Examination of Witnesses (Questions 180-199)
LIEUTENANT GENERAL
ANDREW FIGGURES
CBE AND MR
TIM ROWNTREE
22 MAY 2007
Q180 Chairman: Would it be right
to say that at the initial gate the forecast in-service date was
January 2007.
Mr Rowntree: Let me check.
Q181 Chairman: Which is a few months
ago now. That was the earliest possible in-service date, and the
latest was January 2009.
Lieutenant General Figgures: I
think, Chairman, if we may, we must drop you a note to confirm
that.
Mr Rowntree: The dates that you
suggest sound about right to me.
Q182 Chairman: Yet we have not signed
a contract yet. When do you expect to sign a contract? AirTanker
expect it by the end of 2007. Does that sound consistent?
Mr Rowntree: Yes, pending the
approval coming through, the next phase is to enter a funding
competition, and we would expect to close the contract in November
of this year.
Q183 Chairman: You do expect approval
to come through, do you, because CDS said when he came in front
of us we have a fifth C-17 coming along the next year, we have
the A400M somewhat down the track—we have heard about that—and,
hopefully, the Future Strategic Tanker Aircraft. That does not
sound very promising, does it?
Mr Rowntree: I cannot really comment
on where this is in the approvals process and on the likelihood
of that happening.
Q184 Chairman: General Figgures?
Lieutenant General Figgures: Again
I have to be careful about pre-empting my elders and betters.
My planning assumption is the FSTA coming into service, the first
one, and being able to use it, in 2011. That does not mean to
say everyone has signed up, agreed or anything, but that is my
plan for the moment. It is back to: there are risks and how would
I manage them, and so on and so forth. That is my plan, Chairman.
Q185 Mr Holloway: Is anyone thinking
about other solutions like going shopping in Utah and converting
things?
Lieutenant General Figgures: No,
we are committed to the FSTA in-service 2011 with the current
procurement strategy.
Q186 Mr Holloway: If people started
talking about this as a potential PFI deal in 1997 and it has
taken until just now, 2005, to get AirTanker as a preferred bidder,
why has it all taken so long?
Mr Rowntree: I think the point
about the Private Finance Initiative is that it passes a huge
amount of risk on to industry. This is about the biggest PFI we
have ever done, but the consequence of that risk transfer is that
industry needs to be very confident that they understand the requirement
and how they are going to deliver it, and that does take a long
time. This will move quickly once we get the contract closed,
because a lot of the risks that we would normally bottom out after
the main contract placement we have done a massive amount of work
in these early phases to make sure that the solution is very robust,
both financially and technically.
Q187 Mr Holloway: Have you done any
analysis of what premium you will be paying over the long-run
for the person who takes this risk as compared to if we had just
done it ourselves?
Mr Rowntree: Yes, very much so.
Q188 Mr Holloway: How much more is
it going to cost over the long-run, how many millions or billions
of pounds?
Mr Rowntree: It is a value for
money solution.
Q189 Chairman: I am not sure that
is a fully comprehensive answer.
Mr Rowntree: We have compared
it considering, if you look at conventional procurements, what
the historic trends tell us in terms of what cost growth there
is in those. So we have taken an informed judgment as to what
the through-life cost of this deal will be, considering also the
availability of this service, because we are buying a service,
not an aircraft, and it is value for money compared to a conventional
procurement.
Q190 Mr Holloway: You say you are
buying a service, but there is also the question of third-party
revenue for whoever has these aircraft?
Mr Rowntree: Yes.
Q191 Mr Holloway: Are there any issues
with restrictions from the US in terms of the electronic equipment
on this aircraft which might restrict third-party revenue and
deployment?
Mr Rowntree: That issue has been
assessed and addressed through the assessment phase and we are
confident that we have a way forward on any of those sorts of
issues. That is a mature position.
Q192 Mr Holloway: What about this
question of them switching between being on military registers
and then on civil registers? I do not understand this, but this
is an issue that someone suggested I raise. What is behind that
and what is your answer to it?
Mr Rowntree: We have a means of
achieving that quickly and effectively when necessary.
Q193 Mr Holloway: What does the caveat
"when necessary" mean?
Mr Rowntree: Well, when we need
it for military use, that is when necessary. So, when it is going
to be earning civil revenue, we have a means of making sure that
it can do that and that any security conditions of the type that
you have mentioned are properly addressed.
Q194 Mr Holloway: Finally, are you
confident that in 20 years' time people will not look back at
this gigantic PFI contract as a long-run thing where the British
taxpayer has paid a gigantic premium that we could have avoided?
Lieutenant General Figgures: I
think the answer is in your question "which we could have
avoided". The proposition would be that the supplier is better
able to manage some of these risks than perhaps the Ministry of
Defence, because we want the service, we do not necessarily want
to run all that goes with the provision of that service. So, in
terms of availability of aircraft, support costs, capability,
all that is dealt with by the supplier.
Q195 Mr Holloway: So it has got nothing
to do with the inability of the Treasury at the moment to put
money up front; it is all about getting a better service and something
that the MoD does not have to trouble itself with over the long-run?
Lieutenant General Figgures: We
trouble ourselves with getting value for money because of course
we have to ensure that the money that we are allocated is spent
to best effect. In terms of our assessment of how we were going
to meet this requirement over time, this looked the best option.
Q196 Mr Holloway: I am trying to
get at whether this, probably gigantic, premium that these people
are going to earn over the long run is because the Treasury is
not in a position to put its hand in its pocket now and fund it
that way rather than doing a PFI?
Lieutenant General Figgures: If
you turned it over, we would have to find a premium within our
own budgetary system because there are risks attached there. We
would have to make some provision either to manage these risks
out and retire them or to buy out the impact should these risks
mature. The idea that we pay a premium over and above the contingency
we would have to put aside in the equipment plan is not valid.
The question is: Where best are these risks managed?
Q197 Willie Rennie: Are the problems
being experienced on other Airbus aircraft programmes having an
impact upon the FSTA programme?
Mr Rowntree: The FSTA programme
is based on a mature aircraft, the A330, so we would not foresee
that the problems with the A380, which are primarily problems
of development and production, would impact on that, no.
Q198 Willie Rennie: You have not
experienced any knock-on effects of those problems?
Mr Rowntree: No.
Q199 Willie Rennie: Would the MoD be
able to maintain and support the current fleet of VC10 and Tristar
aircraft if there are delays in the FSTA programme?
Mr Rowntree: My answer to that
is along the same lines as I answered slightly more comprehensively
on C-130. Tristar and VC10 fit within my cluster of projects,
as does Future Tanker, and the team leaders concerned are working
closely together with Andrew's people to make sure that we pull
the right levers to make the right sort of investments to keep
the Tristar and VC10 running longer. Both Tristar and VC10 have
the capability to run longer and it is just a matter of making
those investments and making those decisions at the right decision
points.
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