Defence Secretary to re-examine air tankers contract over £100m overspend claims

The RAF's largest aircraft, the Voyager air-to-air tanker

11 May 2012 The Telegraph

Defence Secretary Philip Hammond said he would personally re-examine a contract for RAF air-to-air refuelling planes amid claims that the taxpayer is paying three times over the odds.

He issued the commitment after an investigation found fresh evidence that the much-criticised deal was not providing good value for money.

Defence chiefs have been attacked by spending watchdogs for entering into an "inappropriate" 27-year, £10.5 billion PFI contract in 2008 without properly understanding the costs.

Under the agreement, 14 converted Airbus A330s - called Voyager by the RAF - are being leased to the military by the AirTanker consortium for refuelling, transport and medical flights.

The provision of training, maintenance and new purpose-built buildings at RAF Brize Norton in Oxfordshire, the RAF's air transport hub, is included in the deal.

Contract negotiations were based on a cost for each aircraft of £150 million.

But BBC Newsnight said it had seen evidence - including another buyer's contract - that the real price should be as little as £50 million.

It also based that figure on expert suggestions of both the likely discount available to someone buying 14 of the aircraft and an estimated £10 million conversion cost.

Presented with the evidence, Mr Hammond told the programme: "I'm quite happy to look at this.

"I will go back to the MoD and look personally at what is being done around this PFI contract."

In a 2010 the Commons Public Accounts Committee complained that the Ministry of Defence "did not understand the costs of the deal it was negotiating as it did not obtain access to detailed industry cost data.

"In particular, it could not determine whether profit margins were appropriate."

Criticisms have also been levelled by the National Audit Office and senior defence figures.

An MoD spokesman said Voyager was one of a number of procurement deals being placed under "close scrutiny" by its head of procurement and maintenance Bernard Gray.

Mr Gray was recruited as chief of defence materiel in December 2010 after authoring a highly-critical official report into serious failings in a range of procurement deals.

An MoD spokesman said: "With the appointment of Bernard Gray as chief of defence materiel, close scrutiny is being applied to a wide range of MoD equipment projects and, as the Defence Secretary has said, this will include Voyager."

It emerged last month that testing of the state-of-the-art tankers had revealed a leak during air-to-air refuelling of Tornado jets.

Voyager is undergoing trials ahead of the first nine planes entering service.

A spokeswoman for AirTanker dismissed the figure, which she said failed to allow for all the work required to bring the aircraft up to military specification.

The conversion, carried out in Spain, took 127,000 man hours alone and was then followed by a full fight trial process, she said.

"The valuation given by Newsnight is incomparable to this product," she said, insisting that the £150 million figure was in line with aircraft procured by other governments.

Issues with fuel "venting" during refuelling of jets would be resolved by software and technique changes and should not delay the 2014 target for the fleet to enter service, she added.