Rethinking the Lease vs. Buy Decision

Abstract

This research examines the costs, benefits, risks, and rewards of leasing military equipment. It discusses the role that leasing plays in the private sector as well as in the DoD, both from a historic and a current perspective; examines instances in which the DoD has relied on long-term and short-term leasing with specific reference to the Navy's Maritime Prepositioned Ship program, the use of multiple short-term leases of foreign-built tanker ships and the DoD's recent lease of a Chinese satellite; and describes leasing within the context of innovative public-private partnerships (PPPs) such as the UK MOD's leasing of aerial refueling tankers and the DoD's lease of military housing. We describe the potential cost savings associated with these newer, innovative agreements, in addition to the risks and challenges. It concludes with the following recommendations to help inform the lease-vs.-buy decision: 1. OMB should reconsider the upfront scoring requirement for long-term capital leases and lease-purchases. 2. Congress should lift restrictions on short-term vessel leasing. 3. The DoD should pursue agreements that leverage the relative strengths of the public and private sectors. 4. Future lease agreements should be structured with appropriate off-ramps. 5. DoD should continue to rely on the global defense industry (via lease or purchase).