ALTHOUGH THE Air Tanker consortium’s A330-based submission was judged most likely to offer a value-for-money solution to meet the RAF’s future air refuelling requirement in January 2004, this marked only the start of negotiations. Selection of the aircraft was far from being an order for the type. It was clear that the A330 represented far and away the best available tanker platform, a fact underlined by Australia’s decision in April 2004 to also procure the type (see Now Australia selects Airbus for Tanker Role, June, p4). However, the MoD’s long and exhaustive evaluation was aimed at selection of a refuelling service (provided under a Private Finance Initiative contract) and not just an aircraft platform. Whilst most agreed on the technical merits of the A330, which offered greater fuel offload than the Boeing 767, better performance, and better air transport capability, it became clear in late June that FADS were having problems in producing a financially compliant proposal. On June 10, 2004, Sir Peter Spencer, the Chief of Defence Procurement, wrote to FADS, complaining about the company’s unaffordable proposal, which fell short of MoD requirements.
It is believed that the MoD was unhappy with proposed monthly and annual limits to penalty payments which Air Tanker might pay if it failed to meet its obligations, and with the possibility that the MoD would be liable for design or construction defects.
Spencer was unhappy that the FADS proposal would effectively keep the aircraft on the MoD’s books, when all it wanted to do was pay for the provision of a service. He reportedly sought an unconditional agreement to the MoD’s terms, and threatened that he «would have no hesitation in recommending the cancellation of the programme,» if there was «failure to reach satisfactory agreement on these issues or any suggestion that you might be seeking to move away from the agreements I am seeking in this letter.»
Spencer reportedly demanded a reduction in the price of the aircraft element of the £13 billion programme from £120 million to £230 million and insisted that the project’s finances should be restructured. He demanded that the equity portion of the project’s funding should be increased by 10 per cent and highlighted a dispute as to who should bear the risk if third party revenue failed to meet expectations.
It is understood that TTSC, the unsuccessful FSTA consortium, immediately put together a revised interim proposal in case the A330 deal fell through. Marshall of Cambridge proposed converting the RAF’s existing Tristars to three-point tanker configuration and converting nine further former commercial Tristar airliners as an interim solution, at a total cost of £250 million.