The National Audit Office report in March of this year painted a damning picture and the Defence Select Committee have waded in a few days ago with another, neatly times to coincide with the first flight of the aircraft.
It is worth quoting the reports summary
In March 2008, the Ministry of Defence (the Department) signed a private finance initiative (PFI) contract with AirTanker Ltd, for the Future Strategic Tanker Aircraft (FSTA) to provide air-to-air refuelling and passenger transport services. FSTA is based around 14 modified Airbus A330s and will replace the 24 Tristars and VC10s that form the RAF’s current fleet.
Under the contract, AirTanker owns the aircraft and will provide them to the Department when required. AirTanker will also provide the associated aircraft support, maintenance and infrastructure, making the scope of the deal broader than any other defence PFI contract to date. The value of the contract, worth £10.5 billion over 27 years, also makes it the largest signed.
PFI works best where activities and demand are predictable. This is clearly not the case for FSTA. For instance, it is simply astonishing that the Department did not decide until 2006 that FSTA should be able to fly into high threat environments such as Afghanistan. Yet the Department is inhibited from changing the specification because of the implications to the cost of the PFI. Just two years after the deal was signed, the forthcoming Strategic Defence and Security Review is likely to change the demand for the services AirTanker has been contracted to deliver. As the Committee’s previous work shows, dealing with changes on PFI deals is expensive and the Review may question whether this PFI deal is sensible or affordable. The fact that no other country has chosen to procure air-to-air refuelling and passenger transport using PFI type arrangements is further indication that PFI is not a suitable procurement route for such important military capabilities.
There are significant shortcomings in the Department’s procurement of FSTA and we do not believe the procurement was value for money. The shortcomings include:
- assuming that PFI would be the right solution from the outset without a sound evaluation of alternative options;
- running only a limited competition;
- never developing a realistic fallback if the PFI solution proved unworkable;
- failing to have a clear understanding of the full costs of running its current aircraft fleets and failing to secure visibility of sub-contractor cost data, meaning the Department was unable either to compare costs with the price being offered by AirTanker or determine whether the PFI option was good value for money;
- not fixing the requirements until late into the process so that the negotiations themselves took over nine years to complete, more than double the expected four years. This delay in turn led to a considerable cost increase against initial estimates.
- not having the right skills and experience in place and failing to provide firm leadership until the later stages of the procurement to effectively manage the procurement, and
- not making timely decisions on fitting the necessary protection equipment to enable the aircraft to fly into high threat environments like Afghanistan, a task that the Tristar may have to continue doing until 2016.
In order to obtain best value going forward, the Department must retain contract expertise and ensure that staff make decisions regarding FSTA in the full knowledge of the financial implications. Without this action, the risk is that extra demands will be placed on AirTanker which result in additional, and unnecessary, payments being made by the Department.
In the measured tones of official publications this is pretty damning stuff.
Quite clearly it is yet another MoD/Military weapons grade cock up.
But we say this with the benefit of hindsight, if we had purchased them outright something else would have had to be delayed or omitted from the equipment plan. The PFI arrangement means that pretty much everything is included for about £400 million per year, more details here.
The delays have resulted in a woefully inadequate air transport capability which has had serious impact on the Iraq and Afghanistan air bridge and as usual, we have had to rely on the herculean efforts of the aircraft maintainers and capabilities of the air movements teams to keep even a basic level of service in support of operations. We spend millions on training personnel so they can do a good job but them saddle them with antique equipment that is fundamentally unfit for service.
Because of the need to ‘get the small print right’ every minor change in requirement needed yet more costly and time consuming legal/commercial reviews and the time to get the funding consortium sorted have all added to the considerable delays and costs. The delay means we have had to spend a lot of money on the VC10’s and Tristars, additional maintenance and equipment. Money that we can ill afford to spend and is essentially, wasted. The older aircraft are much less fuel efficient. It is conceivable that the delay costs, additional spend on fuel and maintenance etc, could have paid for new aircraft.
We tend to fixate on the aircraft number, divide that number by the contract value and proceed to the spitting coffee/ruining keyboard stage but it is not a lease deal for a number of aircraft, its a service delivery contract, the number of aircraft is dictated by the requirements.
Here is the opinion of one Dr Liam Fox, whilst in opposition.
one of the most absurd procurement decisions taken by this Labour government
In order to reduce costs and make them suitable for use in the civilian lease market a number of design compromises have been made which severely limit the aircrafts military utility.
There will be no airborne refuelling receptacles fitted which means the aircraft will not be able to take on fuel themselves whist airborne. One might think that this would not be needed because of the aircrafts extreme range but this is not the case. Many missions have demonstrated the value of being able to take on fuel for hugely extended missions, like the 1982 Black Buck Vulcan attacks against the runway at Port Stanley. Reliving old glories is not a sensible way of planning capabilities but every other sensible operator of airborne refuelling aircraft ensure they can take on fuel themselves. The Royal Australian Air Force use the same A330 as the FSTA aircraft will but they have sensibly decided on this capability.
Although the VC10’s don’t have a boom the other A330 refuelling aircraft do, its a system that allows the aircraft to refuel those fitted with a receptacle rather than probe. In UK service there is only 1 such aircraft, the C17, although if the RC-135 Rivet Joint purchase is finished that will be another one. It also limits our usefulness in coalition operations although there is nothing, apart from cost, preventing the C17 and Rivet Joint from being fitted with refuelling probes.
Not all of the aircraft will be fitted for the AAR role, 7 I think, of those 7 only 5 will be fitted with a centreline Hose Drum Unit (HDU) to provide flexibility and high rate offload. This variation in equipment fit will result in a loss of flexibility as having aircraft in the right place with the right equipment becomes that much more difficult with a non homogenous equipment fit.
No self defence system or flight deck armour was specified, in the early 90’s when the programme was initiate these might have been a reasonable things to leave off but for operations today, it is simply unthinkable for an aircraft to fly in hazardous airspace without a full suite of protection systems. These will be retrofitted but the impact of this on the contract and their aircrafts desirability to the lease market is unknown. DAS are some of the most restricted systems in existence, closely guarded and seldom discussed. Quite how they might be removed so the aircraft could be used for the civilian lease market and refitted without complex engineering and recertification processes is again, unknown. In some ways it is perhaps a good thing because had they been specified in the original contract they would have been fitted and immediately removed due to obsolescence when the aircraft entered service. At least this way the RAF will get the latest DAS. It is easy to be seduced by the bungling MoD line on this issue but I suspect that it was not omitted at all, but deleted due to commercial and cost issues. It is an interesting excuse; ‘how could we predict we would be flying into high threat environments’ is often heard but whilst hiding behind the convenience of not being able to predict the future we are quite happy to enter into a 27 year contract. In 1983 could we have predicted any of the events in the following 27 years and specifically how it would change military requirements?
The RAF FSTA aircraft will not have a large freight door on the main deck, nor a cargo floor. The KC-45 that EADS proposed for the recent US tanker competition had a boom, in flight refuelling receptacle and a full cargo door/floor, for about £120m each. Not having suitable cargo handling capabilities on the main deck will limit it to light stores on small pallets and personnel, the lower deck will be able to handle LD3 containers and 463L’s but because upper deck access is limited by a small door
Is cancelling an option?
Before answering that question another question is, should we.
In all fairness to Air Tanker, once the contract was signed, they have delivered everything they said they would. on time but I don’t think anyone believes this contract to be good value for money and is seen by many as a PFI too far. That said, the alternative is a capital purchase, possible under utilisation of expensive aircraft and keeping expensive military aircrew for non hazardous taskings. We may even be able to utilise some of experience of commercial operators to drive down costs and improve availability rates, no doubt civilian and military operators can learn from each other.
As we always maintain, getting anything remotely complex into service is a complex and time consuming business, for very good reasons and cancelling now might actually mean the existing aircraft having to remain in service longer than planned.
The MoD have traded affordability for value for money, penny wise pound foolish in other words.
Much is made of cancellation costs, exclusivity clauses and penalties should we ever use any other operators and this document makes interesting reading about risk financing.
In the context of a need to reduce budgets the PFI provides a route to get capability at a reduce immediate cost.
The question we know have to ask is this;
Is the reduction in capability and long term poor value money worth it to get something in the short term?