RAF tanker deal will be biggest test yet for PFI

The biggest test-case yet for private finance initiatives and their impact on the UK military procurement scene is now underway.

The biggest test-case yet for private finance initiatives and their impact on the UK military procurement scene is now underway, following the submission of bids last month for the Royal Air Force’s Future Strategic Tanker Aircraft (FSTA) requirement. The contract is expected to be worth £13bn over 27 years.

Two teams are bidding – AirTanker, comprising Brown and Root, Cobham, EADS, Rolls-Royce and Thales; and the Tanker and Transport Service Company (TTSC), consisting of Boeing, BAE Systems, Serco and Spectrum Capital.

AirTanker’s offering is based on the Airbus A330-200. A core fleet of around 10 aircraft would be retained by the RAF as multi-role tanker transports, with a surplus quantity – perhaps around another 15 aircraft – working as commercial freighters. But they will remain on hand for ‘surge demand’ in times of crisis or conflict. AirTanker believes the rapid role-change capability of the A330-200 will make the aircraft ‘truly dual-use’.

Third-party operators

At TTSC, where the plan is to ‘acquire, modify and utilise’ a fleet of Boeing 767 aircraft, most probably from British Airways, a similar idea is proposed.

‘The concept is for the RAF to own some portion of the aircraft (around 10) for tanking, freight or passenger operations: ‘It’s their call,’ says David Spong, president of Boeing’s Military Aerospace Support business.

Another 15-20 aircraft would be placed in the hands of one or more ‘third-party revenue generators’. This could be an airline, freight operator or lease-finance company that would have to hand the aircraft back to the RAF during a long-term contingency.

It’s all uncharted, dangerous territory, but if it works, it will undoubtedly set a precedent for this kind of business, as there are many other potential PFIs waiting in the UK military wings.

The most ambitious of these is a programme called the UK Military Flying Training System, or UK MFTS, which aims to furnish a tri-service need for a complete overhaul of the way British Army, Royal Navy and RAF pilots are trained. The underlying assumption at the MoD is that UK MFTS will be a private finance initiative deal.

The urgency behind MFTS is because a number of the aircraft types currently used for training fast-jet and multi-engine pilots are becoming obsolete. In the case of the BAE Systems Hawk advanced jet trainer, which has been in service since the mid-1970s, the MoD has concluded that it will be ‘unable to maintain its present task after 2006’.

The advantage of a private finance initiative programme is that the government does not carry any of the technical risk or capital cost burden associated with it. What is less certain is how these PFIs, which rely on a high percentage of civilian contractor personnel, will affect the character of the UK armed services.

Next year, when it awards FSTA, the MoD will have finally crossed the Rubicon.

Note: The MoD has awarded Smiths Group a £40m contract to design and install its GenHUMS electronic monitoring system in the Royal Navy’s fleet of Sea King helicopters. The GenHUMS is a cockpit voice and flight data recorder. It continuously checks the performance of safety-critical components in order to provide advance warning of potential equipment failures and collects data for routine maintenance. The award of the contract follows the development of the system on 40 Chinook helicopters for the defence ministry.

Meanwhile, French defence contractor Thales, which missed out on a £1.7bn deal to supply the MoD with new army radios, has been appointed to equip 700 armoured vehicles with night vision equipment.

The contract, worth £230m, was announced by Adam Ingram, the armed forces minister, at Thales’ Glasgow optronics factory where the equipment is manufactured.