T-AOT-1121 Champion Class T-5 Tanker

The transport tankers are part of Military Sealift Command's Sealift Program, transporting fuel for the Department of Defense during peacetime, war and other contingencies. The primary mission of the five privately owned T-5 tankers is point-to-point delivery of refined petroleum products to Department of Defense (DOD) users throughout the world. During Operations Desert Shield and Desert Storm, MSC tankers provided fuel to naval fleet units operating in the Red Sea, the Persian Gulf, and the Gulf of Oman. These tankers embark on many unique missions including refueling the National Science Foundation in Antarctica, Thule Air Force Base in Thule, Greenland, and federal government installations in remote sections of Alaska

The five Champion-class tankers, known as T5s, have double hulls and are ice-strengthened for protection against damage in colder climates. In addition, two of the tankers are equipped with modular fuel delivery systems, which allow them to refuel combatant ships at sea. Gianella and Matthiesen are able to rig underway replenishment gear.

In 1982, the Navy awarded contracts for the long- term lease of five newly constructed T-5 replacement tankers. For the first time, ships of MSC would be named for merchant mariners honored with the Merchant Marine Distinguished Service Medal for heroism in World War II. Military Sealift Command's five transport tankers were built by the American Ship Building Company of Tampa, Fla., for Ocean Product Tankers of Houston, Texas, for long-term time charter to MSC. The first of these tankers was delivered in June 1985, and all remain under lease. MV Gus W. Darnell, MV Paul Buck and MV Samuel L. Cobb entered MSC service in 1985. MV Richard G. Matthiesen and MV Lawrence H. Gianella entered MSC service in 1986. For the first time, these MSC ships are named for merchant mariners honored with the Merchant Marine Distinguished Service Medal for heroism in World War II.

Industrial base concerns were another factor in the decision to lease the T-5 replacement tankers in the early 1980s. At that time, the commercial shipbuilding sector was in decline. A Navy official stated in a 1983 hearing that projects such as the MPS and T- 5 replacement tanker programs were needed to prevent the potential closing of several commercial shipyards and to protect the nation's industrial base.

MSC uses a yearly budget to predict the maintenance and repair costs of its T-5 tankers. The operating contractor submits a proposed budget to MSC 30 days prior to each annual operating hire period. This proposed budget is based on historical costs and planned maintenance that will be completed in the following year. Personnel from MSC's Engineering and Contracting Directorates review the proposed budget and develop their own estimates. MSC and the contractor then negotiate a final budget through a contract modification. The contractor must submit quarterly reports that separate parts and technical representative services for 24 different maintenance and repair categories. At the end of the year, the Defense Contract Audit Agency audits the contractor's actual maintenance and repair costs based on a stratified statistical sample of invoices. If actual costs exceed budgeted costs, MSC reimburses the contractor. If budgeted costs are higher than actual costs, the contractor credits MSC.

Under leasing arrangements for the T-5 replacement tankers, shipowners qualified for special tax benefits. These benefits included accelerated depreciation of the ship's cost and deductions on interest payments that lowered the shipowners' taxes. Consequently, shipowners passed some of these benefits to the Navy in the form of lower lease payments, which made leasing a more attractive option to the Navy. However, these tax benefits also represented a loss of tax revenue to the US Treasury.

In October 1984, OMB and Treasury issued joint guidelines for DOD's leases. These guidelines required that any special tax benefits conveyed to the shipowner be added to the cost of a lease in a lease versus purchase analysis. Additional OMB guidance was issued in 1992 to prevent lease versus purchase analyses from understating the government's total cost of leasing. Specifically, this guidance, which is to be applied governmentwide, prescribe that analyses (1) should add special tax benefits to the cost of leasing and (2) should not subtract the normal payment of taxes on the lessor's income derived from the leases from the total lease costs. 11 Had this guidance been in place when the Navy conducted its analyses of the T-5 replacement tanker lease programs, the analyses would have concluded that purchasing, instead of leasing, was the cheaper alternative.

The primary reason for proposing the long-term lease approach was that available procurement funds were needed for higher priority combat ships and long- term leasing allowed it to meet its support requirements without a large, up- front obligation of procurement funds. Under these leasing arrangements, the Navy initially had assumed it could spread payments over the length of the leases and use its annual O&M appropriations to fund them without incurring an up-front obligation of the total lease amount. If, instead of leasing, the Navy had purchased these vessels, funds would have been obligated from the Navy's Shipbuilding and Conversion procurement appropriation; payments would have been required prior to delivery over a relatively short construction phase; and the purchases would have had to compete with combat ships for the Navy's procurement funds. The Navy also maintained that long- term leasing was a cost- effective way of acquiring the services of auxiliary vessels. Navy lease versus purchase analyses showed that it was less costly to lease than purchase these vessels.

The MSC Sealift Program's Tanker Project Office manages all aspects of the ocean transportation of the DOD's petroleum products worldwide as supported by the Defense Logistics Agency's Defense Energy Support Center petroleum storage and distribution facilities. The Tanker Project Office began FY 2000 with six tankers under long-term contract. Additionally, 56 voyage-chartered vessels added to the overall lifting capacity of the fleet. More than 250 lifts totaling almost 1.5 billion gallons of petroleum products were delivered to DOD facilities around the world.

Major bulk fuel products carried included Navy jet fuel, marine diesel fuel (the primary Navy and Naval Fleet Auxiliary Force bunker fuel) and kerosene-based jet fuel (the primary fuel for Army ground forces and Air Force planes). MSC tankers also lifted Antarctic turbine fuel for the National Science Foundation; gasoline for the Pacific Islands, Okinawa and Guantanamo Bay, Cuba; and heavy bunker fuel oil in support of the MSC prepositioning ships at Diego Garcia in the Indian Ocean. The tanker fleet maintained an impressive record of zero spills with more than five million tons of fuel moved in FY 2000.

At the heart of the MSC-controlled fleet are the T-5 tankers. Built in 1985, these five 237,000 barrel tankers have double hulls and advanced-technology safety systems. They also are ice strengthened. Additionally, two of the T-5s are equipped with modular fuel delivery systems, which allow them to participate in at-sea replenishment exercises and refuel naval combatants, if required. These tankers are under a 20-year charter that expires in 2005.

Every summer U.S. Navy Military Sealift Command (MSC) ships deliver much-needed supplies and petroleum to the residents of Thule Air Base, Greenland. Thule is one of the northernmost U.S. bases, operated by the U.S. Air Force 12th Space Warning Squadron, and home of the Ballistic Missile Early Warning System. The Military Sealift Command resupply mission, Operation Pacer Goose, occurs annually and benefits more than 1,100 military and civilians employed at Thule Air Base, a U.S. Coast Guard station and neighboring weather stations. In 1997 MSC-chartered freighter MV Green Wave off-loaded approximately 32,000 square-feet of dry cargo, and the tanker MV Richard G. Matthiesen discharged its cargo of more than 25,000 tons of petroleum products. The supplies and fuel provided by MSC ships help sustain the residents of Thule throughout the long, dark winter months. To enable MSC ships to navigate the icy waters of the Arctic region during Operation Pacer Goose, Canadian coast guard icebreaker ships first cut a channel through the ice immediately prior to their arrival. The ice can be anywhere from 8-to-10-feet thick and the channel about 10-to-20-miles long. Harsh winter conditions start in September, and preparations are made well in advance to have the ice-strengthened ships deliver supplies and fuel during the summer months when the ice has melted enough to cut through it.

In 2000 MV Richard G. Matthiesen re-supplied McMurdo Station in Antarctica during Operation Deep Freeze as a service to the National Science Foundation. MV Gus W. Darnell participated in Operation Pacer Goose, the re-supply of Thule Air Base, Greenland, in July 2000. During 2001 MV Lawrence H. Gianella re-supplied McMurdo Station in Antarctica during Operation Deep Freeze as a service to the National Science Foundation. Chartered tanker MV Mar and T-5 tanker MV Paul Buck carried fuel in support of Operation Pacer Goose, the annual re-supply of Thule Air Base, Greenland.

In the early 1980's, the Navy decided to charter, or lease, vice buy the $65 million T-5 tankers due to fiscal constraints. The charters are for twenty-year terms, expiring over FY 2005 and FY 2006, and contain purchase options. The Military Sealift Command has evaluated a number of alternatives for providing this capability for the foreseeable future, including extending the charters, and the analysis indicates that the most cost-efficient option is to exercise the purchase clauses in the charter contracts. Purchase of all five T-5 tankers in FY 2003 would cost $94 million, saving the Department $479 million over FYs 2003 through 2015 as compared to leasing over the same period.

In 2003, MSC purchased four of the five T-5 commercial tankers that had been under long-term charter. USNS Lawrence H. Gianella, USNS Paul Buck, USNS Richard G. Matthiesen and USNS Samuel L. Cobb are the mainstay of MSC's petroleum products movements. Talks were underway concerning the purchase of the fifth T-5, MV Gus Darnell.