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Bank loan seals air tankers deal for RAF PDF Print E-mail
Friday, 28 March 2008

London, Reuters - Britain was poised on Thursday to announce the long-awaited renewal of its fleet of mid-air refuelling tankers in possibly the world's largest government outsourcing deal, worth an estimated $26 billion over 27 years.

The deal will equip the Royal Air Force with converted A330 Airbus jetliners and includes initial financing of $5 billion including $200 million to be injected by a consortium led by Airbus parent EADS, sources close to the talks said.

The head of the European aerospace group hailed the deal as another victory over rival Boeing, weeks after a dramatic win for EADS in a bid to supply the Pentagon with similar jets.

However EADS, reeling from a weak dollar which hands a competitive edge to Boeing in the civil airliner market, suffered a blow on Thursday when talks to outsource some of its own airplane production to a German aerospace firm collapsed. The tanker deal's completion coincides with a state visit to Britain by French President Nicolas Sarkozy.

Britain selected Airbus A330 passenger jets as far back as 2005, but talks over funding dragged on longer than expected. The deal was secured after a bank loan replaced plans for a bond, which fell victim to market turbulence, the sources said.

Britain is buying the planes under its Private Finance Initiative, a controversial funding scheme used in the past to lease public services such as hospitals from the private sector.

Officials say the deal, put together by Deutsche Bank, is the world's biggest public-private partnership.

CUT CORNERS

Critics of the PFI, pioneered by Britain's Conservatives in the 1990s, say private companies tend to cut corners to maximise profits, and that the long-run costs to the taxpayer are greater than if the deals were kept within the public sector.

The refuelling tankers will be owned and leased out by a consortium called AirTanker that includes EADS, Cobham, Rolls-Royce, VT Group and Thales.

The first phase of the project calls for total capital investment of 2.5 billion pounds ($5 billion) of which some 2.2 billion pounds will be in a syndicated loan, sources said.

Another 200 million pounds is expected to come from a form of hybrid bank financing, midway between debt and shares, and 100 million pounds from industrial backers in return for equity.

The deal was expected to be announced later on Thursday. AirTanker declined comment. Britain's purchase of European tankers comes on top of orders from Australia, the UAE and Saudi Arabia and most recently the U.S.

Air Force, which selected Airbus over Boeing, sparking a row in Congress over security and jobs. Air forces worldwide are racing to renew their aerial refuelling fleets as military planners adapt to more dispersed threats to their security further away from their home base.

The RAF planes will also be able to carry up to 300 troops and their equipment, combining refuelling and transport missions previously split between decades-old VC-10s and Tristars. Airbus meanwhile said on Thursday it had ended talks on the sale of three German factories to German conglomerate OHB's MT Aerospace subsidiary due to the strong euro.

The setback came as Gallois issued a tough warning to the European Central Bank over the strength of the euro, which he said could spark an exodus of European export industries. He told a newspaper the euro's strength and the credit crisis had made it harder to raise funding for factory deals. Airbus is also trying to sell plants in France and Germany.

Last year, Airbus announced plans to cut 10,000 jobs and sell all or part of seven Airbus or EADS factories, sparking protests from Airbus workers across Europe.

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