EADS air tanker deal faces scrutiny in defence review

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Business Secretary Vince Cable has submitted a cost analysis of a 10.5 billion pound military air tanker deal to officials conducting a defence review, said his department.

Cable told a British newspaper he was seriously concerned about the contract to lease 14 converted Airbus A330 tanker aircraft to the Royal Air Force (RAF).
“Vince Cable was provided with a dossier analysing the costs of the project. In recent weeks he has passed the dossier of information to the Ministry of Defence (MoD) and Treasury,” a spokeswoman for Cable’s department said.

She did not say who provided the dossier.

Cable’s information has been given to “the authorities who are reviewing this project as part of the Strategic Defence Review,” the department said.

Britain’s two-month-old Conservative-Liberal Democrat coalition government has launched a wide-ranging defence review, which is expected to set the stage for cuts in defence spending to help rein in a record peace-time budget deficit, Reuters reports.

All major defence programmes are under scrutiny.

The previous Labour government awarded a consortium led by Airbus parent EADS the contract to replace Britain’s ageing fleet of mid-air refuelling planes in 2008 under a public-private partnership scheme.

CONSORTIUM DEFENDS CONTRACT

The tankers will be owned by the AirTanker consortium, led by EADS and also including Britain’s Cobham, Rolls-Royce and VT Group, recently bought by Babcock, as well as France’s Thales.

The 27-year contract includes maintenance and training. The government said at the time it would create 600 jobs in Britain and safeguard up to 3,000 others.

The Sunday Times quoted Cable as saying a well informed source had given him “detailed information on massively expensive and unnecessary commitments” under the programme.

It said he wanted a “fuller investigation” of the programme.

An AirTanker spokeswoman said the consortium was awarded the contract through a competitive process. “The MoD’s final approval was made with a full understanding of all the costs and risks of this deal and the alternatives,” she said.

An MoD spokeswoman said the defence review would look at all projects. “Until the review concludes in the autumn, it would be inappropriate to speculate about final decisions,” she said.

The Sunday Times said the MoD would have to cover redundancy payments and pay 75 million pounds per aircraft if the contract was shelved.



Howard Wheeldon, a senior strategist at broker BGC Partners, said it was surprising Cable was calling for an inquiry given the urgency of replacing the current fleet.
“Whilst I have no doubt that there are cheaper aircraft lease deals on the market I am satisfied that the government is not being ripped off,” he said in a note.