Possible reduction in tender price as aircraft values fall could also affect competition

Third-party use of the Future Strategic Tanker Aircraft (FSTA)is emerging as a key discriminator in the competition to supply the UK Royal Air Force with a privately funded in-flight refuelling capability. Quantifying such work as part of the bid has, however, become more difficult because of the airline industry downturn following the 11 September terrorist attacks.

FSTA will replace the RAF's BAC VC10 and Lockheed TriStar tankers using a so-called private financing initiative (PFI) to supply the service (Flight International 10-16 July),in the biggest deal of its kind to date. Offering the service to organisations other than the RAF allows the contractor to make additional money, with the Ministry of Defence sharing the profits.

Two consortia are bidding: AirTanker, comprising Brown & Root, Cobham's FR Aviation, EADS, Rolls-Royce and Thales, is offering new Airbus A330s; while Tanker Transport Support Company (TTSC), the BAE Systems, Boeing, Serco and Spectrum Capital venture, is offering ex-British Airways Boeing 767s. A winner is due to be selected in the middle of next year.

An MoD source says the ministry is seeking the solution that meets the requirement and is the best value for money: "The more third-party work there is, the happier we are."

In light of the airline downturn, the source says it is possibly more difficult now to determine third-party income, which is likely to make the contractors more realistic when submitting their final offers. This should eliminate the possibility of contract re-negotiation when the targets cannot be met. The benefit-sharing between the MoD and contractor is subject to on-going talks.

Another effect of 11 September is a potential reduction in the tender price following the fall in the value of aircraft. An industry source says, however, that as FSTAis a 27-year deal, the cost of aircraft is a relatively small part of the overall package. The MoD ays that the FSTA programme is potentially worth £14 billion ($20 billion).

AirTanker marketing director Tim McMahon says the volume of third-party work varies between air transport sectors, but there is a "synergy with charter". He says AirTanker is in advanced talks with an airline and is in contact with others. Although he declines to name potential customers, McMahon says: "We are confident we can close a deal with an airline to generate third-party revenue."

Stan Hickey, TTSC head of marketing, says that since 11 September predicting third-party income is difficult, but there is "probably enough ad hoc charter in the longer term".

Source: Flight International