Friday, 3 January 2014

To start the new year, a quick look back

So, 2014 then. And what better way to start the new year than with a slight change of schedule to look back at a post from the past? If that makes sense. It did in my head at any rate.

See I was flicking through some old posts yesterday, just looking back on the year that was 2013, when I came across this old nugget about second hand procurement. In it I referenced the potential sale by Air India of eight of their Boeing 777-200LR aircraft, and so it occurred to me to go and check up on that and see if they'd been sold yet.

They have. 

Five of the eight aircraft have been sold to Etihad Airways, for the approximate sum of $350 million, or about $70 million each. That's about £42 million in British money.

By comparison the Future Strategic Tanker Aircraft (FSTA) project to buy new tankers for the RAF is costing £10.5 billion for access to 14 aircraft (two are only fitted for, not with, refuelling probes), or £750 million each. According to the National Audit Office (NAO) the AirTanker consortium has pegged the price of running the "service" at £80 million annually. If we assume that the "service" has only just started and the contract covers to 2035, then we can take 22 (years) x £80 million off the total. That's £1.76 billion, bringing the remaining cost down to £8.74 billion for the project, which is supposedly the capital cost, financing cost and profit for the operator.

That brings the cost per aircraft down to a mere £624 million. What a bargain! Especially when compared to the £42 million per plane that Etihad paid for a very similar aircraft (though the B-777-200LR has a longer range).

Now granted, we're not comparing apples to apples here. Those ex-Air India aircraft would need to be fitted out for tanking operations, they'd need to be qualified for refuelling, you'd have to conjure up some pilots and ground crew capable of operating the aircraft and then find a home for them (though in fairness the MoD plans on spending an additional £60 million per year on personnel, fuel and other costs to support the FSTA program, above and beyond the PFI contract).

And it's taken for granted that crossing your fingers and hoping that an airline can't make a profit on some of its long haul flights, thus ends up flogging off relatively young aircraft on the cheap just around the time that you need to replace your ageing tanker fleet is not a long term strategy for success.

But this does help to emphasise a) the sort of opportunities that government misses out on due to the inflexible way that its budgets operate, and b) just how shockingly, appallingly bad value for money the FSTA contract really is.

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