Millennium Post

Fluctuating price of arms bazaar

Defence is an important pillar of economics, employment, and prosperity .

Fluctuating price of arms bazaar
September 04, 2017 statement of Canadian PM Trudeau that "a discussion on Canada's possible purchase of Boeing's Super Hornet F-18 fighters and the number of Missouri jobs that depend on the manufacturing of that aircraft", made news after Boeing accused Montreal-based Bombardier company of being subsidised by Canadian Government. Trudeau's counter was sharp:- "Boeing is pursuing unfair and aggressive trade action against Canadian aerospace sector", as "Boeing receives billions in support from US federal, state, municipal governments".
Understandably this takes us to American defence corporations engaged in mega military contract over years which constitutes one of the most lucrative industries; manufacturing "efficient machines" for "mass man-slaughter". Defence is an important pillar of economics, employment, prosperity of/to the makers thereof in which the west took commanding lead during last (more than) 500 years.
Thus, although, the "best" military-industrial complex of the world are headquartered in North America, nevertheless there has been a decline in numbers of mega US military corporations, post-1991 USSR demise. Legendary corporations like McDonnell Douglas, General Dynamics, Grumman, Northrop, each with an identity, no longer exist. All have been taken over by, or merged with, other mega military corporations, or have themselves done the same, by consuming smaller units. And most happened at the turn of 20th century.
Understandably, therefore, contemporary US industrial scenario looks less profitable owing to August 2011 introduction of Budget Control Act (BCA), which imposed limits/caps on all government spending. Consequently the US companies today intend to pursue export opportunities more aggressively, a goal "fully supported by Department of Defence". In this background, let us see what it takes US military-industrial complex to operate in contemporary arms bazaar.
Since none doubts technology/quality of US armament, it is the price which matters most for Washington DC corporations. "Different price for different customers" is common business practice in laissez faire economics: "market demand and supply". These quoted words are, and can be, used to defend or justify any act, in given situation; smooth or rough. And rough times appear to have set in, with drying up of potential big-ticket mass mobilisation war since the end of Cold War.
Indeed rough times have brought down military industry job tumbling. US Lockheed Martin's 123000 workforce 2011, shrunk to 115000 in 2013; Boeing's 198000 in 2000 dwindled to 168400 in 2013. Hence, as Boeing emerged one of the main suppliers of non-combat military aircraft to India, all eyes naturally are on Boeing's commodity price.
Thus, in midst of "down scenario" when news came of Boeing supplying 6 Apache helicopters to India for US $ 655 million (approximately), one went through pages of last 20 year aviation annual almanac:- "Jane's all the world's aircraft"; publications of International Institute for Strategic Studies- IISS (London) and Stockholm International Peace Research Institute- SIPRI (Stockholm), to revisit the features, price and use thereof compared to those operated by various customers in world market.
The result was interesting, yet intriguing, which brought to the fore helplessness of those wishing "to be self-sufficient in arms production", but cannot achieve goal, owing to their perpetual dependence on "latest and best" from the west. The west, on its part, obviously cannot let go the lucrative prospect of "seller's market" in which price determination revolves round its own calculation, convenience, profitability.
Thus even at times of depression, west dominates non-west buyers. Why not? Military hardware is business, profit. Not charity box! Hence the US companies, have every right to create their way of "pricing" military aircraft/rotorcraft. "Take it or leave it"!
Thus, US Lockheed Martin produced F-16 fighter cost "approximately US $ 40 million, flyaway, depending on configuration. Sale of 48 aircraft to Poland valued at US $ 3.5 billion. F-16E/F unit cost reported to be in region of US $ 50-55 million".
Another fighter, Boeing F-18 Hornet, as estimated by US GAO (General Accounting Office) "flyaway unit cost as being of the order of US $ 43.6 million in 1996…..Unit cost quoted US $ 48 million mid-2000, when Boeing pursuing measures to drive cost down to around US $ 40 million by 2005". Subsequently, the price of F-18 increased owing to slippage in F-35 programme which was to replace the former in phased manner.
One of the classic cases of escalating "aircraft pricing" can again be found in Lockheed Martin high-tech F-35 fighter programme, slippage of which has troubled US administration no end. Thus, whereas "the unit cost of F-35A was about US $ 70 million in 2012, in February 2013 Lieutenant General Chris Bogdan of the F-35 Programme Office said that the unit cost of F-35As to be supplied to Australia would be around US $ 90 million". Fighter producer's dominance in pricing thereof can further be gauged as "Cost of six F-35 aircraft to be delivered to Norway in 2018 reported in December 2013 as US $ 654.7 million" (US $ 90 million per unit to Australia and US $ 109 million to Norway)!
It is thus clear that fighter manufacturing company is the dominant and decisive actor in any transaction. This was well understood by successive US Presidents; from Dwight Eisenhower to Donald Trump. In 1950s, Dwight Eisenhower was moved to remark after "defence contractor Boeing and Douglas (as it then was) fanned the missile gap flames" that he was "getting awfully sick" of lobbies by the munitions. "You begin to see this thing isn't wholly the defence of country, but only more money for some who are already fat cats". Eisenhower realised that American arms business is a "systemic collusion between not only munitions manufacturers and the military, but also Congress". Eisenhower granddaughter "Susan, a prominent Cold War scholar, argued that her grandfather felt that clearly Congress is part of a triangle here" thereby resulting in a symbiotic relationship which prompted some to term it as "Military-industrial-congressional- complex or MICC", or the "iron triangle".
Fast forward to December 2016, a distraught US President-designate Don's caustic comment on new, customised Boeing-747 Presidential aircraft "Air Force One" :- "The plane is totally out of control…..We want Boeing to make a lot of money, but not that much money". Thus successive US Presidents spoke on "over-pricing" of/by their own military corporations.
Trump's views were corroborated by Doug Parker, CEO of American Airlines:- "We have a great relationship with Boeing, but Trump's not the first person that's complained about their (Boeing) prices, I can assure you. I just viewed that as someone trying to save money for US government and negotiate a price, just like we do all the time".
Amidst this broad spectrum of high "price" flying machines, when the news came of Boeing-made Apache attack helicopter to be bought by India, one turned the pages of Jane's all the world's aircraft 2016-2017 to find:- "India requested for proposals for 22 helicopters…on 23 May 2008, but cancelled this….in March 2009, issuing fresh document on 27 May; Indian evaluation of Apache and competing Mil Mi-28N undertaken in mid-2010…..with signature of contract eventually occurring on 28 September 2015" for 22 Boeing Apache AH-64E helicopters.
Although the first flight of Apache took place 42 years ago, on September 30, 1975, it has been constantly upgraded ever since, and 1376 units have been sold so far. Apart from 952 Apaches used by US Army, it has 424 orders from Israel, Saudi Arabia, Egypt, Greece, UAE, Netherlands, UK, Singapore, Kuwait, Japan, Taiwan with latest customers being India, Indonesia, Qatar.
Indeed, Apache does stand globally as (acknowledged) formidable attack helicopter. Its utility in ground attack is time-tested as it could be a highly successful tactical battlefield air offensive platform. Especially to interdict/abort advancing enemy armour-infantry-artillery threat to ground forces. The best example in Indian context is the "Battle of Longewala" of Indo-Paki war 1971 in which the Indian Air Force successfully counter-attacked to neutralise advancing Paki armour against a comparatively scanty force spread across a long Rajasthan sector. Nevertheless, here is a question from an Indian to US manufacturer. Is Boeing favouring its own people in a disproportionate manner while selling Apache to foreign customers, especially India? Are they doing injustice to non-American users of combat copter? Else, how does one feel, and react, to Jane's all the world's world aircraft 2016-2017 (page 762; 19th line from bottom) that whereas "Cost of 18 new-build AH-64Ds ordered by US Army in April 2007 is US $ 276.4 million"; 06 Apache-64E sold to India 2016-2017 cost US $ 655 million approximately? No doubt the two copters are different, and like the transaction price or value thereof, the years too are different. Yet, is the gap in quality of two models (used by US Army and Indian Army) so huge as to justify such wide price difference? Supply of logistics, spares and kits to user notwithstanding? Were not US Presidents themselves, from 1950s to 2016, (Dwight to Donald), witness to high "price" of US-made military machines? Is Boeing over-charging India?
Post-script:- A report vide Jane's Defence Weekly (page 13) August 16, 2017 says "Boeing spokesperson Caroline Hutcheson stated August 07 that the company agreed to sell two Boeing 747-8 aircraft to USAF at a substantial discount". Is it the result of December 2016 President-designate Donald Trump's disapproval of Boeing's quoted price of US Presidential aircraft? "The plane is totally out of control? We want Boeing to make a lot of money? But not that much money"? Can a similar sentiment be expressed by an unknown Indian to Boeing today? If they are charging US $ 276.4 million for 18 new-build Apache 64D to US Army in 2007 (US $ 15 million a unit), then why such wide variation? US $ 655 million approximately for 6 Apache 64E to Indian Army (US $ 109 million a unit)? Is Boeing doing injustice to India and kowtowing to its President regarding price of identical helicopter?
(The author is an alumnus of National Defence College of India. Views are personal)

Abhijit Bhattacharyya

Abhijit Bhattacharyya

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