Egged on by Shriti Vadera, one of his key economic advisers, he asked his officials to call No10 to stall or stop the Hawk announcement. It was a brave attempt, but ultimately in vain. Later that day Geoff Hoon, defence secretary, faced the press to tell them that the Hawk had been chosen. More than 2,000 British jobs were saved.
Brown’s eleventh-hour gambit may have failed, but it highlighted just how bloody the Whitehall turf war over the Hawk had become. This weekend defence officials and executives at BAE Systems, which makes the Hawk, were still reeling from the ferocity of the clash and trying to piece together exactly why Brown had fought so hard.
The chancellor was ranged against big-hitting cabinet colleagues in a dispute that struck right at the heart of Britain’s defence industrial policy. Leading the charge for the Hawk was Hoon, a man fighting to repair a tattered reputation after the David Kelly affair, in which a senior Ministry of Defence adviser committed suicide after being named as a source for a critical story over the government’s dossier on Iraq’s weapons of mass destruction. Hoon had other big guns on his side. Trade and industry secretary Patricia Hewitt, deputy prime minister John Prescott and foreign secretary Jack Straw all wanted the Hawk.
In the middle, and crucial to the ultimate decision, was the prime minister. Tony Blair needed to be “got at” if BAE Systems was to prevail. However, behind the scenes as Hoon and his allies turned up the heat with dire warnings about thousands of job losses and the catastrophic blow to British industry if the Hawk order did not go ahead, a key figure in the opposition to the deal was emerging.
Officials at the Ministry of Defence and Department of Trade and Industry had for weeks been wondering why Brown was playing such a potentially damaging game of hard ball. The job losses would have hit Labour hard. Prescott’s Hull constituency is home to many BAE workers from its Brough plant, which houses the Hawk manufacturing line.
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MPs and the unions would recoil, officials reasoned, if manufacturing jobs were sacrificed. And the defence industry would laugh when the next minister said the government was serious about supporting it.
So why, despite the usual Treasury concerns about value for money, was Brown digging in and saying that an open competition involving an Italian contractor was the best option? It can be revealed that a central character in the whole debate was Vadera, one of Brown’s top economic advisers. She is keen to stay in the background but her influence over Brown has been highlighted by the Hawk episode. She is a former executive director of Warburg, the investment bank, and became an adviser to Brown in 1999.
BAE and Whitehall sources have pointed to Vadera as the most vociferous voice against the Hawk order.
One says: “She really did have a hold over Gordon on this one. She was obsessed with making sure BAE did not get any more money out of the government.”
It is understood that one of her key reference points was last year’s renegotiations of two BAE contracts. The Nimrod and Astute programmes had experienced huge cost overruns. Eventually the Ministry of Defence and BAE thrashed out a new deal under which some of the extra cost will be borne by the taxpayer.
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A source says: “She used Nimrod and Astute as examples of why BAE should not be allowed to get even more money out of the government. However, she missed the salient point that those overruns were partly the fault of the government because of the way the contracts were drawn up. Hawk is a completely different kettle of fish.”
Vadera was, in the words of one industry source close to the negotiations, “using an investment banker’s methods” to try to change people’s minds about the viability of the Hawk project.
He adds: “She would look at the deal line by line and say why it was not in the Treasury’s — and the taxpayer’s — interest to go for the Hawk. What was remarkable was that Brown was convinced she was right.”
At issue was the plan to buy Hawk jet trainers from BAE without putting the contract out to open competition. The Royal Air Force needed new trainers to prepare pilots for two new aircraft, the Eurofighter and the F-35 Joint Strike Fighter.
The existing Hawk fleet — Britain has bought 176 in the past 25 years — was nearing the end of its useful life. Two years ago BAE and defence officials began discussions on a “sole-source” deal under which the ageing planes were replaced speedily with new Hawks, rather than having to go through the rigmarole of an international competition.
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This avoidance of an open tender angered the Treasury, and in particular Vadera. Other manufacturers of trainers — notably Aermacchi, the Italian defence contractor, and Lockheed Martin and Korean Aerospace, which have together developed an advanced supersonic trainer — stirred the pot, muttering that the Hawk was an ageing design that could not cut the mustard.
On top of this, BAE and the Treasury both found fault with the original contract. In an attempt to transfer risk to the contractor, the Ministry of Defence wanted a leasing deal under the private finance initiative (PFI). Rather than buy aircraft outright, the ministry planned to lease them from BAE, which would guarantee to provide at least 11,000 flying hours a year. BAE did not want to bear the upfront costs of developing and building the new aircraft while waiting for lease payments, and the Treasury thought the whole approach too expensive.
A first proposal under the leasing scheme was submitted in March. Last month the PFI approach was dumped, and BAE submitted a new bid, under which the ministry would buy the aircraft outright. But this ran into stiff opposition.
There followed detailed renegotiations between ministry officials and BAE. Having thrashed out a deal that they hoped would be acceptable to Brown and Blair, Hoon set off to see the prime minister. He presented Blair with what was, in effect, a final offer.
One government source says: “Blair was the key. He had clearly had his mind on other things in recent weeks. We needed to let him know exactly what was at stake, while addressing some of the key problems that the Treasury had been raising. The Hoon document from that point of view was a good one.”
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Blair listened and Hoon’s argument won. An announcement was planned for Wednesday. On that morning, Brown made his last desperate dash.
The deal was also a victory for Lord Bach, the procurement minister. He staked his reputation on the outcome and throughout had been championing the importance of maintaining Britain’s defence industrial strategy — something that would have been threatened if the Hawk order had been lost.
Vadera’s influence at the Treasury has grown hugely in recent months and BAE executives interpret her opposition to the Hawk deal as a virulent form of the Treasury’s normal parsimony. “It is a culture thing there,” says one. “They are ready to question anything if it means they can shave the budget.”
The Hawk furore has thrown light on a looming crunch in defence spending. After the exhausting fight with the Treasury over the trainer aircraft, a new front will soon be opened over a £1.4 billion contract for medium tanks. Again, the Ministry of Defence is considering a sole-source deal with Alvis, the British tank company, but the Treasury is insisting on an international competition.
Even bigger battles are looming, most of which again feature BAE. The Royal Navy’s two new aircraft carriers, which were last year estimated to cost £2.8 billion to build, are now expected to come in at £4 billion. BAE and Thales, its alliance partner in the contract to develop the ships, is examining the options to see if less capable, smaller ships are acceptable to service chiefs.
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And Eurofighter, the pan- European aircraft in which BAE leads the UK participation, may yet suffer from the budget crunch. Persistent rumours in the defence industry suggest that Britain will not buy all of the 232 aircraft to which it is committed.
Defence-industry officials are now worried that Vadera, having been seen off on the Hawk, will be mustering her troops for the bigger battles to come.
HISTORY OF THE HAWK
1976 Hawk enters RAF service as main training aircraft
1977 First export version produced
1982 Enters service with Red Arrows
2002 MoD and BAE Systems begin negotiations on new version for use as trainer for Eurofighter and the F-35 Joint Strike Fighter
March 2003 BAE submits bid on PFI contract to provide RAF with 11,000 hours flying a year. BAE issues precautionary redundancy notice to workers at Brough
June 2003 PFI bid abandoned
July 31, 2003 Geoff Hoon announces £800m deal to buy 44 Hawks