The Pentagon has postponed action on $18 billion in contracts for 100 Boeing 767 tankers until the deal is investigated after Boeing fired two officials for ethical violations, U.S. Defense Department officials said Tuesday.

U.S. Deputy Defense Secretary Paul Wolfowitz told leaders of the Senate Armed Service Committee in a letter dated December 1 that he was ordering a "pause in the execution'' of the Air Force contracts to lease and buy the mid-air refueling tankers, a major setback in Boeing's two-year effort to sell the planes.

The Pentagon was planning to take 100 B767 tankers from Boeing.  [AP]

Wolfowitz said his decision was prompted by Boeing's firing last week of Chief Financial Officer Michael Sears for discussing a possible job with former Air Force official Darleen Druyun -- the lead player on the lease deal -- before she removed herself from overseeing Boeing business.

Boeing subsequently hired Druyun in January and fired her last month. On Monday, it announced the resignation of Chairman and Chief Executive Officer Phil Condit.

Wolfowitz said he asked Pentagon Inspector General Joseph Schmitz -- who first launched a criminal investigation of the deal last September -- to assess any negative impact the allegations might have had on the contract negotiations.

"In light of the recent allegations and actions taken with the Boeing Co. to remove Michael Sears and Darleen Druyun, I am ordering a pause in the execution of the contracts to lease and purchase tanker aircraft,'' Wolfowitz wrote in the letter.

"I am asking the Department of Defense inspector general to provide to me an independent assessment of those allegations and any negative impact that improper conduct by Mr. Sears and Ms. Druyun may have had on the negotiation of the contracts that the Air Force proposes to execute,'' he wrote.

After the investigation was completed, Wolfowitz said, the Pentagon would "consider'' whether to proceed with the Air Force's plan to lease the first 20 of the planes. He said the Pentagon would also comply with federal rules requiring a 30-day notification of Congress of any multiyear purchases.

No timetable

Condit stepped down as Boeing's CEO on Monday.   [AP]

Condit stepped down as Boeing's CEO on Monday.

Pentagon spokeswoman Lt. Col. Rose-Ann Lynch said only that the inspector general's investigation was continuing. She gave no timetable for when it would be completed, although Wolfowitz told Schmitz in a separate memo he wanted a "quick response.''

The Pentagon investigation initially focused on whether Druyun improperly shared with Chicago-based Boeing proprietary information provided to the Air Force by rival tanker builder Airbus of Europe.

Wolfowitz asked the inspector general in his memo to "determine if there is any compelling reason why the Air Force should not proceed with the tanker lease program.''

The inspector general's office did a brief review of the lease deal in August, concluding the Air Force could wind up paying more to lease 100 Boeing tankers if interest rates rise more than projected, or if Boeing ran into financial trouble.

It stopped short of condemning the overall deal, but said the government was assuming "greater financial risk with the lease'' than a direct purchase and that the Air Force could have better handled the deal, then valued at $22.4 billion.

After months of wrangling, the Senate Armed Services Committee refused to approve the original plan to lease 100 planes, devising a compromise that called for the lease of 20 tankers and the purchase of up to 80 more in coming years.

Air Force officials last week indicated they were ready to sign the contracts, but Defense Secretary Donald Rumsfeld delayed the deal, saying the Pentagon needed to "see that things are done properly.''

Keith Ashdown, of Taxpayers for Common Sense, a nonprofit group, welcomed the delay. "It is the only prudent step that they could take at this point,'' Ashdown said. "There is an ethical cloud of controversy above Boeing, the Air Force and the whole tanker recapitalization plan.''

Shares of Boeing fell 19 cents to $37.83 Tuesday.

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