TANKER TRIUMPH

EADS faces demanding negotiations as it moves to clinch a multibillion-pound deal for tanker aircraft for Britain, with the government's finance department casting a long shadow over the talks.

An EADS-led consortium, Airtanker, was selected Jan. 26 as the preferred bidder for the U.K. Defense Ministry's Future Strategic Tanker Aircraft (FSTA) program, worth up to 13 billion pounds ($23.6 billion). Rolls-Royce, Cobham and Thales are also part bid.

Officials from the team immediately began contractual discussions with the ministry, since there is already pressure on the projected in-service date.

Airtanker, offering an Airbus A330-200 as the tanker platform, was selected rather than the Tanker & Transport Service Co. (TTSC), which included: Boeing, British Airways, BAE Systems and Serco. The TTSC bid was based on the conversion of Boeing 767-300ER aircraft now in service with British Airways.

The deal also provides EADS a much stronger position to address an emerging French requirement for a similar class of platform. France may eventually purchase 14 tankers and a further six tanker-transport aircraft according to French defense procurement agency officials. A competitive request for proposals could be issued later this year.

In moving to acquire a successor to its fleet of VC10 and Tristar tanker/ transports, the ministry has been forced to pursue a private finance initiative (PFI) route to support the program. Airtanker will retain ownership of the aircraft, providing a service to the Royal Air Force, for which it will be paid. It would also be free to attempt to generate third-party revenue from aircraft when they are not needed for service by the Defense Ministry.

Negotiating PFI contracts, however, has in the past proved a prolonged process, as evinced by the Skynet 5 satellite communications program. While source selection was made in February 2002, a contract wasn't signed until October 2003. PFI aspects were a significant, though not the single, contributory factor to this.

Announcing selection of Airtanker, Geoff Hoon, the British secretary of state for defense, said: "Our evaluation of the two PFI bids has been extremely thorough and has clearly identified that AirTanker's bid offers the best prospect of securing a value-for-money PFI service.

"This is, however, a highly complex PFI deal and a number of important issues remain to be resolved before we will be in a position to confirm the PFI route. We will now take forward negotiations with AirTanker aimed at concluding a PFI contract. We will need to ensure that the deal offers value for money for the taxpayer." Final decisions will not take place until contract negotiations have been concluded," he added.