Voyager Fuel Costs, A400M Levy Top UK MoD Overspend

Increased costs linked to the Royal Air Force's Airbus A330-based Voyager and Airbus Military A400M acquisitions contributed to a combined £468 million ($750 million) jump in the forecast price tag for the UK's top 16 defence programmes during 2012, the government's National Audit Office (NAO) spending watchdog says.

Detailing the performance of the Ministry of Defence's procurement activities in its annual Major Projects Report, the NAO outlines an overall £257 million increase in the expected bill for its Future Strategic Tanker Aircraft (FSTA) deal with the AirTanker consortium.

The rise was dominated by projected fuel price inflation of £336 million, which is largely beyond the control of the customer or its contractor, while a within-year refinancing of the private finance initiative deal produced a £98 million saving.

Published on 10 January, the report also reveals a £24 million cost which it says was incurred as "French participation in the [FSTA] programme is no longer planned". Paris is instead expected to pursue its own 14-aircraft acquisition of the A330 multirole tanker transport.

In a statement, AirTanker says the Voyager programme remains below the MoD's agreed contract value of £12.3 billion for its planned 24-year service life until 2035, and that it remains on track to declare full capability with the A330 by May 2014.

Six of an eventual core fleet of nine aircraft will be in use by mid-2013, and AirTanker chief executive Phill Blundell says release to service approval is "imminent" from the MoD for it to begin air-to-air refuelling operations. This will include a clearance to use a replacement basket for the type's hose and drogue refuelling system, in a change made after problems arose during the evaluation of its original equipment by the RAF.

The UK's contribution to a €1.5 billion ($1.96 billion) export levy facility linked to the A400M (above) resulted in a £175 million payment on the programme. The sum was agreed as part of a revised multinational production contract signed in early 2011, and "may be repaid on future export sales" by Airbus Military. To replace its last Lockheed Martin C-130Ks, the transport should achieve a March 2015 in-service date with the RAF, which will eventually operate 22 of the type.

Fresh problems associated with an effort to integrate additional precision-guided bombs and other weapons with the RAF's Eurofighter force are also revealed in the report, with the issue attributed to issues with the Typhoon future capability programme.

"The delays are due to problems with developing the software and the consequent impact caused by the need to reschedule subsequent activities such as testing," the NAO says. This will contribute to a £22 million programme cost rise, and to an almost two-year delay to the service's planned introduction of MBDA's Meteor beyond visual-range air-to-air missile, which is now delayed until June 2017. A possible further £50 million charge could be incurred if the UK opts to run on the use of its Raytheon AIM-120 AMRAAMs to cover any potential capability gap, it adds.

Other programmes to acquire Typhoon and Lockheed Martin F-35 combat aircraft, Airseeker electronic intelligence-gathering platforms and AgustaWestland Lynx Wildcat and Boeing CH-47 Chinook helicopters remained broadly on cost and schedule during the review period, the report says. However, NAO head Amyas Morse comments: "The Department has more to do to address its long-standing issues on project performance."

Noting that the overall cost increase for 2012 equated to 0.8% of the MoD's total planned £63 billion spend on the 16 projects, defence secretary Philip Hammond says: "The work this Government has done to balance the budget and address fundamental project management problems is paying off. We can now make more accurate cost projections and invest in the best equipment for our armed forces with more confidence than ever before."