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MoD Seeks a Way Out of Typhoon Contract

From The Times
September 13, 2007

MoD seeks a way out of Typhoon contract
MoD tries to find a way out of £5 billion contract to buy 88 Eurofighter Typhoons from the consortium that builds them

The Ministry of Defence is trying to find a way out of a £5 billion contract to buy Eurofighter Typhoons from the consortium that builds the aircraft.

Britain is committed to buying 88 more of the £60 million aircraft, having already bought 144 for the RAF.

The MoD is negotiating with the consortium of defence companies that builds Eurofighter, which includes BAE Systems, to reduce, delay or entirely cancel the final order.

This would be a significant blow to BAE because it could bring production of the Eurofighter to an end before further export orders can be won.

Stefan Zoller, chief executive of EADS Defence Systems, which is part of the Eurofighter consortium, said that the MoD was negotiating with the aircraft’s manufacturers over how much it would cost to cut the Tranche 3 order.

The MoD has asked what each aircraft would cost if it ordered fewer than 88. The MoD is also understood to be considering delaying or cancelling the order entirely.

Defence sources said that the Treasury would not allow the MoD to buy both Tranche 3 of Eurofighter and the Joint Strike Fighter, which will be flown off the two new aircraft carriers being built for the Royal Navy.

The MoD is working on a compromise that would enable it to count 72 Typhoons that it is about to sell to Saudi Arabia as part of its 88 commitment.

However, Mr Zoller insisted that the Tranche 3 contract was firm and that this was not an option.

“The Saudi order will be on top, not instead of Tranche 3,” he said.

The British Government sent a contract for 72 Typhoons to Saudi Arabia last week and King Abdullah is expected to sign it any day. The contract will be worth about £5 billion to BAE initially, plus a further £5 billion in armaments and £10 billion in long-term maintenance.

Eurofighter was conceived in the 1980s as a pan-European project to build a next-generation fighter capable of defending the West against Soviet air attack.

Delays to the project mean that the Typhoons have only recently been deployed by the RAF.

Two Typhoons intercepted Russian “Bear” bombers over the North Sea last month in their first encounter with the enemy that they were originally built to defend against.

Britain, Italy, Germany and Spain are collaborating on the Eurofighter project and each nation has a commitment to buy a certain number of aircraft from the consortium of BAE, EADS and Finmeccanica.

The Italian Government is rumoured to want to cut its Tranche 3 commitment of 46 aircraft and, if both Britain and Italy cancel, it could force the end of Eurofighter production.

If there are insufficient orders from the partner countries, the consortium will be unable to keep production going long enough to win other orders.

Typhoon is hoping to compete in a $10 billion procurement competition in India, where it is up against America’s F16 and Soviet MiGs, and an $8 billion competition in Japan.

A spokesman for BAE said: “The consortium is talking to the British and Italian governments, as they have asked for Tranche 3 options. We are working with the MoD on our long-term partnership.”

The MoD said: “Discussions between the partner nations and industry on Tranche 3 are at an early stage and will continue throughout the rest of this year.”

Is common sense starting to break out at the MoD? Now in a perfect world we'd walk away from the deal or at least scale it back massively/offset a load of them to the Saudis and recoup the savings but how likely is that? Unfortunately looks like the Treasury is doing its usual hack and slash at the defence budget from the 'Defence sources said that the Treasury would not allow the MoD to buy both Tranche 3 of Eurofighter and the Joint Strike Fighter' line so even if they do end up saving some money it's not like defence will see any. Even if they managed to shave only a couple billion off, I used the word 'only' in the sense of governments massive profligacy, wonder how much that would help with the current housing scandals?