The air-to-air refuelling replacement programme will buy its remaining twelve aircraft under a fixed-price contract, following cost growth on the initial eight delivered under cost-plus terms. The restructuring moves a substantial share of the remaining risk to the manufacturer.
What went wrong on tranche one
Most of the overrun came from the mission systems rather than the airframe. Integrating the refuelling boom control system with the aircraft's existing avionics required more software rework than either party forecast, and certification of the combined system took two additional years.
The airframe conversion itself — tank installation, structural reinforcement, wiring — ran close to plan. This is a familiar pattern in derivative military programmes: the metalwork is predictable and the software is not.
The new terms
The second tranche is fixed-price for the aircraft, with support pricing capped for the first eight years of service and an option to extend at indexed rates. The manufacturer accepts schedule liquidated damages that step up after a six-month grace period.
Fixed-price defence contracts have a mixed record. They control cost when the technical baseline is stable, which it now is; the systems integration work that caused the overrun is complete and will be replicated rather than developed. They perform poorly when requirements change mid-build, and the contract accordingly contains an unusually restrictive change-control process.
Capability timeline
Initial operating capability was declared last year with a partial fleet. Full capability now depends on the tranche two delivery schedule, which runs to the early 2030s. Until then the force operates a mixed fleet of new and legacy tankers, with the associated training and support duplication.
That duplication has its own cost, and it is not carried in the procurement line. It appears in the operating budget, where it is considerably less visible.
