FSTA – Just get on with it please

Posted on 12 Jul 2010 by The Manufacturer

Howard Wheeldon reads between the lines on the announcement to review the Future Strategic Tanker Aircraft programme

Business Secretary Vince Cable surely knows the urgency of replacing Britain’s very elderly air to air tanker refuelling and transport aircraft fleet. Also, on the back of set-in-stone coalition government policies aimed at slashing spending in all areas, there is already ample commitment to review existing military defence contracts. Therefore, it is surprising that there should be calls by a senior government Minister for a separate inquiry into the Future Strategic Tanker Aircraft (FSTA) deal that the Air Tanker consortium (EADS, Rolls-Royce, Cobham, VT Group/Babcock and Thales) signed with the British government back in March 2008.

Inquiries cost taxpayers rather a lot of money and with the government already having set out on a full strategic defence review it does seem ridiculous to be talking of setting up a separate inquiry into one particularly urgent and very necessary project just because it happens to be one that a former Army chief who is now apparently advising the government has never liked. Presumably, this is because it puts the RAF’s needs above those of the Army!

Speaking about the FSTA in the Sunday Times yesterday the Business Secretary claims to have “detailed information on massively expensive and unnecessary commitments” that comprise part of the contract. Now, I wonder what that detailed information could possibly be and, more importantly, who provided it! Meanwhile, assuming that I am reading the story correctly, the suggestion is that the £10.5bn Private Finance Initiative (PFI) deal that will replace existing Vickers VC10 and TriStar transport and refuelling aircraft with 14 new leased A330-200 aircraft does not compare favourably with other aircraft lease deals in the private sector. Maybe it doesn’t but then how many leased aircraft deals are PFI’s and how many are about ensuring that all financial risks over an agreement covering 27 years are held by the private sector? My guess is that there is not one that is comparable.

As previously said, aimed at transferring risk away from the MoD to industry and the private sector (hence the FSTA deal spent more than six years in the negotiating phase) the fixed price arrangement that was signed in 2008 includes a very clear set of performance incentives and objectives covering the whole period of the agreement. Does Mr. Cable understand I wonder that throughout the 27 years the Air Tanker consortium will provide the RAF with full Air Transport and Air to Air refuelling capability and, if necessary, freight. And that includes provision of infrastructure, all operational training, maintenance, despatch and ground support. Flight crews and control of the mission will of course be provided by and under complete RAF jurisdiction and control.

In terms of size and scale FSTA is clearly the largest Private Finance Initiative (PFI) deal so far. No one is about to say that FSTA is absolutely perfect but given the economic difficulties that we face in terms of affordability, let alone inherent risk, one suspects that the project would, through the presupposed Strategic Defence Review process face the axe.

Leaving aside the many jobs safeguarded through the aircraft build phase FSTA as a whole was expected to create around 500 jobs. It should also release a substantial number of RAF personnel for other duties and presumably reduce the number of MoD employed civilian staff at RAF Brize Norton which will, as now, be the headquarters of the air to air refuelling and transport fleet. Replacing existing and expensive to operate RAF VC10 and TriStar aircraft that currently range in age from 40 to 47 years with modern more fuel efficient and reliable aircraft should give the RAF up to one and a half times more despatch reliability and thus capability.

Whilst I have no doubt that there are cheaper aircraft lease deals on the market I am satisfied that the government is not being ripped off in the FSTA PFI deal. I have no axe to grind except that, such is the importance of the air to air refuelling and transport aircraft capability, cancelling the project could only be done if other NATO partners would be prepared to take on the complete refuelling exercise. I doubt that there is any NATO member country outside of the US that has the necessary experience and capability to do that. Indeed, given that as a direct result of the Nimrod MR2 disaster of September 2006 the RAF fleet of VC10 aircraft are no longer allowed to act as transport aircraft (they can and are still used as refuelling aircraft) I suspect that unless FSTA is allowed to continue Britain would soon no longer be able to meet its NATO obligations.

That FSTA is a relatively expensive and certainly ambitious programme can hardly be denied. Could it have been done cheaper? Probably, by using inferior or second hand aircraft, but at the same time this would have seriously increased taxpayer risk. While few will argue that at £10bn plus spread over 27 years and including original infrastructure costs, aircraft build and all support cost, management and operating personnel costs, maintenance, spares, training plus financing and inflation costs FSTA can sound like an expensive beast. That the programme is on schedule, within budget, has met all major milestones and that the RAF will pay not one penny until the first aircraft is accepted into service by the RAF (and only then on an as used basis until all fourteen aircraft are signed off into service) may not have been noticed by the Business Secretary.

Nonetheless, I sense that behind this criticism is not the cost of the FSTA programme or whether what the previous government chose was the best option for taxpayers or not. Perhaps this is more about a previous Army Chief of the General Staff, one General Sir Richard Dannatt preferring to see the RAF completely starved of all investment. Why is it I wonder that I get the impression that there are still those in active Army service or that have recently left the service that just do not realise the massively important roll the RAF and indeed the Royal Navy play in meeting our full NATO obligations be those in Afghanistan, on the high seas, across the rest of the globe where our forces serve or here at home?

Howard Wheeldon is the senior strategist at BGC Partners