The Cost Of A Westland Wildcat

The Agusta Westland Lynx Wildcat helicopter is surrounded by a number of myths and controversies.

The most common of these is that the helicopter is excessively expensive.

An overview of the subject of helicopter costs has been given in another post.

It can be seen from this that the Wildcat is not particularly expensive when it's price is compared to that of a popular competitor,the Sikorsky BlackHawk / SeaHawk family. 

However,this does not tell the whole story.

Details of the Wildcat's project's cost can be found on Part 2,Page 14 of 34 of Ministry Of Defence : Major Projects Report 2009 Appendices and Project Summary Sheets.

By taking the £1,669 Million program cost of the Wildcat project and dividing by the 62 helicopters which are being purchased we get the £27 Million unit program cost which is often quoted.

However,the major projects report says that the original project was for £1,966 Million for 80 helicopters which comes to £24.5 Million each.

The report states that £297 Million was saved by reducing the number of helicopters purchased by 18.

This suggests that the production cost of a Lynx Wildcat is just £16.5 Million.

The differences between these three figures,£27 Million,£24.5 Million and £16.5 Million are the result of the basic economics of design and manufacture.

Designing,developing and setting up production facilities for a helicopter costs much the same regardless of how many are produced.

But if the number of aircraft produced doubles,those one off costs are spread over twice as many airframes and consequently add half as much overhead to the unit program cost of each.

Higher volume production also saves on the direct manufacturing costs.

Every sailor,soldier and airman understands that the more you do something,the better you get at it.

The same applies to design and manufacturing.

The more helicopters you build,the better you get at it and the cheaper those helicopters become.

For both of these reasons,increasing production numbers reduces unit cost.

Conversely reducing production numbers increases unit costs.

Unfortunately,that is exactly what the Ministry of Defence did to the Westland Wildcat.

In fact,that is what the Ministry of Defence does to many projects.

The Ministry of Defence decided to develop a new helicopter on the back of an initial order for just 80.

This meant that the one off costs were spread thickly over a small production quantity and consequently resulted in a relatively high initial unit program cost.

Procurement of helicopters in such small quantities is the consequence of the Ministry of Defence's failure to rationalise it's helicopter fleet.

A rational helicopter procurement strategy might,for example,have examined whether or not it was practical to replace helicopters such as the Griffin,Bell 212,Dauphin and some Gazelles with the same helicopter which replaced the Lynx.

The lack of rationalisation of the helicopter fleet is at least partly attributable to interservice rivalries and in particular the artificial weight limits on the size of helicopters which may be operated by the British Army.

These limits serve no military purpose and could be removed by the Secretary of State for Defence.

The second mistake by the Ministry of Defence was to cut the order from 80 helicopters to just 62.

This pushed unit program costs up by £2.5 Million per helicopter.

This 10% increase in unit program cost is directly attributable to the poor management of the Ministry of Defence.

The manufacturer can in no way be held accountable for this increase.

Agusta Westland has delivered the Wildcat on time and on budget.

However,as always,it's reputation will be sullied by the cost increases imposed by bad management at the Ministry of Defence.

Many other defence manufacturers often have to take the blame for delays and cost increases imposed by bad management at the Ministry of Defence.

These problems were highlighted by the Grey Report on defence procurement.

Another often neglected aspect of the Wildcat is it's equipment fit.

Often the cost of the Wildcat is inappropriately compared to that of "vanilla" transport helicopters.

However,the Wildcat is not a "vanilla" transport helicopter.

It comes in two variants,a reconnaissance helicopter for the army and a maritime attack helicopter for the navy.

Both of these aircraft carry equipment which is not found on basic transport helicopters.

Both variants carry an electro-optical/Forward Looking Infra-Red (F.L.I.R.) turret in the nose.

The naval version also carries a radar and dipping sonar.

The dipping sonar for the Wildcat has not been selected but such sensors can cost about £2 Million each.

A SeaSpray radar will also add more than £300,000 to the cost of each naval helicopter.

While a recent Canadian order suggests the Wescam MX-15Di electro-optical sensor turrets to be fitted to every Wildcat may cost £847,000 each.

 These items add significant cost which makes a cost comparison with a "vanilla" transport helicopter somewhat inappropriate.

An often heard criticism of the Lynx Wildcat is that it makes a poor utility helicopter.

However,it was never intended as a utility helicopter.

According to the Ministry of Defence:

"The AAC's (Army Air Corps) helicopter capabilities are concentrated on delivering the Find and Attack functions, although they also provide limited troop transportation and command support roles."

The British Army wanted a Battlefield Reconnaissance Helicopter (B.R.H.) for the "Find" role.

Agusta Westland developed a Battlefield Reconnaissance Helicopter.

It is rather odd that the Wildcat reconnaissance helicopter should be criticised for not being a good utility helicopter.

If the British Army wanted a utility helicopter it should not have ordered a reconnaissance helicopter.

Criticism for this decision should be directed at the British Army's chain of command and not at Agusta Westland.

How Big Is The Overspend

This was part of another post but it is worth a little more prominence as it is at the heart of current debate over the future of the British armed forces.

A quote from Max Hastings:

"The initial challenge is to save £37bn by 2020, merely to meet unfunded obligations accepted by the last government.

If the Treasury is implacable in insisting on large savings to help address the public spending deficit, then the forces’ future is bleak indeed."

These unfunded obligations are in themselves one of the most interesting aspects of the entire defence debate.

They relate entirely to the equipment budget.

To quote the Defence Secretary Liam Fox in Parliament on the 13th of September 2010:

"Before the Labour party lectures the coalition Government about the financial implications that we face, it might want to remember that with a defence budget of some £35 billion a year, it has left behind an overspend in the equipment programme of £38 billion by 2020, with which we are going to have to deal."

On what basis was this £38,000 Million figure calculated?

According to The Major Projects Report 2009 by the National Audit Office (N.A.O.):

"The size of the gap is highly sensitive to the budget growth assumptions used.

 If the Defence budget remained constant in real terms, and using the Department’s forecast for defence inflation of 2.7 per cent, the gap would now be £6 billion over the ten years.

 If, as is possible given the general economic position, there was no increase in the defence budget in cash terms over the same ten year period, the gap would rise to £36 billion."

Which means that the overspend is only £6,000 Million if the budget rises in line with inflation and the equipment programme is not cut.

But if the equipment programme is not cut and the budget does not rise in line with inflation we have a £36,000 Million overspend.

In effect,keeping the budget constant in cash terms over the next 10 years equates to an additional £30,000 Million cut in real terms.

Which raises an interesting question about forthcoming budget cuts.

If the defence budget is cut by 10%,does that mean an immediate 10% cut followed by increases in line with inflation thereafter or a 10% cut followed by 10 years of a constant budget in cash terms?

Only in the latter case would we see the £72,000 Million of cuts which have been mentioned recently.

It could also mean minor annual cuts in cash terms to produce a 10% cut in real terms by 2015.

Without knowing the profile of the expected cuts it is difficult to get even a remote idea of how severe their effect will be.

But it is important to understand that the figures ranging from £35,000 Million to £38,000 Million which we see consist of approximately £6,000 Million worth of equipment overspend over the next 10 years and £30,000 Million worth of expected real terms cuts to the budget.

That core £6,000 Million overspend is just as interesting.

There is little mention of it in the House of Commons Defence Committee's report Defence Equipment 2009.

But it is mentioned in The Major Projects Report 2009 by the N.A.O.,(principally on Page 22 but also not ethe correction on Page 3).

How did a £6,000 Million overspend materialise between the publication of the Defence Committee report in February 2009 and the publication of the N.A.O. report in December 2009?

The Defence Committee would be very interested to know the answer to that question.
 

To quote the House of Commons Defence Committee's report Defence Equipment 2010:

"The evidence suggests that at the time that MoD witnesses gave evidence to our

Defence Equipment 2009 inquiry, the MoD was in the process of taking steps to

manage a funding gap of £21 billion.

 Witness denials at that time of the existence of

such a gap now appear disingenuous.

 The Minister for Defence Equipment and Support told us he could not provide any information about how the gap was reduced to £6 billion, nor the proportion of expenditure which was merely postponed beyond the planning period.

 When we pressed in writing for further details, the MoD provided little extra information.

 We reject the MoD’s arguments for refusing to disclose the measures it took in order to reduce the funding gap to £6 billion.

 We cannot fulfil our scrutiny role if the MoD refuses to provide such

information about its activities."

It is not difficult to see why the Defence Committee was so angry,to quote page 33 of their report (I strongly urge you to read the whole of this section of the report):

"In our Defence Equipment 2009 Report we noted that many defence commentators had

raised concerns that the equipment plan was underfunded.

RUSI Acquisition Focus had reported in RUSI Defence Systems Spring 2007 that :

“The equipment plan has been estimated as underfunded by some £15 billion or more over its ten-year period”.

In oral evidence last year, CDM (Chief of Defence Materiel General Sir Kevin O'Donoghue) told us that he was unable to estimate the size of any funding gap,and described the RUSI figures as:

 “a tad ill-informed”.

 The Minister for Defence Equipment and Support (Quentin Davies) told us that

“the equipment programme is an affordable programme.

 We have had to make an adjustment about exactly the pace with which we are bringing certain things forward and …some of the priorities are being increased and others set back a bit”.

At a conference in April 2009, he was recorded as saying:

"The idea of a defence deficit of £15 billion or £10 billion or £20 billion—think of a number and double it—is fantasy.

 There is no such deficit.

 That figure has no relevance to any reality at all and I am the man who ought to know.""

In summary,first the Ministry of Defence told the Defence Committee that there was no overspend.

Whilst at the same time they were trying to deal with a £21,000 Million overspend which they had probably just not noticed up until that point,it is only £21,000 Million after all....

Then the £21,000 Million overspend was turned into a mere £6,000 Million overspend,by using skills which had clearly been learnt from King Midas to eliminate £15,000 Million from the equipment plan.

Until the National Audit Office decided There was actually going to be a £36,000 Million overspend (not counting the £15,000 Million overspend which had mysteriously disappeared) as the defence budget was likely to be frozen in cash terms for the next 10 years.

Then it was realised that the defence budget was likely to be cut by at least 10% which meant the overspend might actually be £72,000 Million.

Well,possibly,anyway,sort of,it depends.