The background

The UK Government approved the PFI solution in June 2007 as the most cost-effective means of providing a new air transport and air-to-air refuelling capability for the RAF. From that date, the MOD and AirTanker worked together towards the financial and contractual close. Jointly, they approached the city to raise the necessary private sector funding and, despite the current turbulence in the world’s financial markets at that time, it was successfully secured, with £2.4bn raised for investment in the fleet plus a modern, new operational base and associated infrastructure. The contract was signed on 27 March 2008, once the finances were in place. Today, a group of 24 international banks continue to support this landmark transaction.

PFI reduces risk to the customer and gives incentive to the contractor to perform. Under PFI, the contractor takes all the risk by borrowing the money required to set up the programme and the customer pays nothing until the service is delivered. However, such deals can be difficult to put together. PFI arrangements often lead to additional scrutiny over the procurement costs and the transfer of risk. But the advantages of a PFI over standard procurement methods are that a PFI requires the series of separate programmes and elements involved to be co-ordinated simultaneously, requiring the companies involved, and the customer, to depend on each other to deliver. Within this PFI agreement, the MOD will only pay for the service once it is available and then only for the capacity that it uses, subject to agreed minimum usage levels.

For more details about the run up to Contract signature, please visit the News section.