Tuesday, 17 August 2010

Helicopter Costs

One of the great myths of British defence procurement is that British built equipment is far more expensive than foreign equipment.

Such claims often bear little relationship with reality.

Yet the idea that British forces should make themselves more reliant on foreign suppliers is surprisingly popular.

This idea ignores the very reason why the United Kingdom maintains it's armed forces at great expense to the taxpayer.

Armed forces exist to fight wars in the interests of those who pay for them.

If they cannot do that,then there is no reason for them to exist.

If the armed forces are dependent on imported military equipment then they will be unable to act in the taxpayer's best interests when the nations supplying that equipment oppose the wars the United Kingdom wishes to fight.

The best example of the importance of security of supply in recent times was the Falklands War,which the Argentinians lost when the French refused to supply them with more Exocet anti-ship missiles.

Despite having won a war due to their enemy's lack of security of supply,British forces still do not appear to understand the importance of security of supply.

Strangely,while many in the British armed forces regard British equipment as being expensive and of poor quality,the rest of the World does not seem to agree with them.

The United Kingdom was the World's second largest defence exporter in 2009.

The United Kingdom was the World's largest defence exporter in 2007.

While arms imports by the British armed forces cause considerable damage to the nation's economy,exports by the British arms industry are of considerable economic benefit.

While some in the British armed forces call for the purchase of "cheaper and better" American equipment,the American armed forces are in fact one of the largest importers of British military equipment in the World.

Helicopters are one of the most often cited examples of British equipment being expensive.

To dispel this myth it is worth looking at the cost of some international military helicopter sales.

When comparing purchase prices it is important to compare like with like and that is often not easy to do.

Different prices include different things,some are for the complete aircraft with all equipment and a full support package and some are just the basic aircraft without "government furnished equipment" or support packages.

Unless it is known that both prices include the same equipment,training and spares packages,it is not appropriate to compare them.

There are often very large differences between prices quoted for American helicopters and those paid by export customers.

For example,the cost to the United States Army of a Chinook in 2009 was about $26 Million (£17 Million),from page 4 of this document.

However,in 2009 the Canadians placed an order for 15 Boeing built Chinooks at a cost of $80 Million (£50 Million) each.

In 2009 the Italians also placed an order for 16 Chinooks built in Italy by AgustaWestland at a cost of 56 Million Euros (£51 Million) each.

In 2009 Australia requested a sale of 7 Chinooks at a price of $80 Million (£51 Million) each.

The cost of a Chinook appears to be more than twice the £19 Million ($29 Million) price of a British built Merlin and three times the price quoted in the American Army budget.

Clearly the prices often quoted from American forces budgets bear no relationship with what foreign customers pay for American helicopters.

This is also true of the H60 family of helicopters.

The United States Army paid $17 Million (£11 Million) for a UH60M Blackhawk in 2009 according to page 4 of this document.

Bahrain bought 9 UH60Ms for $22 Million (£15 Million) each at 2007 prices.
In 2008 the United Arab Emirates requested a sale of 14 UH60Ms at a price of $55 Million (£37 Million) each.
In 2009 Thailand requested a sale of 3 UH60Ls at a price of $50 Million (£32 Million) each. 

In 2010 Taiwan requested a sale of 60 UH60Ms at a cost of $52 Million (£35 Million) each.

In 2009 the United States Navy paid $30 Million (£19 Million) for each MH 60S Seahawk according to page N-4 of this document.
In 2009 Korea requested a sale of 8 MH60Ss at a price of $125 Million (£83 Million) each.

In 2010 Australia requested a sale of 24 MH-60Rs at a price of $87.5 Million (£56 Million) each.

The French/European NH90 costs 48.5 Million Euro (£44 Million or $68 Million) each according to page 68 of this report.

The British Lynx Wildcat costs an average of £27 Million ($42 Million) each for a mix of 34 army and 28 navy types from page 14 of part 2 of this document.

The Wildcat and NH90 figures are programme costs which include the cost of developing the aircraft.

At at production cost of £19 Million ($29 Million) for an H.C. Mk.3 and £39 Million ($60 Million) for an H.M. Mk.1,even the much larger British built Merlin appears to be cheaper than the American H60 series.

Though it's programme costs of £34 Million ($53 Million) for an H.C. Mk.3 and £95 Million ($147 Million) for an H.M. Mk.1 look rather less impressive,these figures include the cost of developing the Merlin helicopter.

The differences between the above figures demonstrate the importance of investing in aircraft development only when that expense can be amortised over a sufficiently large production volume.

Using the recent Taiwanese and Korean Foreign Military Sales requests as a basis we can come to a very rough estimate of £3,514 Million for the cost of buying 34 UH60Ms and 28 MH60Ss.

That is an average cost of £57 Million per helicopter compared with an average of £27 Million for the Lynx Wildcat.

The British taxpayer also gets a large discount on domestically produced equipment via tax clawback.

It would take an economist to work out how much that is but it might be around 40% "cash back" for the taxpayer.

On that basis the net cost to the taxpayer of the Lynx Wildcat would be about £16 Million each,which compares quite well with that £57 Million estimate for H60s!

American and European kit is not always cheaper,often it is far more expensive than British designed and built kit.


S O said...

"It would take an economist to work out how much that is but it might be around 40% "cash back" for the taxpayer."

It's 40-60% depending on country and product as a rule of thumb. Most products have foreign components, so 40% is OK.

I disagree with your view on self-reliance requirement. The arms industries of formal allies should be treated like indigenous suppliers. This is a necessity if you want t get a good deal because there's usually no or marginal competition otherwise.

The 40% problem can be avoided with trade-able offset obligations.

GrandLogistics said...

Hello Sven Ortmann,

thankyou for those figures.
If you have a link to any of them I would be happy to include it in the post.

I think in terms of security of supply rather than self sufficiency.
For example,if a nation had it's soldier's uniforms made overseas,it would not have self sufficiency but it might still have security of supply if it had sufficient capacity in it's domestic clothing industry to make up for any restrictions on imports.

More militarily critical items need to be made domestically if a nation is to operate it's armed forces in it's own interests,which is the only reason for it's citizens to fund those forces.

The United Kingdom has found this out the hard way in the past.
In 1939 the British armed forces existed to protect the British Empire but that empire had to be sacrificed in order to equip those forces during the Second World War.
This lack of security of supply arguably led to the greatest grand strategic military defeat in the history of warfare - Britain's Pyrrhic victory over the Axis powers.

More recently British forces have had security of supply problems with their formal allies Belgium and Germany during the liberation of Kuwait in 1990.