Team Infidel
Forum Spin Doctor
London Times
March 26, 2008 By David Robertson, Business correspondent
The Ministry of Defence will announce the largest private finance initiative (PFI) so far tomorrow with a £13 billion deal to buy a new fleet of air-refuelling tankers.
The deal is the first big defence project to be paid for using the controversial PFI scheme, which allows the Government effectively to rent infrastructure such as hospitals from private companies.
The MoD is expected to confirm tomorrow that the AirTanker consortium will supply all 14 refuelling aircraft for the RAF and will maintain the planes throughout their 20-year lives.
The deal has been delayed for months because of turbulence in the financial markets, which has made raising the capital needed to start the project difficult. The consortium, which includes EADS, Rolls-Royce, Cobham, VT Group and Thales UK, needed £2.5 billion to buy the A330 aircraft and modify them into refuelling tankers.
The decision to buy the RAF's refuelling tankers using PFI has not been popular among many senior military figures. They are concerned that relying on a private company to own, maintain and deploy vital military equipment is a strategic mistake.
However, executives within the defence industry believe that the RAF may get a better deal out of PFI as the contract will stipulate a certain level of readiness.
This will encourage the AirTanker consortium to maintain the aircraft at a higher standard than the military can manage at present.
Recent audit assessments of similar deals have found that outsourcing maintenance to private companies produces a better outcome for the Armed Forces.
Defence sources also said that the imminent spending squeeze on the Armed Forces means that PFI is the only way to ensure that the new tankers are bought. Rather than pay many billions of pounds upfront to buy the aircraft outright, PFI allows the MoD to pay yearly for access to them instead.
The RAF's tanker fleet is in desperate need of replacement, as many of the VC10s in service have been flying for decades. Military sources said that the fleet's reliability is so poor the RAF can no longer guarantee to be able to refuel when needed — an obvious danger with fighters regularly in Afghanistan.
The AirTanker consortium is made up of EADS, which owns Airbus and will supply the aircraft, as the largest shareholder with 40 per cent. Rolls-Royce, the engine maker, owns 20 per cent and VT, formerly Vosper Thornycroft, will manage the tankers' base at Brize Norton and owns 13 per cent. Cobham and Thales UK will each own 13 per cent and supply the refuelling droges and avionics respectively.
Tomorrow's deal with the MoD will be another significant win for EADS over Boeing. EADS's A330 tanker model was selected by the Department of Defence in the United States this month in a $40 billion (£20 billion) deal to replace the US Air Force's elderly tankers.
Howard Wheeldon, senior strategist at BGC Partners, said: “Doing this as a PFI is wrong, but the RAF has to have these aircraft as quickly as possible. There is no other programme more important to the military at this moment. The fact that it took the consortium so long to raise the initial money shows just how difficult lending conditions are out there.”
AirTanker was unavailable for comment, but the company has said previously that this deal would secure 3,000 jobs in Britain and a further 4,500 indirectly.
March 26, 2008 By David Robertson, Business correspondent
The Ministry of Defence will announce the largest private finance initiative (PFI) so far tomorrow with a £13 billion deal to buy a new fleet of air-refuelling tankers.
The deal is the first big defence project to be paid for using the controversial PFI scheme, which allows the Government effectively to rent infrastructure such as hospitals from private companies.
The MoD is expected to confirm tomorrow that the AirTanker consortium will supply all 14 refuelling aircraft for the RAF and will maintain the planes throughout their 20-year lives.
The deal has been delayed for months because of turbulence in the financial markets, which has made raising the capital needed to start the project difficult. The consortium, which includes EADS, Rolls-Royce, Cobham, VT Group and Thales UK, needed £2.5 billion to buy the A330 aircraft and modify them into refuelling tankers.
The decision to buy the RAF's refuelling tankers using PFI has not been popular among many senior military figures. They are concerned that relying on a private company to own, maintain and deploy vital military equipment is a strategic mistake.
However, executives within the defence industry believe that the RAF may get a better deal out of PFI as the contract will stipulate a certain level of readiness.
This will encourage the AirTanker consortium to maintain the aircraft at a higher standard than the military can manage at present.
Recent audit assessments of similar deals have found that outsourcing maintenance to private companies produces a better outcome for the Armed Forces.
Defence sources also said that the imminent spending squeeze on the Armed Forces means that PFI is the only way to ensure that the new tankers are bought. Rather than pay many billions of pounds upfront to buy the aircraft outright, PFI allows the MoD to pay yearly for access to them instead.
The RAF's tanker fleet is in desperate need of replacement, as many of the VC10s in service have been flying for decades. Military sources said that the fleet's reliability is so poor the RAF can no longer guarantee to be able to refuel when needed — an obvious danger with fighters regularly in Afghanistan.
The AirTanker consortium is made up of EADS, which owns Airbus and will supply the aircraft, as the largest shareholder with 40 per cent. Rolls-Royce, the engine maker, owns 20 per cent and VT, formerly Vosper Thornycroft, will manage the tankers' base at Brize Norton and owns 13 per cent. Cobham and Thales UK will each own 13 per cent and supply the refuelling droges and avionics respectively.
Tomorrow's deal with the MoD will be another significant win for EADS over Boeing. EADS's A330 tanker model was selected by the Department of Defence in the United States this month in a $40 billion (£20 billion) deal to replace the US Air Force's elderly tankers.
Howard Wheeldon, senior strategist at BGC Partners, said: “Doing this as a PFI is wrong, but the RAF has to have these aircraft as quickly as possible. There is no other programme more important to the military at this moment. The fact that it took the consortium so long to raise the initial money shows just how difficult lending conditions are out there.”
AirTanker was unavailable for comment, but the company has said previously that this deal would secure 3,000 jobs in Britain and a further 4,500 indirectly.