Australia's private financing programme may facilitate a joint in-flight refuelling programme with the UK, but there are still hurdles to overcome

Peter La Franchi/CANBERRA


For nearly three years, the UK's Ministry for Defence has been eyeing a long-term Royal Australian Air Force (RAAF) requirement for new in-flight refuelling aircraft as the missing link in its desire to contract out its airborne tanker requirements to the private sector.

The Australian Department of Defence (DoD) has been receptive to the idea. But until this year, it lacked the policy and the business frameworks to enable a two-nation programme to be explored beyond theoretical terms.

Since March, however, the private financing ball has been rolling in Australia, sparked off by a series of key policy decisions that may eventually affect a third of all future Australian Defence Force (ADF) acquisitions. Market forecasts from the DoD suggest the new financing programme may create a demand for investment capital worth between $500 million and $1 billion a year.

Policy evolution

The Australian policy evolution has taken a year to complete. The result is a concept of private financing for defence projects considerably broader than that adopted by the UK. The antipodean version sweeps up business deals ranging from those normally treated as regular lease or service delivery arrangements by the UK MoD, to build-own-operate-transfer models involving equipment nominally regarded as frontline military hardware.

The lead project for the programme is the building and progressive ownership transfer of new armed patrol boats for the Royal Australian Navy. This will be closely followed by the RAAF's Project Air 5402 in-flight refuelling project, now working towards having a new tanker capability in service by 2005.

The springboard approach has raised eyebrows among Australian financial analysts, who see it as evidence of a looming policy failure - if for no other reason than the Australian DoD's potential inability to align the programme with regular commercial sector financing concepts. Similar concerns are shared by the Australian Department of Finance.

Even DoD policy officials involved with setting up the programme acknowledge that a broadband approach may not be best. They also point out, however, that one of the major drivers of the new programme is the potential for a joint in-flight refuelling programme with the UK, requiring Australia to catch up quickly if a private financing solution is to be a viable option.

According to John Pluck, director of industry policy in the Defence Acquisition Organisation, air-to-air refuelling is a more complex project. "It will take some more time, but because of that complexity it is more likely to give rise to the issues that we need to learn from as we adopt private finance for the future.

"The body of learned wisdom that has always been involved in private financing in the past says start with something simple, learn from it and build up. But no, we are going in at the deep end first and doing the most complex projects at the outset."

Global tanking

The UK MoD's Future Strategic Tanker Aircraft (FSTA) programme calls for the provision of fully commercialised services delivering fuel on demand to military aircraft operating anywhere in the world.

The programme requires the successful commercial operator to sustain more than 30 aircraft to replace the RAF's BAC VC10 and Lockheed TriStar tankers. Tenders are due to be released during 2002 with an operational service starting in 2004.

Based on a single customer requirement, the UK FSTA programme will require commercial operators to dual role the tanker aircraft, using a combination of palletised load systems and stand-by mission specialists to meet capability surge demands. Aircraft not required to meet day-to-day RAF training and operational requirements would most likely be used in a commercial air freight role, pointing to a need for FSTA contenders to closely align themselves with one or more international air freight firms to avoid having aircraft sitting on tarmac.

The two-nation FSTA concept is based on the UK having a strategically aligned partner country preferably in a different regional theatre with different operational demands. This would reduce or even negate the need for aircraft and aircrews to pursue commercial work - while at the same time providing a forward head for service delivery to the RAF outside Europe. Australia, on the other side of the world, emerges as an ideal candidate partner.

The RAAF is due to retire its four Boeing 707 in-flight refuelling and strategic transport aircraft in 2005. The Project Air 5402 replacement project is working towards government approvals to proceed as part of the May 2001 defence budget.

The new RAAF tankers would be required to refuel Boeing F/A-18 Hornet and General Dynamics F-111 fighters and the RAAF's new airborne early warning and control aircraft. The RAAF's tankers, based on an Israel Aircraft Industries' probe and drogue pod system, cannot refuel RAAF F-111s, which require a centreline flying boom similar to that carried by US Air Force Boeing KC-135 tankers.

Senior level defence guidance has been in place since September 1999 for the option of studying in depth a joint privately financed programme with the UK, but alongside the alternatives of an outright purchase option by RAAF, or an Australian-only lease arrangement. The guidance limits the aircraft options to be considered by Australia to refurbished Boeing 707s and Airbus A310s, and newly built Boeing 757s and 767s. The caveats apply regardless of the final type of business arrangement adopted.

Private finance

According to a market survey released by the DoD in February, Australia is looking at the private financing model as a way to provide a combination of air-to-air refuelling and strategic transport services over timeframes of between 10 and 30 years. The baseline requirement is for a peacetime combat air patrol refuelling service averaging 750h operational support each year and an airlift service averaging 2,500h a year. At least one and possibly two tankers would be required on a daily basis. The RAAF's 707 tankers provide an average of 500 service hours a year, with this focused on F/A-18 aircrew training.

The private service provider would be required to maintain a surge capability that could be activated within 28 days to provide "the-air-to-air refuelling capability to support continuous combat air patrol coverage in one area of operation", says Pluck. During higher levels of crisis, the service provider would also be expected to have available "sufficient aircraft to continuously support two autonomous areas of operation for an indefinite period".


Australian caveats

Despite the longstanding strategic relationship between the UK and Australia, however, the option of a two-nation in-flight refuelling service must still clear the hurdle of Australian concerns about foreign involvement in key areas of defence capability delivery.

According to Cdre Syd Lemon, director for general organisational effectiveness at the Australian Defence Headquarters, "from the operational impact point of view, we aren't going to prejudice the ability to deploy and operate ADF forces. Any arrangement which places limitations on the ability to do that ceases to become an private finance initiative option."

According to Pluck, the definition of "limitations" includes proposals based on "continued control of the asset" by either the contractor, or even a second nation which has contracted the same service. If the contractor or second nation has "ideological differences", Pluck warns, "they might withdraw [the asset] from us. If those are the sorts of conditions involved, it might not happen".

A related issue being studied, Pluck says, "is the employment of civilians in operational areas and that is the subject of an ongoing study within defence to work out how we can best engage and employ civilians in our modes of support. Clearly that has an impact on how far we can go [using private financing]."

According to Lemon, "no private financing arrangement will be permitted where it impinged on the [Australian] Department of Defence's accountability to the government, doing its job. We want the unfettered right to use it irrespective of who owns the product, and we don't want contractors in the actual application of lethal force."

Source: Flight International