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Select Committee on Defence Eleventh Report

7 Future Strategic Tanker Aircraft

Background

97. In addition to providing air-to-air refuelling, the MoD's elderly tanker aircraft fleet also provides a Strategic Lift capability by transporting passengers and freight. The MoD plans to replace its current tanker aircraft with new tanker aircraft which will also transport passengers to operational theatres. The NAO Major Projects Report 2006 provided the following information, as at 31 March 2006, on the Future Strategic Tanker Aircraft (FSTA) programme:

FSTA is planned to replace the air refuelling and some elements of air transport capability currently provided by the RAF's fleet of VC-10 and TriStar aircraft.

FSTA was nominated as a potential Private Finance Initiative (PFI) project in 1997. An Assessment Phase, designed to confirm whether PFI would offer best value for money, was launched following Initial Gate approval in December 2000. The Assessment Phase is intended to confirm industry's ability to meet the service requirement, programme timescales and costs. It is also required to determine whether the inclusion of Air Transport capability in the contract will represent value for money, and clarify the manning and personnel implications.

After a competition and several years of complex PFI negotiations AirTanker Ltd, a consortium of EADS, Rolls Royce, Cobham, and Thales were judged to offer the best prospective PFI solution. VT Group joined the consortium shortly after.

Following subsequent resolution of key commercial terms, the Secretary of State announced on 28 February 2005 that AirTanker Ltd had been selected as Preferred Bidder for FSTA. A final decision on the PFI deal for the FSTA programme can be made only when negotiations are complete, the detailed contract is agreed, and the risks to the programme are fully understood.

While the MoD, in consultation with the rest of Government, hopes to complete its assessment soon, further progress has to be made with AirTanker towards agreeing a fully developed contract covering all the commercial terms and service provision aspects. This has led to a further extension, and increase in investment to the Assessment Phase in order to further de-risk the Main Gate Business Case.[143]

98. No details are provided in the Major Projects Report 2006 on the forecast cost or forecast In-Service Date for the FSTA programme. The NAO Major Projects Report 2005, published in November 2005, provided the following details on the target date for Main Gate Approval, forecast In-Service Date, and the forecast cost of the PFI programme:

Target date for Main Gate Approval—January 2002; Current forecast date of Main Gate Approval—September 2005; Variation—44 months later than planned.
Forecast In-Service Date at Initial Gate—January 2007 (Earliest), January 2009 (Latest).
Forecast cost of PFI programme at Initial Gate—£12.4 billion (Most Likely), £13.9 billion (Maximum).[144]

99. Table 5 summarises the key points on the FSTA programme provided in the written submissions by AirTanker and Rolls-Royce.

Table 5: Key points on the FSTA programme from the AirTanker and Rolls-Royce written submissions

Organisation Key points from written evidence

AirTanker We are…. proud to have been chosen by the MoD to provide the RAF with a fleet of new, modern, highly reliable, commercially proven Airbus A330-200 aircraft equipped with modern Defensive Aids Suites (DAS) and capable of carrying 300 passengers under the Future Strategic Tanker Aircraft (FSTA) programme. AirTanker has been in discussion with the MoD about providing a replacement for its air transport (AT) and air-to-air refuelling (AAR) service since 2001.

AirTanker will operate a fleet of 14 converted Airbus A330-200 tanker transport aircraft, and provide integrated all-inclusive services, enabling the RAF to utilise these aircraft in both AAR and AT roles in all scenarios. The RAF is able to fly and retain full operational control of the aircraft, which are provided under a PFI service. AirTanker anticipates contract signature by the end of 2007, with the first aircraft entering service in 2011; the 27-year contract will ensure the availability of the capability until 2034.

The flexibility, capability and availability offered by AirTanker means each aircraft can be significantly more productive than those in today's fleet and markedly improves the customer experience of passengers. It is already widely recognised that FSTA will modernise the RAF's vital AAR capability, and we believe that it will become increasingly understood that it will also bring about a profound and much-needed improvement in the RAF's strategic lift capability.[145]

Rolls-Royce There is confidence that the AirTanker service will begin on time - it is a carefully constructed low risk programme for MoD….The contract has been designed to allow flexibility in the usage of the fleet between AAR [Air to Air Refuelling] and AT [Air Transport]….From the outset, aircraft can be tasked for either AAR of for AT. Rolls-Royce recognises the pressure on the RAF's transport fleet and the desire to see the FSTA fleet enter service. The Company is working with fellow shareholders and MoD to close this deal and launch the programme.[146]

Source: AirTanker and Rolls-Royce

Requirement for new tanker aircraft

Current tanker aircraft fleet

100. The MoD has a mixed tanker fleet consisting of TriStar and VC-10 aircraft. The MoD has nine TriStar aircraft. All previously saw airline service, six were owned by British Airways and three by Pan American. The aircraft were purchased by the MoD in the early 1980s. Six of the aircraft were modified into air-to-air refuelling tanker aircraft and also provide air-transport (passengers and freight). Three of the aircraft are largely unchanged from their airline days and operate only in the passenger role.[147]

101. The TriStar aircraft were manufactured between 1979 and 1980 and, on current plans, the TriStar fleet will reach its Out of Service Date "towards the middle of the next decade".[148] Given the age of the TriStar fleet, we asked about TriStar's availability. Table 6 provides details on the MoD's planned TriStar availability rates and the achieved availability rates, and shows that for 2003-04, 2004-05 and 2005-06, the achieved availability rates fell well short of the planned availability rates. In 2005-06, the TriStar's achieved availability was only 69% of the planned availability.

Table 6: Planned and achieved availability rates for TriStar aircraft

Financial Year Planned availability rates
Hours
Achieved availability rates
Hours (%)

2003-04 9,561 8,879 (92.9%)

2004-05 10,561 8,657 (82.0%)

2005-06 11,191 7,693 (68.7%)

Source: MoD[149]

102. In its submission, Marshall Aerospace stated that it had offered additional TriStar aircraft to supplement the RAF's fleet.[150] AVM Leeson was not aware of the offer, but said that the analysis undertaken to date did "not favour the purchase of more old aircraft like TriStar" and the analysis in recent months showed that the purchase of more TriStar aircraft was not a viable option.[151]

103. The MoD has 16 VC-10 aircraft. Six of these aircraft are predominantly air-to-air tanker aircraft with very limited passenger carrying capability. The other ten aircraft provide air-to-air refuelling and air transport (passengers and freight). These aircraft were procured by the MoD in the 1960s[152] and were converted to the air-to-air refuelling role in 1993.[153] The RAF's website states that "the VC-10 is now reaching the end of its service life".[154]

104. We asked how long the VC-10 aircraft could keep flying. Air Commodore Gunby was confident that that the VC-10 aircraft could be maintained in service and would continue flying until the introduction of the FSTA.[155] AVM Leeson acknowledged that the cost of keeping the VC-10 aircraft in operation was "already very high" and more expensive than a TriStar, because of the aircraft's age.[156] Air Commodore Gunby accepted that there would be some point beyond the introduction of the FSTA when "one would have to invest a disproportionate amount to maintain the fleet in service".[157] We asked at what point it would become prohibitively costly to keep the VC-10 fleet in service. AVM Leeson did not think that the MoD were "at the prohibitive point yet", although he added that:

I would dearly love the FSTA service to start earlier….We would be delighted to be in a position to have got rid of the VC-10 far earlier than we have, but technically the programme can be continued even if FSTA slipped further.[158]

Mr Rowntree considered that both TriStar and VC-10 had the capability to run longer and it was "just a matter of making those investments and making those decisions at the right time points".[159]

105. The MoD's current tanker aircraft fleet consists of elderly TriStar and VC-10 aircraft which are becoming increasingly expensive to keep in service. We note that MoD considers that these aircraft can be maintained in service until the Future Strategic Tanker Aircraft (FSTA) is available, although it acknowledges that there would come a point where the cost of maintaining the aircraft would become prohibitive.

SAFETY ISSUES

106. We had heard concerns about the safety of the TriStar and VC-10 fleets. AVM Leeson told us that the MoD

take the safety of our air, land and sea systems extremely seriously and the process by which we ensure that those best able to discharge those safety responsibilities, the people in charge, do so, is subject to some very firm and careful delegations.[160]

We asked AVM Leeson whether he was satisfied that the TriStar and VC-10 fleets were safe. He said "yes, absolutely".[161]

Issues on the FSTA programme

Forecast In-Service Date

107. In its memorandum, the MoD states that it plans to have the FSTA in service by the turn of this decade. We asked when the first FSTA would be in operational service. Mr Rowntree told us that "assuming that the approval comes through very shortly….and the programme runs as expected, it will start to deliver its first aircarft in 2011".[162] He added that if the approval was given, the next phase was to enter a "funding competition", and "we would expect to close the contract in November [2007]".[163] General Figgures' planning assumption was that the first FSTA would be in service in 2011, although he added that, as for the A400 programme, there were risks which had to be managed.[164]

PRIVATE FINANCE INITIATIVE

108. Given that the FSTA was nominated as a potential Private Finance Initiative (PFI) project in 1997, we asked why the process of agreeing a deal had taken so long. Mr Rowntree said that this was "about the biggest PFI" the MoD had been involved in and it passed a large amount of risk to industry and

the consequence of that risk transfer is that industry needs to be very confident that they understand the requirement and how they are going to deliver it, and that does take a long time….we have done a massive amount of work in these early phases to make sure that the solution is very robust, both financially and technically.[165]

109. Mr Rowntree considered that the FSTA PFI solution was a value for money solution.[166] We asked what analysis had been undertaken to demonstrate that PFI was the best solution. Mr Rowntree said that they had compared the PFI deal with the cost of a conventional procurement, and it was value for money compared to a conventional procurement. He added that the MoD had "taken an informed judgment as to what the through-life cost of this deal will be, considering also the availability of this service". He emphasised that the MoD was buying a service, not an aircraft.[167] Mr Fernández Sáinz considered that "PFI is a process, in my opinion, that is too long….it is an expensive way".[168]

110. We asked the MoD how much the FSTA PFI deal would cost and how much it would have cost under a conventional procurement approach.[169] The MoD told us that the price of the PFI deal was commercially sensitive and that "premature release of FSTA financial data" could harm MoD's commercial position during the PFI funding process. The MoD would not, therefore, release the information we had requested. However, the MoD informed us that:

AirTanker was declared Preferred Bidder following competition and the consortium's bid has been subjected to Investment Appraisal against a Public Sector Comparator. Our analysis has confirmed that AirTanker's PFI proposal offers a Value For Money solution. The overall Whole Life Cost of the programme is expected to be in the order of £13 billion.[170]

111. We note that the MoD considers that a Private Finance Initiative (PFI) deal for the Future Strategic Tanker Aircraft (FSTA) programme offers better value for money than acquiring the aircraft under a conventional procurement approach.

112. The FSTA programme was nominated as a potential PFI project in 1997, but some ten years later a deal has yet to be finalised. We expect the MoD to identify the reasons why this project has taken so long, and the lessons for future projects where the MoD is considering a PFI approach.

113. On 6 June 2007, the Minister of State, Adam Ingram, announced that the MoD had decided

to proceed towards financial and contractual close of the Future Strategic Tanker Aircraft (FSTA) project PFI deal….Extensive evaluation of the final bid has demonstrated that PFI offers a cost effective solution to this requirement and we are now proceeding towards financial and contractual close of the deal with AirTanker Ltd. We expect AirTanker Ltd. to now begin the fund raising process.[171]

In his statement, the Minister said that the FSTA remained "a complex and challenging PFI programme" and contract signature was "dependent upon the outcome of the PFI fund raising process".[172]

114. The announcement was welcomed by Air Chief Marshal Sir Glenn Torpy, Chief of the Air Staff, who said that:

Air-to-air refuelling and strategic airlift are fundamental to the UK's expeditionary capability and FSTA is a crucial part of that. Although our current fleets of VC-10 and TriStar aircraft are doing a superb job, both fleets are coming towards the end of their useful lives. I am, therefore, delighted that this key milestone has been achieved, and I look forward to getting the new aircraft and facilities into service as soon as possible.[173]

115. We welcome the news that MoD has decided to proceed towards financial and contractual close of the FSTA PFI deal. However, challenges still remain on the project as the funding has still to be raised. It is important that the MoD works closely with the contractor, AirTanker Ltd, so that the PFI deal can be finalised quickly. We consider it vital that the FSTA aircraft enter service as soon as possible, given the need for improved air transport for Service personnel.

INTERNATIONAL PARTNERS ON THE PROGRAMME

116. Other nations, such as Australia, France and the United States also have a requirement for new tanker aircraft. We asked whether there was an opportunity for other nations to join the UK's FSTA programme. AVM Leeson said he was "not aware of significant overtures for participation in the FSTA programme as currently configured".[174] Mr Rowntree said that the MoD had spoken to other countries, including France, and General Figgures added that the discussions with France were not about a joint programme, but about the lessons that "the French could take from us in terms of providing this service".[175] However, as part of our inquiry into the future of NATO, a representative of the Committee was told by François Lureau, National Armaments Director at the Délégation Générale pour l'Armement, that France was interested in becoming a partner in the FSTA programme. We note that other countries also have a requirement for new tanker aircraft. The MoD should consider whether there is scope for another country to become a partner on the FSTA given the financial and inter-operability benefits that this might offer.

143 National Audit Office, Major Projects Report 2006, Project Summary Sheets, HC 23-II, Session 2006-07, pp 163-164 Back

144 National Audit Office, Major Projects Report 2005, Project Summary Sheets, HC 595-II, Session 2005-06, pp 139-140 Back

145 Ev 36-37 Back

146 Ev 49 Back

147 http://www.raf.mod.uk/equipment/tristar.cfm Back

148 Ev 45 Back

149 Ibid. Back

150 Ev 42 Back

151 Q 94 Back

152 Q 81 Back

153 http://www.raf.mod.uk/equipment/vc10.cfm Back

154 http://www.raf.mod.uk/equipment/vc10.cfm Back