Hoon set to name £13bn air tanker winner

DEFENCE Minister Geoff Hoon is poised to announce that the RAF will lease up to 20 strategic re-fuelling aircraft as part of a record £13bn private finance initiative.

On Monday, Hoon will name Air Tanker Consortium as preferred bidder for the 27-year deal. That group consists of defence operators Eads, Thales, Cobham and VT.

Hoon will announce the move at the British Aerospace plant in Broughton, North Wales, which makes parts of the Airbus A330, the aircraft the RAF will lease. BAE has a 20% stake in consortium partner Eads.

The Future Strategic Tanker Aircraft (FSTA) has been one of the most talked-about major defence deals in years, and has been the cause of heated debate between the Treasury and the Ministry of Defence. Although Air Tanker Consortium will be the preferred bidder, there are still a large number of thorny issues to be thrashed out before the contract can be awarded.

Final terms of the hire purchase and finance package need to be agreed with the banks. Indeed, some consortium partners feel the banks have been forewarned by the lengthy contract negotiations that they are in a sellers market, and will raise their money rates for the package accordingly.

The other major issue is what would happen if there is a change of Government and the contract is cancelled halfway through. So far, the Government has insisted it is a risk the successful contractor has to bear.

The Treasury has criticised such PFI deals as it fears they can be very expensive in the long term while BAE managing director Mike Turner has said of such arrangements: 'It's like making the grandchildren pay.'

This particular deal is controversial because the A330 may not be available when called up for duty. There could be a security issue, too, particularly if Air Tanker Consortium also leases the planes for cargo purposes to Middle Eastern airlines, as they are to be fitted with top-secret defensive aids suites (DAS).

Some would like to see the aircraft armed in future, possibly with the new generation of stand-off missiles such as Storm Shadow, highly successful in Iraq two years ago.