If the private finance initiative goes ahead, the successful bidder for the UK's Future Strategic Tanker Aircraft deal will be able to offer spare aircraft for third-party work when the RAF does not need them

Later this year the UK Ministry of Defence is due to select a contractor to provide the Royal Air Force with its in-flight refuelling tankers for three decades. Unlike most acquisitions, however, the MoD will be buying a service, not the aircraft, contracting for "hoses in the sky".

Bidding for the Future Strategic Tanker Aircraft (FSTA) deal - worth around £13 billion ($18.5 billion) over the 27 years of the contract - are two consortia, AirTanker and the Tanker Transport Service Company (TTSC). The former, offering new Airbus A330s, consists of Cobham's FR Aviation, EADS, KBR Halliburton (formerly Brown & Root) Rolls-Royce and Thales. TTSC is offering ex-British Airways Boeing 767s and consortium members are BAE Systems, Boeing, Serco and Spectrum Capital.

FSTA is to be funded using the UK government's private finance initiative (PFI) scheme, which transfers the asset value off its accounts and is regarded as easier to manage because the MoD only pays a service charge - maintenance and spares, training for aircrew and ground personnel, while other costs are the responsibility of the contractor. Although the MoD is committed to PFI at present, there is still a possibility that a different process could be used. A final decision will be made at the time of the initial approval (initial gate) later this year. Industry sources say that it would be difficult for the MoD to fund a tanker acquisition if PFI is ruled out.

The RAF needs new tankers, having retired its older BAC VC10 K2s and with the VC10 C1(K)s, K3s and K4s all well over 30 years old. The remainder of the refuelling fleet consists of Lockheed L1011 TriStars, that, like some of the VC10s, are ex-airliners, some from BA and others from Pan American. The MoD plans to sign a contract next year, with the service beginning in 2007, although there is the potential for bidders to begin offering a service as soon as possible.

Lessons learned

PFIs are expected to offer flexibility and allow aircraft to be upgraded to meet new requirements or threats as they emerge. Lessons have been learned from the recent conflict in Afghanistan, during which the RAF provided refuelling to US Navy aircraft. "We've never done anything like this before, and the contract underpinning FSTA therefore has to be robust to accept changes [that are needed during conflict]. Flexibility is the key to air power, and to a successful PFI," says one source. When the tankers require an upgrade during their 27-year service life, PFI will make it possible to take a longer-term investment perspective, he adds.

In comparison with the MoD's incessant struggle to find funds for much needed additional, or newer, equipment, a consortium member says: "We will take the through-life perspective and we will invest to manage costs and risks." Recently, for instance, Aerosystems International received a contract to fit Link 16 tactical datalinks, but only to eight tankers.

Another consortium member says that widebody, multi-point tankers such as FSTA, offer greater operational flexibility. For instance one aircraft will be required for the daily in-flight refuelling requirement over the North Sea, rather than an aircraft in the morning and another in the afternoon. Once the North Sea tasking is finished, the aircraft would still have enough fuel on board for an intra-European trooping flight.

The winning bidder will also provide around 25% of the air and ground crews - so-called sponsored reserves. The RAF will not require all the aircraft every day and the contractor will be able to offer the spare aircraft for third-party transport work. This will make additional money for the service provider, and reduce the cost to the MoD. An MoD source says the best value for money solution is being sought and "the more third-party work there is, the happier we are." However, the aircraft role equipment - air-to-air refuelling hose-and-drogue units, the defensive aids suite and other military systems - will need to be removable so that the aircraft meet UK Civil Aviation Authority regulations. As the aircraft will be dual use, they will have RAF and CAA registrations and will be maintained to the European Joint Aviation Authorities standards.

Final bids

Neither bidder is willing to state how many aircraft it is offering the MoD, but it is believed the final bids due at the end of this month will be in the region of 20-25 airframes. The number of airframes TTSC can offer is limited as BA, which ordered all but three of the world's Rolls-Royce RB211-524-powered Boeing 767s, has 28 aircraft (some operated by Qantas). Although inevitably there are comparisons between the A330 and the 767, the aircraft is a minor consideration when looking at a PFI-funded acquisition. Proximity trials have been flown with each aircraft, involving a Dassault Rafale and A330 in France and a Boeing F/A-18 Hornet BA 767 at the US Navy's NAS Patuxent River test centre.

Keith Archer-Jones, TTSC bid director, says Boeing will be responsible for the design and certification of the 767 tanker for the RAF - it also has an order for tanker 767s from Italy while Japan and the US Air Force plan deals for the same platform (see panel P33)- but the conversion will be subcontracted to BAE. In the same way, says AirTanker marketing director Tim MacMahon, EADS Casa in Spain (which has group responsibility for special missions aircraft) will develop the A330 tanker conversion, but the work will be performed in the UK.

AirTanker partner Thales has also developed a console for a third crew member to act as the mission commander. The console is based on equipment developed for a number of other UK programmes such as the Royal Navy's Westland Sea King AEW7 airborne early warning helicopter, and the electronic warfare techniques generator from the Raytheon ASTOR air-to-ground surveillance programme and BAE Nimrod MRA4 maritime patrol aircraft.

Crew numbers are considered a thorny subject by some as the additional cost of an extra crew member over 27 years must be taken into account - as does the operational utility of having a "third pair of eyes in the cockpit", particularly during busy periods or when the aircraft is required to operate near hostile airspace. Archer-Jones says TTSC is still working on crew numbers.

Although the TTSC-bid 767s already have used some of their airframe life, Archer-Jones says RAF utilisation will be such that the remaining fatigue life will not be an issue. He also rebuts criticism that the BA 767s are an "orphan fleet", noting that the engines are part of a large fleet and support and upgrades are readily available. TTSC has not decided whether to take the "HT upgrade" which modifies the RB211-524 engine with the core from the Trent 700. Andy Stevens, Rolls-Royce managing director defence aerospace, says the company has been asked by TTSC to bid on the long-term engine support and the HT-upgrade. R-R is supporting the bid through its Derby plant to maintain a chinese wall with the AirTanker team at Bristol. Some BA 767s are flying with the upgraded engine and it has demonstrated improved reliability and costs, and TTSC will take a decision later based on the business case, says Archer-Jones.

Civilian third-party work is considered to be a key element of the deal by both bidders and the MoD. Archer-Jones says such work is key to through-life value for money, and while 11 September has affected the immediate aircraft market, the 27-year programme length means that the market will fluctuate. He adds that the freight and passenger markets are being considered, adding that the freight and parcel markets are particularly interested in the 767. Aircraft will be demilitarised for commercial work, although it is unlikely that the aircraft will be used by the RAF during the day and a freight operator at night.

Charter work

McMahon says the A330 is popular with charter airlines, and that AirTanker is close to finalising a deal with a UK charter carrier. The aircraft will fly permanently with passenger seating which will not be removed for tanking flights, he says. The after-effects of 11 September mean that AirTanker is also able to consider taking A330s from earlier production slots as some airlines renegotiate deliveries to meet expected demand. He also expects the A330 to have some family commonality with the Airbus Military Company A400M transport, which is likely to include some elements of training and logistics, although the extent is not yet clear.

A further use for the aircraft could be carrying government officials and other dignitaries on long-distance flights beyond the scope of the regional and business jets operated by 32 Sqn. This task is already carried out by the VC10 C1(K)s of 10 Sqn, and could be carried over to the FSTA, particularly as the Treasury appears to have overruled plans for a separate PFI covering the supply of VVIP aircraft.

Source: Flight International