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MoD TO CAN EADS FSTA BID?

MoD TO CAN EADS FSTA BID? MARSHALL MAKES UNSOLICITED BID?

22 Jun 04. In a previous issue of BATTLESPACE UPDATE (BATTLESPACE UPDATE Vol.6 ISSUE 10, March 11th 2004 ‘Boeing has not given up hope in getting back into the UK FSTA tanker project?’) We said that, sources close to BATTLESPACE suggest that Boeing has not given up hope in getting back into the UK FSTA tanker project. The source suggests that the Treasury is casting its slide rule over the reported forecasts by the EADS consortium for earnings from civil chartering operations over 20 years. The figure of £600m is being banded around as a possible benchmark, any drop in this figure may result with the Treasury being landed with another large bill from the MoD!

Sources close to BATTLESPACE suggest that Marshall of Cambridge has put in an unsolicited bid, possibly based on refurbished second hand airliners. In addition the contract won by BAE SYSTEMS to manage the tanker VC 10 fleet takes this through to 2012 suggesting that a new tanker requirement may not need to be reopened prior to 2006?

Today the FT reported that the UK’s top military procurement official has threatened to recommend scrapping the Royal Air Force’s £13bn project for air-to-air refuelling tankers, accusing the programme’s lead contractor of proposing an “unaffordable” contract that “falls short of our requirements”.

In a strongly worded letter to EADS, the Franco-German aerospace giant that is the parent of Airbus, Sir Peter Spencer listed a series of demands – including reducing the price of the programme by £120m-£230m and restructuring the way the project is financed. He says these demands must be met by Thursday or the programme will face cancellation.

“If there is 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, I will have no hesitation in recommending the cancellation of the programme,” says Sir Peter’s letter, dated June 10. “More immediately, if your response on 24th June 2004 falls short of the absolute unconditional agreement I seek, I shall recommend cancellation straight away.”

In January EADS won a hard-fought competition against rival Boeing to build a fleet of tankers for the RAF. The win was seen as an upset, since EADS has limited experience in tanking and Boeing aircraft refuel more than 90 per cent of the world’s military aircraft.

The UK refuelling contract was a breakthrough for the company, and led to a similar victory in Australia over Boeing’s 767s. The two wins have led to heightened expectations that EADS could finally break into a highly valued US tanker programme. EADS officials sought to play down the importance of the letter, characterising it as part of the normal back-and-forth of negotiations for large, high-profile military contracts.

“I’m not sure it is uniquely strongly worded,” said Robin Southwell, chief executive of AirTanker, the EADS-led consortium negotiating with the MoD. He declined to comment on whether the group would meet Sir Peter’s specific demands, but said the company was committed to “diligently and professionally reply” by the end of the week. UK defence ministry officials declined to comment on negotiations, but Sir Peter’s letter makes clear that the programme has come to a halt because of the contract terms offered by EADS, rather than any questions about the aircraft itself. The deal is to be the MoD’s largest private financing initiative, with AirTanker owning the converted A330s and the RAF leasing them when needed. Part of the reason for this is to keep the tankers off the MoD’s balance sheet, which would save the ministry millions each year.

But according to Sir Peter, the proposed contract would not meet accounting requirements, making the deal more like a straight procurement purchase: “My judgment is that there

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