Airbus refund put to shore up budget deficit

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The R3.5 billion rand refunded by European aircraft manufacturer Airbus Military following the cancellation of a contract to purchase eight A400M transport aircraft is being put to multiple uses.

When South Africa announced its intent to participate in the A400M military transport programme as a risk-sharing partner in 2004, much was made of how local industry would benefit by way of participation in the design, manufacture and in-service support of the modern transport aircraft. The order was linked to industrial partnerships and workshare placed with Denel Saab Aerostructures, Aerosud, Cobham and SAAB EDS (formerly Grintek Avitronics). Deliveries were scheduled for between 2010 and 2012.

By 2008 the programme had suffered substantial technical and financial complications, delaying the first flight of the aircraft which was contractually required by October 31, 2009. It was at this time that SA cancelled the order with Airbus Military, claiming that the cost of the planes had escalated, a claim denied by Airbus. The first flight of the A400M eventually took place on December 11 that year.

Despite SA cancelling its order, local companies remained responsible for the design engineering, manufacturing and supply of several major parts. After 18 months of negotiations, an agreement was signed in November 2011 and Airbus Military refunded €321 million (approximately R3.5 billion) in pre-payments, other related costs and interest earned.

As result of the current defence budget not covering all the tasks required of the Defence Force, the A400M refund is being used to meet other operational requirements.

Defence and Military Veterans Minister Lindiwe Sisulu had previously requested supplemental funding for border patrol, maritime security and anti-poaching initiatives, but Treasury provided very little, with nothing for maritime security.

Speaking to defenceWeb, Sisiulu says that by cancelling the A40M purchase agreement, the funds can be fed into other needs.
“So the money is back and the first portion of that money is being allocated to maritime security,” she explained, “Our maritime requirements are now being taken care of in what we have sacrificed in air capability.”

This was a once-off event, as it was possible for the Defence Force to take the money out of a particular “bracket” and use it for other purposes.
“We now no longer have that capability. So we would need to make a very solid case that unless we are funded better, differently, we’re in serious trouble,” Sisulu noted.

A further share of the refund is being used to improve the living conditions of Defence Force members. Sisulu noted that they had to weigh up what was more important and that it was more essential to improve the conditions of service of its soldiers, sailors and airmen.

Finally, whatever funds remain after being used for maritime security and improvement of the conditions of the Defence Force will be used to renew the air force’s VIP transport fleet.

The South African Air Force VIP fleet consists of two eight-seat Dassault Falcon 50 acquired second-hand in the 1980’s, a single 19-seat Dassault Falcon 900 bought in 1992 and two nine-seat Cessna 550 Citation IIs purchased in 1983. The 18-seat Presidential Boeing 737 BBJ was delivered in January 2003.

Sisulu says that the old aircraft should be exchanged for something more modern as a result of the increasing maintenance costs.

This was “because the cumulative effect of the maintenance we’re doing is prohibitive. The cumulative effect of (renting alternative aeroplanes to replace unserviceable aircraft) is prohibitive. It all comes out of the air force’s budget, unfortunately.”
“(Not only does) it cost us, it is riskier when we rent from other people. When we rent from other people, … they fly us. It’s almost like a chauffeur driven car,” complained Sisiulu, “That which we are the most responsible for, which is the security, is handed over to a private company and that is not what the job of the defence force is.”

Several attemps to renew the VIP fleet over the past few years have been cancelled. A task team of Ministers, which includes Treasury and the Department of Public Enterprises, has now been formed to address the renewal of the VIP fleet on an urgent basis. Sisulu explained that Public Enterprises was involved as a result of their oversight of SAA and that it would be beneficial to align the fleet renewal with SAA who already maintained a large fleet of airliners.

So where does this leave the requirement for an airlifter like the A400M?
“The need remains,” Sisulu says. She noted further that the reasons for entering into the venture with Airbus Military were twofold. The first was to acquire the necessary airlift capability. The second was to include local companies in the design and manufacture of the airlifter.

Sisulu explained that the Defence Force relied on private companies to deploy its’ troops into Africa on peacekeeping missions. When SA was recently called upon to assist with the distribution of the ballot boxes for the election in the DRC, the only option was to go to the private sector. With only two weeks’ notice, special permission had to be obtained to bypass the traditional tender process and approach companies with the necessary aircraft that were already on the procurement database.
“That is the most insecure way you can deal with sensitive matters,” she says, “So we will be needing airlift capability. That is a need which is identified in the Defence Review … and we must get it”

Anew tender process will be launched, but with the main mobility focus on a new medium transport aircraft (Project Sourcepan), no movement is expected on a strategic airlifter for some time.