EADS gets £13bn UK tanker go-ahead

AEROSPACE group EADS has been selected as preferred bidder for Britain's biggest-ever defence outsourcing contract, a £13bn order for air-to-air refuelling aircraft. Defence secretary Geoff Hoon today revealed the news, which will safeguard thousands of UK defence industry jobs.

The announcement means the AirTanker consortium can start amassing the £2.5bn capital needed to fund the programme. Deutsche Bank is the consortium's leading financial adviser and responsible for the financial structure of the work.

The agreement is also crucial to safeguarding UK defence industry jobs. Thousands of workers at a number of defence companies will benefit from the contract, including EADS consortium members Cobham, Rolls-Royce, Thales UK and VT Group, as well as a host of other, smaller suppliers around the country. VT Group said the UK programme would be worth more than £1bn while Thales said its revenues would be between £800m-£1bn. Rolls-Royce estimates that it will earn about £700m over the lifetime of the contract.

The contract will see EADS - in which BAE Systems has a 20% stake - provide the RAF with up to 20 modern Airbus A330 aircraft to be used as tankers and transport aircraft for the next 27 years. The deal is a major win for EADS in its effort to break the global hold held by US rival Boeing in tankers and although final agreement is not expected before 2006, losing preferred bidder status would be very unlikely. Assuming final agreement next year, the consortium will begin supplying refuelling planes towards the end of the decade.

The big prize, however, remains the US market and winning the RAF contract is highly significant. EADS beat Boeing for an order from Australia following the UK's initial announcement last year and now has its eyes on the far larger US market where more than 500 ageing tankers may need replacing in the next decade.

The UK contract will see the EADS consortium run a fleet of 15-20 Airbus A330-200 jets fitted with pods for refuelling military aircraft in mid-flight. Most of the planes will be bought new from Airbus, while some are expected to be sourced from airlines. AirTanker will maintain the fleet and make it available for use by the RAF for 27 years while leasing out aircraft to airlines when not required by the military for tanking or troop transport.

AirTanker chief executive Robin Southwell expressed delight at winning preferred bidder status, but added: 'Clearly there is a lot of detailed work still to be done.'