Aircraft Makers Do Battle Over Cost of Contract
(Source: The Sydney Morning Herald; published December 21, 2011)
Updated Dec. 22 with response to Editor's Note
The battle to win a $1.5 billion contract to supply Australia with new combat transport aircraft has heated up.

A US bid document has prompted a European competitor to suggest its offer could save as much as $300 million in the lifetime of the project.

The tender for as many as 10 ''battlefield airlifter'' aircraft to replace the RAAF's DHC-4 Caribou, which were retired in 2009, has been under way since September.

Battlefield airlift is the process of rapidly moving troops and equipment within a conflict zone, and requires aircraft that can make quick take-offs and landings on short or poorly constructed airstrips.

The Defence Minister, Stephen Smith, has said the two aircraft models under consideration are the European Airbus Military's C295, and the US-manufactured C-27J Spartan, which is used by the US Air National Guard.

It is unclear if the government will engage in a fully competitive tender process, or simply choose the Spartan via a US ''foreign military sale'' option, which can reduce complexity in the tender process.

The possibility of a US foreign military sale rose yesterday, when the US military's foreign sales arm, the US Defence Security Co-operation Agency, notified Congress that it had given Australia information about buying 10 C-27Js for $US950 million, including training and logistical support.

This does not include the cost of local facilities and other ancillary issues, which can raise the price by as much as 45 per cent, meaning the total cost could be about $1.4 billion or more.

The US notice prompted a spokesman for Airbus Military, Ted Porter, to urge the government to create a competitive process to allow Airbus to prove the C295's value for money.

''We believe that a competition, rather than a sole-source supplier, is in the best interests of Australia and the Australian taxpayer,'' Mr Porter said.

He said the Spartan burnt much more fuel per hour than the C295 (as much as 60 per cent more), which meant the C295 could save as much as $300 million on fuel over the 30-year lifespan of a 10-aircraft fleet.

He pointed to comments by a Defence procurement officer who had said the competitive tender process for the navy's next-generation helicopters resulted in the winning tender being 25 per cent cheaper than it would otherwise have been.

A defence acquisitions expert at the Australian Strategic Policy Institute, Andrew Davies, said it was more likely than not that Defence would choose the US aircraft, for a number of reasons, ''not least of which is we've had a number of problems getting European aircraft into service over the last few years''.

The ARH Tiger and MRH90 helicopters, both on Defence's projects of concern list, are both designed by an Airbus Military subsidiary, Eurocopter, and manufactured here by Australian Aerospace.

(EDITOR’S NOTE: The above comment attributed to Mr Davies is both inane and disingenuous as Australia has had problems in getting all of its military equipment in service over the past 20 years.
Indeed, a report issued this week by the Australian National Audit Office found that Australia’s 28 largest defense equipment projects are late by a combined 760 months, or 63 years, and that slippages are growing.
It is also worth noting that the “Projects of Concern” list issued by the Australian DoD includes only four European programs, out of a total of 19 projects. Six of these other projects have American prime contractors, and 7 are Australian-run; the other two are joint AUS/US projects.)

We have received the following response from Andrew Davies, whose comment in the SMH story sparked the Editor's Note:

"I'll leave it to your readers to decide whether my comment was either inane or disingenuous, but your editor would have made that judgement easier with the appropriate facts at hand.
Actually reading the Audit Office report would have been a good start.
The story behind Australia's introduction to service of new equipment is more nuanced
than the headline '63 years and growing'. Table 2.8 on p166 gives a better picture. There have been a goodly number of projects that have been delivered on time (and on budget), including several prominent aerospace projects (F/A-18F, CH-47, C-17, next generation satellite).
These all have the properties of being off the shelf urchases to the same baseline as the parent service--just as a purchase of the C-27J could be in future. When changes need to be made, or certification obtained for aircraft configured differently from their 'home' market (as is usually the case for European equipment), delays ensue.
The fact of the matter is that buying established American equipment is a proven
successful strategy for Australia."

Andrew Davies
Director Operations and Capability
Australian Strategic Policy Institute


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