AirTankers - MOD PFI financing suffers from Ambac credit rating downgrade - will / can the banks agree a financing deal ?
Lord Patel has pointed out the problems PFI funding was experiencing with the problems with monoline bond insurers like Ambac.
Now the Government / PFI funding of a desperately needed new fleet of Airbus tankers for the Royal Air Force - a 27 year 13 Bn projecty has hit the buffers. The AirTanker consortium (Cobham EADS, Rolls-Royce, VT and Thales) - will supply the Future Strategic Tanker Aircraft (FSTA) based on the supply of A330-200 aircraft with banks led by Deutsche Bank, the initial £2.5bn expected to raise a combination of bank debt and a bond issue supported by guarantees provided by Ambac.
Now Fitch's Ratings credit re-rating of Ambac below AAA - and maybe followed by further downgradings has made those guarantees unattractive to bond buyers. Spreads on monoline-wrapped bonds have suddenly shot up with market concerns about the ability of the insurers to stand behind their commitments.
That suggests the Government and the AirTanker consortium are likely to revert to the original plan to finance the deal solely through bank debt - involving a higher (and probably variable) interest rate.
Up to press HBOS will lead the group of banks lending the money. Lloyds TSB are also involved, and the consortium is talking about getting the deal done by the end of March.
Currently the RAF relies upon the antique VC10 and TRi-Star tankers, provided by 101 Squadron at RAF Brize Norton.In 1996 the RAF were told that they could have 24 converted Airbus A310s. This has now been whittled down to 14 owned by PFI partners - 14 available at any time and the rest with a notice period. The aircraft are to be owned by the private sector partners, who are meant to be able to charter them out whenever available.(See MOD Press release 6/6/07)
Air Chief Marshal Sir Glenn Torpy, Chief of the Air Staff said in June ....
"Although our current fleets of VC10 and Tristar aircraft are doing a superb job, both fleets are coming towards the end of their useful lives. "
Who would insure, fly, crew, maintain, these new aircraft are still unresolved questions.
So another triumph for MOD procurement ... start talking in 1996 .. 12 years later we have an expensive spatchcocked deal that is still in doubt.If the finance is signed and sealed tomorrow it would be 3/4 years before there is any chance of them being operational.... ooops forgot to mention it in the light of the Metronet debacle. The AirTanker website does point out that ...
"Typically in a PFI the shareholders provide around 10% of the total investment." ...shades of Metronet and the ta / rate payer picking up the bill when the shareholder's decide to call in the administrators.
Maybe this picture will help.
Of course if they cannot stitch up a financing deal the RAF will be left to struggle along with the tankers that Air Chief Marshal Sir Glenn Torpy, Chief of the Air Staff described as ".....coming towards the end of their useful lives. "
People interested in aircraft re-fuelling might like to examine the report on the Nimrod crash whilst re-fuelling over Afghanistan...." While the Board considered that the Ministry of Defence had done all that was required of it to cater for the increasing age of the Nimrod, the Board
was unable to discount the age of the seals ( 38 years old on the airframe XV230 of the Nimrod that crashed) as a possible cause of the increase in leaks from fuel couplings and of the condition of the hot air pipes’ insulation."