Claim and counter-claim on A400M price

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A400M Loadmaster manufacturer Airbus Military and defence minister Lindiwe Sisulu are denying that the South African taxpayer will foot a R47 billion bill for eight of the strategic transports.

Armscor CE Sipho Thomo this week told the National Assembly’s Portfolio Committee on Defence and Military Veterans that Airbus Military, an EADS-owned company incorporated in Europe as a separate entity from Airbus, the civil airline manufacturer, had last week told his organisation, the acquisition agency of the Department of Defence, that the cost had escalated from roughly R17 billion to about R47 billion.

The only price ever publicly stated for the acquisition, Project Continent, was in April 2005, when the SA Air Force, in a statement put it at 837 million euro, about R7.4 billion at the time.

That would have priced the aircraft at just under R1billion each. At R47 billion, they would roughly be six times more expensive at R6.25 billion.

However, a report tabled in the French Senate in February noted that the A400M’s unit price had increased from 110 million euros in 1998 to 145 million euros at today’s prices – or roughly just over R1 billion to R1.5 billion at current exchange rates.

The aircraft’s chief rival, the Boeing C17 Globemaster III in 2007 cost $218 million a unit – or also about R1.5 billion. For R47 billion, SA could buy about 30.

The R47 billion price tag also matches the still-controversial 1999 Strategic Defence Package of R47.4 billion that yielded 50 fighter aircraft, 30 helicopters, four frigates and three submarines.

Categorical denial

Airbus Military has since said it “categorically denies the A400M price increase stated in South African news reports…”

 

A spokesman said the company could “confirm that we are engaged in ongoing discussions with the South African authorities regarding developments with the A400M programme.”  

This included updated information on the aircraft development and manufacturing programme – “the first aircraft is due to fly within the next few weeks”, the impact on the aircraft delivery schedule and likely cost impact and possible price adjustments.

“As these discussions are the subject of ongoing contractual negotiations, we cannot divulge specific details,” the spokesman added.

“Nevertheless, the price tag which has been attributed to Armscor’s CE, Mr Sipho Thomo, is wildly exaggerated.

“Airbus is committed to keeping the programme within a realistic and affordable budget, with minimum additional impact on its customers. In the meantime, we have been in touch with the DoD and requested clarity on Mr Thomo’s remarks.”
 

Thomo’s comments caused a firestorm with the opposition Democratic Alliance (DA) party calling for an independent inquiry into the deal as well as for its immediate cancellation.

Sisulu embarrassed

His comments have seemingly also landed him in hot water with his minister – Sisulu – who in the Independent Group newspapers casted doubt on the price tag, saying she was today due to brief President Jacob Zuma on the deal and also “set for a showdown” with Thomo for releasing information that “should never have been made public, given very delicate negotiations currently under way with the company.”

She added that the government had been embarrassed, its bargaining leverage with Airbus Military compromised and good diplomatic relations with the European countries involved in the deal put at risk.

“It’s a highly embarrassing matter for me as a minister because that’s not how we would have wanted our negotiations conducted… it involves our credibility internationally.”

Asked whether Thomo’s head would roll, Sisulu said: “Can I leave that to your own judgement? The government has been put in a very embarrassing situation.”

Thomo yesterday acknowledged to the newspaper group that he was “in hot water”.

Sisulu was to meet with Zuma, Thomo and Armscor board chairman Popo Molefe at a military parade in Bloemfontein to mark 10-years of SA involvement in international peace missions.

She further told the newspaper group that Cabinet had yet to decide whether to stay in or pull out of the Airbus deal.

The DA called on Sisulu to “open up” rather than “cover up”. DA shadow defence minister David Maynier said the “public has a right to know not only how we got into the Airbus A400M mess, but also how we are going to dig ourselves out of the Airbus A400M mess.”

Risk sharing

SA joined the programme in April 2005 as a risk-sharing partner. It ordered eight of the aircraft and took an option for six more. As far as is known, this option was not exercised.

SA’s risk-sharing partners were Denel Saab Aerostructures (DSA) and Aerosud. DSA 80% owner Denel in its latest annual report noted that a large part of its R544 million loss -R452.6 million – for the year to March 2009 were attributable to delays with the A400M programme.

Other, non-risk-sharing, partners are Omnipless and Saab South Africa.

The A400M acquisition has followed an unusual trajectory, with Cabinet and not the DoD or SAAF initiating the deal. Indeed, when first mooted at Aerospace and Defence Africa 2004 – by then-transport minister Jeff Radebe and not defence minister Mosiuoa Lekota – it caught both journalists and SAAF officers present by surprise.

It appears the objective of the deal was to create the aerospace equivalent of the Motor Industry Development Programme (MIDP) with the aim of developing a hi-tech aerospace industry in the country to both boost research and development as well as to benefit down-stream industry. The Department of Trade and Industry’s (DTI) Centurion Aerospace Village is another leg of the programme.

The DTI also manages the MIDP and was a keen proponent of the A400M project.

Other than SA, Malaysia has ordered four and seven European states a further 180, giving a total of 192.

Aerosud MD Dr Paul Potgieter on Thursday warned that cancelling the deal “would gravely affect the country’s aerospace industry.”

He told Engineering News that “if SA cancelled the A400M, it would seriously damage the local aerospace industry.” Aerosud is South Africa’s largest private-sector aviation industrial company.

The online edition of Engineering News noted Aerosud is mainly responsible for secondary structures on the A400M. “These are – nose fuselage linings, cargo hold linings, and cockpit linings, but the company is also making the cockpit rigid bulkhead, the wing tips, and the nose fuselage galleys. The wing tips are quite important because they will contain elements of the aircraft’s defence aids subsystem.”



Potgieter added that cost escalations were hardly rare – citing the Gautrain, 2010 FIFA World Cup stadiums and the Boeing 787 as examples.