About the FSTA Private Finance Initiative

1. 1. A Private Finance Initiative (PFI) arrangement reduces risk to the customer and gives incentive to the contractor to perform. Under a PFI, the contractor takes all the risk, by borrowing the money required to set up the programme, and does not get paid by the customer until delivery. 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 that the series of separate programmes and elements involved are coordinated simultaneously, requiring the companies involved, and the customer, to depend on each other to deliver.
2. The Future Strategic Tanker Aircraft (FSTA) programme is a 27-year MOD PFI contract to provide air refuelling and air transport services, including the necessary infrastructure, to the Royal Air Force (RAF). With a estimated value of £10bn, the FSTA contract is the world's largest defence PFI. AirTanker has five shareholders: Cobham, EADS, Rolls-Royce, Thales UK and VT Group plc.
3. The UK Government approved the PFI solution in June 2007 as the most cost-effective means of replacing the RAF’s aging fleet of VC-10 and TriStar tanker aircraft. 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, this 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.
4. Within the 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.
5. AirTanker's principal shareholders – all world leading aerospace/defence contractors - are also its main suppliers and sub-contractors. AirTanker Services has been established as a dedicated service delivery company, with shareholder manufacturers who are supplying the equipment needed, and then providing through-life support, to the end of the contract. As shareholders and sub-contractors, they are highly incentivised to ensure service delivery and the arrangement provides a solid, stable, structure with which to meet the RAF’s needs until 2035. Responsibilities - and risks – are clearly delineated in contracts with AirTanker and/or AirTanker Services, which ensures complete, transparent accountability.
6. A programme as large and complex as FSTA, being financed through a PFI, may well be considered as a template for other defence programmes.

• Business Overview