PARIS --- Revelations that German air force Eurofighter program is over budget by more than 2 billion euros raise new questions about how the German side of the program is managed by Cassidian, the defense unit of the EADS group. They also come at a particularly inopportune time for the Eurofighter consortium, as the four partner nations are to decide next years whether to order the final Tranche 3B production lot, or to stop the program.
The German weekly Der Spiegel reported July 7 that, by the end of 2013, the German air force will have spent 14.5 billion euros of the 14.7 billion budget approved by the Bundestag for the entire program, but will have received only 108 aircraft instead of 143. The reason? A steep rise in unit price due to lax management at Cassidian, Der Spiegel said.
Der Spiegel also reported alleged mismanagement of the program by Cassidian. These are only the latest to be made about the company’s performance, notably in the failed Eurofighter sales campaign to India and, more recently, in the EuroHawk debacle.
A spokesman for the German Ministry of Defense confirmed the cost overruns, and that the budget earmarked to pay for 143 aircraft had already been spent to buy only 108 aircraft. These 143 aircraft were ordered in the Tranche 1, Tranche 2 and Tranche 3A production batches and, if the optional Tranche 3B is added, will take Germany’s Eurofighter fleet to 180.
The spokesman told Defense-Aerospace.com on July 9 that “it is true that costs have been higher than expected,” notably due to the need to “modernize older Tranche 1 Eurofighters because of stretched-out production.” Germany had already spent 750 million euros on upgrades that had not originally been budgeted, he said.
The spokesman added that the Bundestag had been kept informed of the budget situation, and had authorized annual budget increases to cover the higher expenditure. He expressed confidence that “there will be enough money” to pay for the remaining aircraft of the Tranche 3A production batch and, if it is ordered, for the final 37 aircraft of Tranche 3B.
Cassidian has shrugged off the Spiegel story. In a statement issued July 9, it says that “The costs of the Eurofighter are within the frame agreed with the customer,” adding that it “strongly rejects the accusation of an ‘easy going manufacturing morale’ and the additional costs which were related to this. Cassidian constantly improves the performance of the Eurofighter as contractually agreed.” A company spokesman however did not answer specific questions relating to prices.
Because of these annual increases, the price cap for Germany’s planned 180 Eurofighters has increased to 16.8 billion euros. As 14.5 billion euros have already been spent to pay for the first 108, only 2.3 billion euros remain to pay for the final 72 aircraft – which at current prices could pay for only 20.
Once the 750 million euro upgrade costs are deducted, Germany will have spent 13.75 billion euros to buy 108 aircraft. This works out to 127 million euros per aircraft, while, based on the 2.8 billion euro value of the June 17, 2009 contract signed by Germany for its 31 Tranche 3A aircraft, each should have cost no more than 90 million euros. The escalation rate is about 40% in four years.
There also is no guarantee that the new Bundestag that will take office after Germany’s general elections, due in September, will continue the current assembly’s financial flexibility, and this could threaten funding needed to pay for both the Tranche 3A aircraft (already ordered) and Tranche 3B (decision on whether to order scheduled for 2014).
Surprisingly, Eurofighter cost escalation has not affected other partner nations in the same proportions.
The Italian production line managed by Alenia Aermacchi has not seen any cost inflation issues like those at Cassidian, company spokesman told Defense-Aerospace.com July 9. A spokesman for Cassidian Spain declined to answer on this specific point, simply saying in a July 9 e-mail that “EADS has delivered the Eurofighter, both technically and economically, in accordance with the contract to Germany and the other Eurofighter nations.”
In Britain, Eurofighter costs exploded before 2005 but stabilized thereafter, leading that National Audit Office to note in its 2011 report on the Management of the Typhoon Project that “Since 2005, control on the parts of the project where the Department has entered into contractual commitments has improved with costs stable.”
The Eurofighter price escalation issue is only the most recent of several controversies in which Cassidian has become involved in recent months.
The company’s reputation had already suffered through its management of the failed campaign to sell Eurofighters to India, for which it had prime responsibility, and most recently by its involvement in Germany’s EuroHawk scandal.
In India, Cassidian’s performance was considered so lacking that responsibility for the current sales campaign in South Korea has been given to its Spanish unit – despite the fact that it has no experience whatsoever of foreign military sales.
Cassidian also is being blamed in some quarters for the recent EuroHawk scandal, which broke in May after German Defense Minister Thomas de Maizière abruptly canceled this High Altitude, Long Endurance (HALE) reconnaissance and eavesdropping drone when he discovered, after having spent over 500 million euros on its development, that it could not be certified to fly European airspace. Modifying it would add another 500-600 million euros to its cost, with no guarantee that it would be certified.
Cassidian was co-prime contractor for the program, together with Northrop Grumman, and it has been roundly criticized in Germany for having failed to inform the defense ministry of this fundamental regulatory incompatibility years into the program. Cassidian refutes this criticism, arguing that it was only responsible for the sensor package and ground control station, but given its 50% program share MoD considers it could not have ignored this issue.
In a joint May 27 communiqué, Cassidian and Northrop Grumman said that media reports about the EuroHawk flight controls and airworthiness “are inaccurate,” and offered to “provide an affordable and achievable plan to complete flight testing of the initial asset and the eventual production and fielding of the full system of four additional aircraft,” although the defense ministry has confirmed it has no intention of pursuing the program.
There also are fears that the EuroHawk cancellation could ultimately threaten the NATO Alliance Ground Surveillance (AGS) program, which calls for producing and deploying HALE drones, like EuroHawk derived from the Global Hawk, and which would fall under the same regulatory restrictions.
NATO decided at the May 2012 summit in Chicago that it would buy five Block 40 Global Hawk surveillance drones, which would enter service by 2017 and be based at Sigonella air base in Sicily. Its cost is estimated at around 1 billion euros ($1.3 billion). In addition, Germany was also planning to buy four additional Global Hawks of its own.
However, like EuroHawk in Germany, Global Hawk UAVs could face similar problems in being allowed to operate in general (i.e., non-military) airspace in Italy, as long as no European regulations exist concerning the use of military UAVs in European airspace.
Cassidian’s failure to sell Eurofighter to India was a major factor in the decision by corporate parent EADS to restructure the company in September 2012 and install new management, which for the first time includes a “sales and international operations” division.