedule would cost eight billion dollars more.

"We've got to have a new tanker," he said. "Here's an opportunity for us to do it now with an acceptable airplane, off a production line that might go away."

The deal has been criticized by some members of Congress as a corporate handout to the struggling US aeronautics industry, a charge Aldridge did not entirely dispute.

"If we don't have a 767 in production what do you turn to? Do you go to Airbus? I don't think so," Aldridge said, referring to Boeing's European rival.

The new aircraft will replace air force KC-135E tanker planes that at an average age of 43 are the oldest combat aircraft in the air force.

Although the lease deal is for 100 aircraft, Aldridge said the air force will eventually buy several hundred more tanker planes as replacements for the 554 KC-135s now in service.

The Defense Department argues that a modern tanker fleet is crucial to its plans to project power over long distances with lighter, faster moving forces.

The new aircraft would be able to refuel in flight military aircraft from all the services, and would be air refuelable itself.

Under the new arrangement, the air force will lease the aircraft for no more than 138 million dollars each from an as yet unformed special entity, which will purchase the aircraft from Boeing.

Boeing must commit to selling the aircraft for no more than 131 million dollars and to reimburse the Pentagon if lower costs result in a profit margin greater than 15 percent, he said. The remaining seven million dollars per aircraft would be for financing.

By the same token, Boeing would sacrifice profits if production costs exceed 131 million dollars per aircraft, he said.

The first aircraft would be delivered in 2006 and rise to an average of 20 a year after that, he said.

The lease arrangement is subject to congressional approval of its terms and conditions.

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