Bloomberg News

U.K. Military Faces Critical Shortfalls Due to Delays, NAO Says

January 09, 2013

The U.K.’s military is facing “critical shortfalls” in air transport and refueling capabilities because of delays in delivering new aircraft, the National Audit Office said.

The Ministry of Defense has spent an additional 787 million pounds ($1.3 billion) to mitigate delays to the Future Strategic Tanker Aircraft, made by a consortium that includes European Aeronautic, Defence & Space Co., and Airbus SAS’s A400M transport-aircraft programs, the public spending watchdog said in a report published in London today.

“The delays in introducing the new aircraft and budgetary constraints have caused critical shortfalls in some capability areas,” the NAO said. “This is particularly apparent up to the end of U.K. combat operations in Afghanistan in 2014, when both air transport and refueling aircraft will be extremely busy, but also from 2022 for air transport, when the Hercules C130J aircraft goes out of service early.”

The watchdog said defense officials are now examining the possibility of extending the life of the ageing VC10 aircraft made by Vickers-Armstrong, which were due to retire from service in March, by “a few months” in order to provide extra refueling capacity.

Once the VC10s are retired, the Royal Air Force will rely solely on the Tristar aircraft made by Lockheed Martin Corp. (LMT:US), also due to go out of service next year, until the FSTA is ready.

The A330-based FSTA aircraft should be cleared for tanking operations in a matter of weeks after problems refueling RAF Tornado and Typhoon combat jets were fixed, Phill Blundell, chief executive officer of AirTanker, said in an interview yesterday. He said three aircraft had been delivered as planned by the end of last year and six will be handed over mid-year.

Cost Overruns

Changes the defense ministry may make on retirement plans for existing refuelers are not linked to the FSTA and instead reflect a shift in defense requirements, he said.

The FSTA had the highest cost growth in the last year, rising 257 million pounds, the NAO said. The increase largely reflects 336 million pounds in higher fuel costs across the life of the program, which the NAO acknowledged the ministry has little control over.

Cost growth on BAE Systems Plc (BA/)’s aircraft carriers was another contributor to boosting the U.K.’s main weapons programs to 63.1 billion pounds. The cost of building the two carriers jumped 217 million pounds amid a nine-month delay to complete the 3.5 billion-pound project.

The NAO report, which gives a progress review of the 16 largest defense projects, shows that in the last year there has been a total forecast slippage of 11 1/2 years and an increase in costs of 468 million pounds.

The NAO said this means that, since the projects were approved, costs have increased by 6.6 billion pounds, about 12 percent more than planned. When added together, the projects have been delayed by 39 years, taking almost a third longer than originally expected.

‘Waste and Delay’

Although the overall bill for weapons programs increased, the NAO said costs on 13 of 16 projects audited decreased by a total of 169 million pounds.

Less than a year after Defense Secretary Philip Hammond said the ministry’s budget had been balanced, “waste and delay are characteristics of his equipment program,” the opposition Labour Party’s defense spokesman, Jim Murphy, said in an e-mail. “There are now serious questions over government claims to have a costed equipment program and we must see evidence of their grand assertions.”

Delays to the A400M -- due to enter service in March 2015, six years later than planned -- also means the U.K. needs additional Boeing Co. C-17 strategic transport aircraft at a cost of 215 million pounds and two BAe146 aircraft costing 47 million pounds “to ease the pressure on the air transport fleet.”

“In respect of its largest defense projects there are early signs that the Ministry of Defense has begun to make realistic trade-offs between cost, time, technical requirements and the amount of equipment to be purchased,” the NAO said.

``This government has dramatically reduced the annual cost growth of the biggest equipment projects,'' Hammond said in an e-mailed statement. ``The 0.8 percent growth in program cost represents much less than the rate of inflation for the year.''

To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net or Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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