Select Committee on Defence Written Evidence


Annex (continued)

AIRLIFT ASSETS: HERCULES ROLLING REPLACEMENT TRANCHE 2 HRR2

  It was decided in 1994 to replace a first tranche of the Hercules air transport fleet with 25 new C-130J aircraft. We are now seeking, through a collaborative competition, both to replace the capability provided by the remainder of our ageing air transport fleet and to procure for the long term a dedicated outsize strategic lift capability which will be provided in the near term by "short-term strategic airlift", see separate memorandum.[2] We hope to be able to announce a decision soon and to replace the existing aircraft in the second half of this decade.

OPERATIONAL REQUIREMENT

  1.  The Staff Requirement to replace the RAF's ageing fleet of Hercules transport aircraft was originally endorsed in the summer of 1993. The roles and characteristics sought for both tactical and strategic airlift were essentially similar to those of the existing aircraft. They included the ability to deploy troops or freight between theatres or within a theatre of operations either by parachute or landing on short, semi-prepared strips. Emphasis was placed on solutions that offered significant improvements in reliability and maintenance and operating costs over the existing RAF Hercules. In December 1994, the decision was announced to buy 25 C-130J as tranche 1 of a Hercules Rolling Replacement Programme, HRR1.

  2.  In July 1997, with a view to informing decisions on tranche 2 of the Hercules Rolling Replacement programme, HRR2, we announced our intention to rejoin the collaborative European Future Large Aircraft, FLA, programme and to endorse the related European Staff Requirement, ESR. The ESR was prepared to meet the future air transport requirements of eight participating nations—Belgium, UK, France, Germany, Turkey, Italy, Spain and Portugal—but, in the event, Portugal decided not to participate formally in subsequent stages of the FLA programme. The ESR matches, and in some cases exceeds, the UK requirement for a Hercules replacement. In particular, it specifies a larger cargo carrying volume, a greater maximum payload and a higher cruise speed.

  3.  The Strategic Defence Review confirmed the need to replace the capability provided by the Hercules and concluded that an outsize airlift capability was required to support the deployment of the Joint Rapid Reaction Force, JRRF. The latter requirement is to move items such as the Attack Helicopter and certain engineer equipment but not, for example, Challenger, AS90, or armoured bridge layers. This outsize lift capability was consistent with the requirements for FLA set out in the ESR and thus required no change to the procurement strategy to meet the longer-term HRR2 requirement agreed in July 1997.

TRADE-OFFS

  4.  Studies were carried out in March 1993 to examine various Hercules refurbishment and replacement options, including C-17, C-130J, and FLA, using projected costs. Further studies were conducted in 1994, based on Lockheed Martin's response to the HRR1 Invitation to Tender. Since FLA would not be available within the prescribed timescale, these studies included consideration of refurbishment of the existing Hercules, followed by procurement of C-130J or FLA, as well as early procurement of the then current C-130H production model or its planned replacement, the C-130J. the conclusion was that procurement of C-130J would provide best value for money, earliest maximum increase in availability and a significant increase in capability compared with refurbishment options.

  5.  Studies in 1996 examined various options to meet the HRR2 requirement, including procurement of

C-130J, FLA, C-17, and a mixed fleet of C-130J and C-17. These studies indicated that none of the options could be ruled out, but it was not possible to draw definitive conclusions in the absence of firm costs. Further studies have been carried out on the basis of the priced proposals received from Airbus, Boeing and Lockheed Martin in preparation for a procurement decision in early 2000.

NUMBERS

  6.  Requests for Proposals have quoted a potential UK requirement for up to 45 FLA and have sought prices for stated equivalent numbers of C-17, and mixed fleets of C-17 and C-130J. final numbers will be decided in the light of further operational analysis of the requirements, and cost-effectiveness trade-offs between the solutions.

STRATEGIC DEFENCE REVIEW

  7.  As already noted, the SDR confirmed the need for HRR2 and for an outsize airlift capability.

MILITARY CAPABILITY

  8.  The aircraft that meets the HRR2 requirement will provide tactical and strategic mobility to all three Services in peace, crisis and war. In crisis or war HRR2 will be employed on inter- and inter-theatre air transport tasks, primarily in support of the JRRF.

EQUIPMENT TO BE REPLACED AND IN -SERVICE DATE

  9.  Of the existing fleet of 55 Hercules C130, which entered service in the 1960's, 25 will be replaced by HRR1. The capability provided by the rest of the fleet, and by that provided in the short term by STSA, will be replaced by the aircraft procured as HRR2. Depending on the option chosen, the aircraft selected could enter RAF service as early as 2005, as is our aim, with existing aircraft replaced progressively from that date.

PROCUREMENT APPROACH

  10.  On 4 September 1997, the seven collaborating European nations issued a Request for Proposals for FLA to Airbus Industrie against the agreed ESR. Each nation specified its required in-service date, expected off-take, support needs and other variables. The aim would be to place a fixed price contract for acquisition and elements of support for the first ten years. The contract would be placed by the Organisation Conjointe de Cooperation en Matiere D'Armement, OCCAR, and embrace many aspects of the Airbus Industrie's proposed commercial approach.

  11.  A second Request for Proposals was issued to Airbus Industrie, the Boeing Company and Lockheed Martin Aeronautical Systems on 31 July 1998 by the UK on behalf of Belgium, France, Spain and the UK, seeking tenders at prime contractor level against the ESR. Securing best value for money through competition was a condition of our willingness to remain involved with the FLA programme. Tenders for this Future Transport Aircraft, FTA, competition were received on 29 January 1999, coincident with those for the STSA. Tender assessments were conducted jointly with other nations and in more detail on a national basis.

 ALTERNATIVE PROCUREMENT OPTIONS

  12.  Contenders in the collaborative Competition include the Airbus A400M (as the Future Large Aircraft is now known), and the existing C-17 and C-130J aircraft both available as a commercial off-the-shelf purchase. Germany, a non-participant in the four-nation competition, is also considering the Antonov An-7X, (a customised version of the Russo-Ukrainian An-70) along with France, Spain and Italy, as further alternative to the A400M. The UK would have been prepared to assess a compliant tender for AN-7X offered by a Western prime contractor. The C-130J cannot fulfil the "outsize lift" element of the ESR and would only be considered as part of a mixed fleet solution.

COLLABORATION

  13.  There are two collaborative dimensions to the UK's HRR2 programme. On the one hand, there is the four-nation FTA competition, whilst on the other, the seven-nation A400M. The assessment of bids has been undertaken jointly on the common elements of the requirement; national requirements have been dealt with by each nation individually. The UK has undertaken a Combined Operational Effectiveness and Investment Appraisal to evaluate solutions in the wider context of UK air and sealift capability, and to assist our own procurement decision.

  14.  There has also been a seven-nation assessment of the collaborative A400M. When the Request for Proposals was issued, the A400M nations indicated potential requirements totalling 288 aircraft. Airbus have offered prices for the A400M based on this and a number of other off-takes, but final numbers will not be known until each partner reaches its own national decision. To date, none has done so.

  15.  There would be no collaborative opportunities in respect of the purchase of C-17 or C130J, except perhaps in the field of shared support.

EXPORT POTENTIAL

  16.  Airbus Industrie believes that there is a market for the A400M beyond the European collaborative partners, though estimates for the scale of this market vary.

INDUSTRIAL FACTORS

  17.  For all potential solutions, we shall expect to secure industrial participation or work-share arrangements. For the A400M, the aim is to ensure broadly equitable work-sharing arrangements, without detriment to overall value for money. For BAE Systems, the UK industrial partner in Airbus, a key element of A400M work-share would be wing design leadership. For C-17 and C-130J solutions, 100% industrial participation has been sought.

SMART PROCUREMENT

  18.  The four-nation competition will help to achieve a cost-effective solution. We made clear in the Request for Proposals our willingness to consider proposals for elements of the HRR2 support package to be funded through a Public Private Partnership arrangement. For the A400M, we favour a commercial approach along the lines of civil aircraft development and procurement. There would be no separate development contract. Airbus Industrie would be contracted to deliver aircraft, and would be responsible for the risk management associated with development. The final price of the A400M will reflect the extent to which Airbus Industrie will have to carry costs pending production deliveries. In respect of aircraft certification, the UK would expect to capitalise on the existing certification of the C-17 and C-130J, as far as possible. For the A400M, the intention is to adopt an approach based on civil Joint Airworthiness Requirements, supplemented by military requirements where appropriate.

 ACQUISITION PHASES

  19.  The A400M project is in the later stages of Project Definition, with design feasibility work mature. Over 50 of a total order of 120 C-17 aircraft are already in service with the US Air Force. Although C-17 procurement would be commercial-off-the-shelf, COTS some modification might be needed to optimise the aircraft for the RAF. The MOD would expect C-130J to be of the same, or a very similar, standard as the aircraft that is now entering service with the RAF, as HRR1.

  20.  Both A400M and C-17 contain risk. For A400M, the risks associated with a collaborative programme, and the need to achieve favourable commercial terms would combine with technical risks. The C-17, the key risks would be those relating to achieving a satisfactory Military Aircraft Release, defining UK specific options and negotiating acceptable commercial terms and conditions.

MILESTONES AND COSTS

  21.  Key milestones are:


FLA Request for Proposals issued4 September 1997
Competitive Request for Proposals issued 30 July 1998
Tenders submitted29 January 1999
Decisionearly 2000
Contract let2000-01
ISDdepending on the chosen solution.


  22.  Total estimated costs for the acquisition and initial support of the solution chosen for HRR2 are of the order of £2-2.5 billion over the next 10 years. No significant costs have so far been incurred.

IN -SERVICE SUPPORT

  23.  The bidders provided a range of in-service support options, with the options mainly differing in the level of contractor support offered. The in-service support strategy selected by the UK requires that all first line maintenance and on-aircraft second line maintenance be carried out by RAF personnel. Third line on-aircraft maintenance and second and third line maintenance of off-aircraft components will be undertaken by industry. This strategy will ensure flexible and responsive support to operations, especially deployed operations, whilst making best use of industry experience and resources for the conduct of the more specialised and resource intensive tasks.

  24.  Potential problems during any change-over period include the scope for dual utilisation of Service support resources, such as equipment or manpower. Such problems will be minimised through controlled delivery/disposal contracts and manpower planning; as a new aircraft is delivered, old equipment will be removed.

 FRONT LINE, STORAGE AND RESERVE

  25.  No decision has yet been taken on the exact size or make-up of the HRR2 fleet, which will be considered in our assessment of the bids.

INTEROPERABLILITY

  26.  Existing customers for the C-130J include the RAF, US forces, the Royal Australian Air Force, and the Italian Air Force. C-17s are currently operated by the USAF and the US Air Force Reserve. Potential customers for FLA include Belgium, France, Germany, Italy, Spain, Turkey and the UK. It is not possible to quantify the operational effectiveness implications of different air forces using the same type of transport aircraft, but all of these aircraft can, or are expected to be able to, carry the universal cargo pallet, as can the existing Hercules. Savings in support costs could be expected if several nations operate the same type of aircraft.

DISPOSAL OF EQUIPMENT REPLACED

  27.  The 25 Hercules C-130K aircraft which are being replaced by C-130J will be returned to Lockheed Martin as part of the HRR1 procurement package. No decision has yet been made on the subsequent disposal of the remainder of the C-130K fleet.

IN -SERVICE LIFE

  28.  The Staff Requirement assumes an in-service life of 30 years.

DEVELOPMENT POTENTIAL

  29.  No specific options are being considered at this stage for long-term development. Improvements to avionics and other systems are likely to be required over the life of the aircraft.

SEA LIFT ASSETS: ROLL-ON ROLL-OFF (RORO) SHIPS

  The Strategic Defence Review identified a need for four additional Roll-on Roll-off vessels, making a total of six, to support the deployment of the Joint Rapid reaction Forces, JRRF. After Initial Gate in March 1999 an Invitation to Negotiate, ITN, was issued to 4 consortia. Assessment of the bids received in July 1999 indicated that a Private Finance Initiative, PFI, solution was likely to provide value for money. After optimization of the bids to reflect commercial and capability trade-offs, final bids were received on 14 January 2000. From these bids it is intended to place a contract this year.

  The bids have confirmed that any service provider will have to build new, or convert, existing ships to meet the operational requirement. The target date for such ships to be available is 2005. Until the full service can be available a provisional service to meet the operational requirement from October 2000 will be managed by MoD and give access to an enhanced level of sealift compared to that currently available.

OPERATIONAL REQUIREMENT

  1.  The requirement is for guaranteed, world-wide delivery of JRRF early entry equipment, including containerised ammunition, at sustained speeds of at least 18 knots. The vessels will be of commercial design and will not be provided with warlike features such as a self-defence capability and military communications, although design aspects will permit their operational use. Ship size will depend on balancing optimum load carrying capacity against the need to operate to small ports without specialist facilities, such as craneage and limited "no deep draught" berths, whilst manoeuvrability will be built into the design to assist with berthing in the absence of tug support.

TRADE-OFFS

  2.  Trade-offs between operational risk and value for money has been tested in negotiations.

NUMBERS

  3.  The long-term requirement is for a capability of six vessels in total.

STRATEGIC DEFENCE REVIEW

  4.  Operational analysis in the SDR subsumed earlier studies of strategic lift to identify the number of RoRo vessels, and aircraft, required.

MILITARY CAPABILITY

  5.  The RORO service can be used across a full range of missions and military tasks that require deployment of UK forces into theatre through a seaport of disembarkation. It is not the intention to use the service in "battle conditions" but the ships may need to transit warlike zones and maybe under escort as part of a task force.

EQUIPMENT TO BE REPLACED AND IN -SERVICE DATE

  6.  The current RORO (Crusader/Centurion) are "bareboat" chartered vessels which are manned, operated and maintained by the Royal Fleet Auxiliary. The contracts for these hulls are due to complete January and April 2001 respectively, providing the maximum possible contract extension is agreed. The 6-ship RORO package is intended to provide the increased capability identified by the SDR.

PROCUREMENT APPROACH

  7.  Under the PFI arrangements, the service provider will be responsible for the design, finance, manning, operation and maintenance of the service. PFI is inherently Smart in that it looks at whole life costs, harness commercial skills and opportunities, and seeks to place risk in the hands of the parties best placed to manage it. The opportunity for commercial trading of capacity under-used by MoD will reduce the cost of the service to the MoD.

CREWING

  8.  The service provider must provide a guaranteed service, which includes the possibility of transiting warlike zones as well as limiting the possibility of interference from other nations. Furthermore there is also a clear operational requirement to man these vessels with British seamen, as a minimum, for security considerations when JRRF operations and major four yearly exercises. Bids on the basis of Sponsored Reserve crewing have been submitted.

ALTERNATIVE PROCUREMENT OPTIONS

  9.  An Investment Appraisal has considered a wide range of options including: do nothing for 20 years, short and long term charter options, and conventional design and construction.

EXPORT POTENTIAL

  10.  The issue of export potential does not arise directly in the circumstances of this project.

INDUSTRIAL FACTORS

  11.  Both the interim and long-term requirements are being addressed through competition. The long-term requirement may involve a new build by the selected PFI contractor. In such circumstances—the build of commercial, non-warlike vessels to be owned by a PFI contractor, rather than procured by the MoD—the competition has not been restricted to UK yards.

 SMART PROCUREMENT

  12.  The programme will be managed using a Smart Procurement approach.

ACQUISITION PHASES/KEY MILESTONES/COSTS

  13.  Key milestones as currently planned:


Initial GateApproving issues of Invitation to Negotiate assuming PFI. March 1999
Assessment of bidsLate 1999/Early 2000
Main GateTo approve selection of preferred bidder for PFI solution April 2000
Announcement of preferred bidder Late Spring
Contract AwardJuly 2000
Provisional Service October 2000
Full ServiceBy 2005


  14.  The capital cost of the asset element of the service will be around £200 million. The annual service cost to the MoD is related to usage but might amount to £40 million per annum for commercial charter (fuel excluded).

IN -SERVICE SUPPORT

  15.  Under a PFI arrangement the service provider is responsible for the operation and maintenance of the service and is paid against performance.

"FRONT LINE" NUMBERS

  16.  The intention is that all six ships, under a PFI arrangement, with optimum risk transfer, should be at the graduated readiness required for JRRF operations.

INTEROPERABILITY

  17.  The service supports the NATO Defence Capabilities Initiative in a number of areas but full commitment is limited by contractual limitations appropriate to a PFI contract.

DISPOSAL OF EQUIPMENT REPLACED

  18.  The contract for the currently chartered RORO ships will end in Spring 2001. The capability gap until the availability of the full service will be met through long term charter.

IN -SERVICE LIFE

  19.  The contract will be 20 years from the introduction of the full service and the contractor will be responsible for the disposal of the assets at the end of the contract. The 20-year period is related to value for money, financing and ship life.

DEVELOPMENT POTENTIAL

  20.  A change procedure will allow, for example, technical upgrades offering value for money to the introduced by agreement.


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