Management of the Typhoon Project - Public Accounts Committee Contents

1  Decision making on the Typhoon project

1. The Eurofighter Typhoon (Typhoon) was originally conceived in the 1980s during the Cold War to perform mainly as an air-to-air fighter.[2] It is highly capable in this role and is now being used to defend United Kingdom and Falkland Islands airspace.[3] It has also been part of recent efforts to impose a no fly zone in Libya. Changing operational requirements mean the Department is upgrading Typhoon to become a full multi-role fighter aircraft that can perform both air defence and ground attack missions by 2018.[4] The anticipated total cost of buying, upgrading and supporting Typhoon is £37 billion, of which £18 billion had been spent at the end of 2009-10.[5]

2.  The Department originally approved an upper limit of £16.7 billion for the development and production of 232 Typhoons in 1996.[6] These costs are now forecast to be £20.2 billion, £3.5 billion more than was approved, even though the Department is buying only 160 Typhoons, 30% fewer aircraft than originally planned.[7] This increase reflects the Department's over optimism when estimating how much Typhoon would cost - an issue that has been reported previously by the Committee on other equipment.[8]

3.  Most of the £3.5 billion cost increase on the Typhoon project has been on development costs which have more than doubled from £3.2 billion to £6.7 billion. Production costs have remained within the original approval of £13.5 billion, though 30% fewer aircraft are being procured.[9]

4.  The Department excludes certain elements when reporting the unit costs of Typhoon. It bases its unit cost on production costs alone on the grounds that development costs are sunk costs from a separate phase of the project. It also excludes the cost of capital. The Department calculates Typhoon's unit cost as £73.1 million which is significantly lower than if development and cost of capital were included - which would give a unit cost of £126 million. Therefore, excluding development costs does not present the full picture of the cost increases per aircraft.[10] If all costs are included, costs have increased by 75% per aircraft.[11]

5.  The Department has made decisions on other types of combat aircraft which have affected how it plans to use Typhoon. In 2004, the Department decided to withdraw its fleet of ground attack Jaguar aircraft early and to spend £119 million to install ground attack upgrades on early Typhoons to cover the resulting capability gap.[12] The Department said that it had carried out a cost-benefit analysis of this decision in 2004, but there is no evidence of this in the project history. The Department declared this ground attack upgrade to be combat ready in July 2008, on time and budget.[13] In 2009, the Department decided to retire its other air defence fighter, the Tornado F3, early to save money.[14] Consequently, the Department re- prioritised Typhoon for air defence tasks at the expense of the ground attack capability introduced only the previous year.[15] The Department was unable to demonstrate that it had conducted a thorough cost-benefit analysis to justify these decisions on the operational use of its air combat fleet, even though Typhoon's use has significantly altered as a result.[16]

6.  The Department signed a contract for 16 additional aircraft in July 2009 - the third phase - to bring the total ordered to 160. The Department made a judgement, based on the balance of affordability and operational risk, not to order 232 as originally planned; believing that 160 aircraft balanced its defence needs against severe pressures on the wider defence budget. The Department considered that buying this number of Typhoon aircraft fulfilled its contractual obligations with the other partner nations.[17] By 2019, the Department intends to have retired the 53 oldest aircraft leaving 107 aircraft operational. The Committee was not convinced that the Department had conducted sufficient cost benefit analysis to underpin difficult decisions made on the Typhoon fleet, for example in deciding fleet numbers.[18]

7.  The 53 oldest aircraft will still have life remaining in their airframe when the Department retires them. The Department has decided it that it will be better value for money to spend the funding it has on upgrading the 107 newer aircraft to give them greater capability and stop them from becoming obsolete. Obsolescence has been exacerbated by Typhoon not becoming operational until two decades after the project started.[19]

2   Q 36; C&AG's Report para 1.2 Back

3   Qq 1, 37, 39 and 41  Back

4   Qq 51, 84 and 88 Back

5   C&AG's Report Figure 8 Back

6   Q 9; C&AG's Report para 2.2. Back

7   Qq 23 - 32 Back

8   Qq 33 -35; Committee of Public Accounts, Twenty-third Report of Session 2009-10, Ministry of Defence: Major Projects Report, HC338, 2009-10 para 9 Back

9   Q 26; C&AG's Report, para 2.2 Back

10   Qq 23 - 35 Back

11   C&AG's report, para 2.2 Back

12   Qq 84 - 85 Back

13   Q 85 Back

14   Qq 84 - 85 Back

15   Qq 22 and 86 - 87 Back

16   Qq 84 - 85 Back

17   Qq 2 - 8 and 116; C&AG's Report Fig 1 Back

18   Q 5 Back

19   Qq 43 - 44 and 49 - 51 Back

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Prepared 15 April 2011