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BAE aims to keep all-u-can-eat ticket at MoD pie-shop

Wanna boost market value? Hire some economists

Several big-budget projects are under way right now. Some at least, depending on your viewpoint, are not intended to produce things that the UK forces genuinely need - certainly not at the given price.

An example is Nimrod MRA4, the ongoing plan to refit and re-equip a dozen of the RAF's existing airliner-sized MR2 submarine hunter aeroplanes. The new planes, like the old ones, will use De Havilland Comet airframes dating from the 1950s, extensively replaced with lovingly-crafted new bits. The project is now running more than seven years late, the number of aircraft received has been slashed and costs have soared - almost tripling the price per plane.

Once MRA4 finally arrives, the main thing gained by the UK forces will be a renewal of the existing ability to hunt for enemy submarines. Nimrods can do other things - the old MR2s are being used for comms relay and electronic warfare above Afghanistan now, for instance - but you wouldn't pay £290m per aircraft and maintain the huge, expensive Nimrod support infrastructure just to get those other things done. (The Nimrod support infrastructure will be very expensive: it will, among other things, be the biggest vintage aircraft enthusiasts' club in the world, uniquely able to maintain De Havilland Comets in an airworthy state.) Much cheaper aircraft, probably unmanned, could do these jobs.

Unsurprisingly, the Parliamentary Defence Committee hinted strongly last week that Nimrod was probably the primary candidate for axing.

The company which is building the MRA4? BAE, of course. You can see why that Oxford Economics report came out just now. (Oxford Economics tell us that BAE commissioned it last year for just £55k; a very cheap way of putting several hundred million onto the company's market value in just one day.)

Horrendously expensive

The other obvious project for bending over the executioner's block is the Eurofighter, nowadays known in the RAF as Typhoon. The fantastically expensive and long-delayed superfighter is now at long last coming into service. It isn't quite cutting-edge - it has no Stealth, for example - and it can't fly off aircraft carriers. Also, it will need a lot of expensive conversion to make it much good for ground attack, the main mission of modern combat jets (though they are a very expensive way of doing this job). Apart from all that, though, Typhoon is pretty good.

But it's horrendously expensive. The Eurofighter project will have cost the UK £18bn or so on completion if no more jets beyond the currently-on-order 144 are bought. The original MoD plans call for a further 88 "Tranche 3" planes to be ordered soon, pushing up the overall cost to around £20bn according to estimates issued a few years ago.

In terms of unit costs, Tranche 3 could be a good idea. The RAF's 232 Typhoons will have cost the taxpayer an average £86m with Tranche 3; without, the 144 planes would each cost £138m, in the same ballpark as the Americans' new F-22 Stealth ultrasuperfighter. (Disregard any RAF Eurofighter cost quote you see lower than £86m. These lower pricetags can be produced only after highly creative accounting, or as it is sometimes known, 'lying'.)

The big snag with Tranche 3 is that the RAF can't possibly use 232 jets. Current plans call for Typhoons to replace the former Tornado F3 and Jaguar fleets at the pre-2004 level, which would mean a total buy of around 130-140 including a generous spares allowance. The RAF has no plans to train more pilots or expand its roster of squadrons - quite the reverse, in fact. So buying Tranche 3 doesn't mean you get another 88 jets cheaply - it means you get the same operational fleet of less than 140, and 90 or 100 planes stored in mothballs. Tranche 3 puts the price per jet actually available for use at an eyewatering £150m-plus.

(In case you don't believe that the UK government would buy expensive jets and then put them straight into storage forever - effectively throwing them away - please note that it has already happened at least twice, with the original Nimrod and the Tornado F3. Both from BAE, as it happens. BAE is also, funnily enough, the British segment of the Eurofighter consortium.)

One should also note, on Eurofighter/Typhoon, that all these figures are on the optimistic side. The MoD issued those cost estimates years ago; nowadays it refuses to publicly discuss how much the jets might wind up costing. Consider this little exchange between oversight MPs and the MoD's procurement chiefs, from the appendices to the recent Parliamentary report:

Robert Key MP: It is quite difficult to get a handle on some of these things. For example, the current cost forecasts for Typhoon are restricted. Why is that so?

General Sir Kevin O’Donoghue: I shall be very happy to offer the Committee a closed brief on Typhoon, but for commercial reasons it would be quite difficult to talk about it in open session.

Chairman: We would be happy to have a closed brief, but are you not able to answer the question put by Robert Key?

General Sir Kevin O’Donoghue: Not about the cost, no.

Robert Key: In principle, why is the cost restricted?

General Sir Kevin O’Donoghue: Because we are in the middle of commercial negotiations.

Robert Key: With whom?

General Sir Kevin O’Donoghue: With Eurofighter.

Robert Key: In that case I may be able to help. There has been a report this week in the German press of a letter from Eurofighter GmbH to the German Defence Ministry saying that the bill for the Eurofighter will increase by about €10 billion more than expected, of which Britain’s share of additional spending will be €5.8 billion [£4.5bn]... Is that right?

General Sir Kevin O’Donoghue: I am not happy to say any more. I am happy to say it privately.

Robert Key: Is it not extraordinary that we can get this information from Germany but our own Ministry of Defence cannot provide it?

All in all, if the reports out of Germany are correct, it seems likely that Eurofighter's costs are to balloon even further out of control. We might see the final taxpayer payout per operational RAF plane at £180m or even more, and the Eurofighter comfortably outstripping the American F-22 to the title of All-Time Most Expensive Combat Jet. And it doesn't even have Stealth.

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