Despite the clampdown on capital allowances in long-funding
leases, a host of banks have provided finance for a
serviceinclusive lease believed to be the largest ever private
finance initiative (PFI) contract for the UK public
sector.
The capital funding for the project, the financing of the Future
Strategic Tanker Aircraft (FTSA) for the Ministry of Defence (MoD),
has been arranged in tranches of senior, mezzanine and “equity
bridge” finance, syndicated among a number of banks, including Bank
of Scotland, Lloyds, Calyon, Royal Bank of Canada and
BBVA.
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It will provide the RAF with a new fleet of in-flight
re-fuelling tankers to keep combat aircraft and military transport
planes in the air over long ranges.
Until shortly before the deal was finalised, the funding had
been planned to comprise a mixture of marketable bonds and bank
lending. Because of the “credit crunch” and the current hiatus in
bond markets, however, this was switched to an entirely bank-funded
solution.
The consortium’s contract with the MoD will, in effect, be a
service-inclusive lease. The aircraft will be operated by the RAF,
but in the legal ownership of AirTanker.
It is understood that because of the “long-funding lease”
taxation rules introduced in 2006, and in light of the long-term
committed nature of the contract, capital allowances on the
aircraft will not come into play as they would typically have done
in any comparable deal finalised before 2006.
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By GlobalDataFor the funders, and perhaps for all the private-sector parties,
the profile of taxable income through the contract period seems
likely to match that of the profit for accounting
purposes.
The new aircraft, as always tends to be the case with tankers,
will be derivatives of a civil airliner, the Airbus A330. Entering
service in 2011, they will replace the ageing existing fleet of
Lockheed TriStars and even older VC10s, which have played a
critical role in conflicts from the 1982 Falklands war to the
current Afghanistan campaign. The whole contract will be valued at
£13bn over its 27- year period, with capital financing of
£2.5bn.
The main contractor for the MoD will be the consortium AirTanker
Ltd, comprising the four main equipment and service-supplier
companies. These include aircraft manufacturer EADS, engine maker
Rolls-Royce, Thales UK, a supplier of avionics, simulators and
training services, Cobham, a supplier of refuelling equipment and
conversion services, and VT Group, which will provide support
services for the tanker fleet at its main operational base at RAF
Brize Norton and other locations overseas.
Bruce White, global head of project finance at the law firm
Linklaters, advised the main bank funders, Clifford Chance partner
Gavin Teague led the team advising AirTanker and Simmons &
Simmons advised the MoD through a team headed by asset finance
partner Kim Walkling.
