The RAF's £20 billion pilot

The Private Finance Initiative is set to fly, writes Clayton Hirst, as the Ministry of Defence seeks bidders for training deal

The Ministry of Defence is hatching what will become the UK's largest-ever Private Finance Initiative project, worth a staggering £20bn. In what is known as "Project 08", the MoD is seeking a partner to take over the training of Royal Air Force, Army and Navy pilots.

Senior ministry officials are due to brief potential bidders on 17 December. But it is understood that the UK's BAE Systems, Canada's Bombardier and Lockheed Martin of the US have already expressed an interest.

The MoD has become the Government's biggest champion of the PFI, with a string of multi-billion-pound initiatives. Project 08 will involve the transfer of the forces' training air fleet, nine bases and personnel to the private sector.

Insiders said that the project could be broken up into smaller contracts, with the first expected to be valued at around £9bn and signed in 2008.

The winning bidder will face a number of challenges, the biggest arguably the state of the training fleet. An MoD briefing document, seen by The Independent on Sunday, highlights an urgent need to replace existing aircraft: "A significant proportion of our training fleet is beginning to show signs of age ... [The] Hawk OSD becomes a serious factor from 2004 onwards. It will be unable to maintain its present task beyond 2006."

The report also points to the Tucano, another aircraft used for training: "It faces potential fatigue problems as early as 2004, although it is likely that it could go on well into the decade."

The PFI project, sometimes known as the "UK Military Flying Training System", is also designed to tackle a potential shortfall in the number of pilots.

Sources close to the project say the Government is worried that the pilot failure rate is too high and the training takes too long.

It is estimated that over 20 years – the likely length of the PFI contract – the MoD spends £35bn on training.

The project will be co-ordinated by the MoD's Defence Procurement Agency, advised by the accountancy firm Andersen.

Because of the size and complexity of the deal, it is estimated that it will take three to four years to select the winning bid.

Interested parties will next year form consortia to launch a bid. As well as the big defence engineering firms, the project will attract outsourcing specialists such as Serco.

Officials will update the Defence Secretary, Geoff Hoon, on Project 08 in the new year.