It is now certain South Africa will not pay R47 billion for eight Airbus Military A400M Loadmaster strategic transport aircraft as alleged – to much public and ministerial consternation – by Armscor CE Sipho Thomo last week.
He said the cost of the eight aircraft ordered in April 2005 as part of the SA Air Force’s Project Continent had escalated from R17 billion to an “estimated” R47 billion.
Thomo did not explain the budget blow-out, stating simply according to some who were at the Portfolio Committee on Defence and Military Veterans meeting that the figures came from Airbus Military, the military aircraft subsidiary of the pan-European EADS defence group.
Airbus Military categorically denied this and defence minister Lindiwe Sisulu also cast doubt on the figure.
TCO or purchase price?
Some clarity arrived over the weekend when Independent Group newspapers quoted Armscor’s general manager of acquisitions Sipho Mkwanazi as saying the R47 billion included estimates for the full maintenance and life-cycle cost of the eight aircraft (over at least 30 years), “spare parts, retention of skills and the SA National Defence Force having to pay for private freight charters for six years (to 2016) while it waits for delivery.”
But why did Thomo not make this clear at the hearing? There is obviously a huge difference between the lifetime or total cost of ownership (TCO) of any item of machinery and the acquisition price.
As a TCO price, amortised over 30 or 40 years, R47 billion may be entirely reasonable. How much, for example, have the Lockheed Martin C130BZ aircraft cost SA in spares, training, maintenance and upgrade since being delivered in January 1963? As it now stands, the C130 will at least serve 53 years with the SAAF. Compare that with the lifespan of the average car…
While this is indeed a lengthy period, it does not even compare to the US Boeing B52 Stratofortress bomber. First flown in 1954, the same year the C130 took to the air, the last of these bombers are now expected to retire in 2044 – after 90 years of flying! The only thing more impressive than that span of years would be the TCO. Be that as it may.
Another question is how the cost of the A400M moved from the 837 million euro (then R7,438,200,001.88 [got to love the 88 cents!]) announced in April 2005 to the R17 billion mentioned by Thomo. This is by itself a 150% increase in price and has never been announced. Why not?
The price of risk-sharing and grand ambition
Should SA go ahead with this project? Well, it is difficult to say in the absence of believable figures. A guide may be the purchase price of the rival Boeing C17 Globemaster III, stated at $218 million (about R1.5 billion) in 2007.
Currently 192 A400Ms are on order for nine air forces. SA is a risk-sharing partner in the programme, meaning local companies Aerosud and Denel Saab Aerostructures (DSA) stand to profit – or otherwise – from the programme. (DSA posted a loss of R452.6 million for the year to March, largely because of delays in the A400M programme. Risk-sharing indeed!)
Should we walk away, those two companies, which have heavily invested in the project – at face value stand to lose out (though it may be worth checking the fine print.)
Based on the 2005 price, the A400M would have cost the taxpayer just under R1 billion each. C17s are available at about R1.5 billion each – but without the risk-sharing. Should SA buy C17s, Boeing, for which Aerosud and DSA are already doing work, would certainly transfer technology and skills, offsetting at least some of the opportunity lost with the A400M.
The question now is what is it worth to the taxpayer to support DSA, Aerosud, Omnipless and Saab South Africa as well as the Mbeki-administration’s dream of building a globally competitive, knowledge-intensive aerospace industry.
It is not clear what SA – or more particularly these companies – stand to make out of the programme. It was reported circa 2005 that if SA exercised its option for all 14 aircraft – eight ordered and an option for six more - it would have had the right to supply 7.2% of the value of the 20 billion euro programme – or 1.44 billion euro (R15.3 billion at the current exchange rate). By taking just eight, that right will be diluted by about half.
Business Report’s Donwald Pressly yesterday re-published a 2004 media release by the late Dr Ian Phillips – then special adviser to then-transport minister Jeff Radebe – and a Denel board member – that avered that the government, through the Departments of Trade and Industry (DTI), Public Enterprises and Defence, had been since “at least 2000” developing a strategy for the long-term development of South Africa’s high technology aerospace sector.
Pressly recalled the “spin was that the government’s ‘integrated manufacturing strategy (through the DTI) and the advanced manufacturing technology strategy (through the Department of Science and Technology) both emphasise the importance of building globally competitive capabilities in knowledge-intensive industries, of which aerospace is a prime example, if we are to grow our economic and industrial development away from resource-based industries’.”
This explains why the departments of trade and transport – rather than defence – were driving the process and why Cabinet decided to waive a tender process for Project Continent. The Department of Transport used Aerospace and Defence Africa in September 2004 as the venue to announce that government had accepted an invitation from Airbus Military to participate in the A400M programme. I was there that morning and can vividly recall that the news came as a bolt from the blue for both the media and air force officers present.
What will the A400M replace?
But what is the A400M to replace? Much is being made of the aircraft replacing the C130, seven of which have served the SAAF since 1963. They are indeed old, but can soldier on a few more years yet. If the A400M was to replace the C130 on a one-for-one basis, what about Mkwanazi ‘s comment on charter flights?
Indeed, what to make of the comment made by a senior air force officer at last week’s defenceWeb maritime conference that the 13 new Maritime Patrol/Security Aircraft to be acquired shortly under Project Saucepan for delivery around 2016 – funds permitting – will actually replace the C130 as well as the older Douglas C47TP Dakota and the Casa C212 Aviocar and C235 aircraft currently in service with the SAAF’s transport squadrons. This was not the first time I had heard this from senior SAAF personalities.
So, spin aside, the A400M will not replace the C130. It will actually replace expensive Ilyushin Il-76 “Candid” charter flights as well as the Boeing 707 airborne refuellers/electronic warfare aircraft, the last of which retired in July 2007.
Pressly also brings one to another issue involving the military: the accuracy of reporting on national defence. Through no fault, I’m sure, of his own, the veteran journalist quoted SAAF chief Lieutenant-General Carlo Gagiano a saying that the age of the C130s “ranged from a vintage of 1963 back to 1934.” This would surprise Lockheed Martin, as first flight of the C130 prototype was only on August 23, 1954. The Dakota, the oldest aircraft the SAAF currently flies, made its maiden flight – as the DC3 – on December 17, 1935.
The SAAF received its first Dakota on June 21, 1943, presumably as a newly-built airframe.
There have also been other errors. This editor, for example has confused Airbus and Airbus Military, assuming the latter is a unit of the former. At this time, it is not. Moves are afoot to merge Airbus and Airbus Military. For now both are separate businesses in the EADS stable. (EADS also owns Eurocopter, MBDA and a raft of other brands.) It has been reported that BAE Systems has a stake in Airbus, and indeed it did own 20% prior to October 2006. The wikipedia notes that EADS was formed in July 2000 through the merger of DaimlerChrysler Aerospace AG (DASA) (Germany), Aérospatiale-Matra (France) and Construcciones Aeronáuticas SA (CASA) of Spain.
It has also been said the A400M was to have been delivered from 2012. My recollection – and files- suggest 2010 – as in next year. All eight would have been delivered by 2012 however. With the project delayed by up to four years (by current estimates), delivery should now take place between 2014 and 2016, not from 2016 as alleged by Thomo and Mkwanazi.
I am told this may change as the delivery schedule is currently a matter of vigorous discussion between Airbus Military and client air forces – ours included.
Another inaccuracy may be when the aircraft were ordered. The DoT floated the idea at AAD2004 in September 2004 and the state announced an intention to acquire the platform in December that year. The deal itself was inked by then-Defence Minister Mosiuoa Lekota on April 28, 2005.
The other night the SABC, SA’s public broadcaster, also had President Jacob Zuma flying to a meeting involving artisanal fishermen in an “army helicopter”. Suffice to say, “if it flies it belongs to the air force.” The SA Army operates a few unmanned aerial vehicles and target drones, but certainly no helicopters. Unfortunately many reporters believe “Army” is a synonym for “military”. It is not. But often there is no-one to school them, or to correct them.
I can only see the problem getting worse as knowledge about the military erodes in civil society generally and in the mass media in particular. Perhaps it is already past-time for some form of annual “accuracy in defence reporting”. There are awards for excellence in all manner of reporting, ranging from health to HIV to the environment to ICT. But nothing for defence…