No plane, no gain?

The government is to spend R8-billion to acquire a fleet of massive, highly sophisticated military transport aircraft intended as the logistical platform for peacekeeping, and the deployment of the planned African Standby Force.

Cabinet spokesperson Joel Netshitenze confirmed on Thursday that Cabinet has agreed in principle to the purchase, and said a letter of intent to the supplier, Airbus Military, will be signed in the course of next week.

The Department of Transport also released a press statement on Thursday afternoon confirming the deal, after the Mail & Guardian had already gone to print with its report on the acquisition.

The decision to purchase eight cargo haulers at a cost of about R1-billion each is likely to raise questions about the choice of the high-tech Airbus A400M and the industrial participation benefits that the government believes will flow from the deal.

With delivery tentatively scheduled for 2010, the cost burden of the Airbus programme will begin to fall due in 2008, growing rapidly in 2009 just as the financial commitments of the current defence procurement programme—which includes warships, fighter jets and submarines—begin to wind down.

The decision comes against the backdrop of a reorientation of South Africa’s defence priorities away from the need to respond to external threats that was conceived in the 1998 defence review, and embodied in the equipment selected for the R57-billion arms deal.

A reassessment of the defence review is currently under way in the South African National Defence Force (SANDF) and Parliament’s portfolio committee on defence, and it is widely expected to emphasise African peacekeeping and disaster relief over the more conventional strategic orientation of the 1998 policy.

Gavin Cawthra, of the University of the Witwatersrand’s centre for defence and security management, says the SANDF no longer treats conventional defence as its primary function, and equipment purchases based on the defence review did not take account of peacekeeping requirements, which are now seen as equally important.

“Airlift capacity is probably the most immediate need from that point of view, but the Airbus is state-of-the-art stuff,” he says.

These needs are currently met by the recently upgraded Hercules C-130 fleet of the air force, and a motley collection of ageing but capable Russian jets operated by private contractors, some of whom have conducted smuggling and mercenary activities in African war zones in the past.

“It may be that in the long run it won’t cost more than renting the Russian planes we currently charter two or three times a week, but one does also wonder what the other alternatives are,” Cawthra says.

He suggests that the United States supplies second-hand Hercules C-160 aircraft very cheaply to countries such as Botswana, but that these come “with a political price tag” that may be unacceptable to the government.

Commercial and political considerations may overlap in other areas too.
French defence firm EADS is a leading member of Airbus Military, the consortium building the A400M.

Late last year and in the period leading up to the elections, it was involved in negotiations to acquire a strategic stake in Denel, the financially troubled defence parastatal.

But sources close to the negotiations say Minister of Public Enterprises Alec Erwin pulled out shortly after his appointment over concerns about the level of control insisted upon by EADS.

South African Airways is also considering cancelling portions of its order of Airbus passenger jets, a move with both diplomatic and financial consequences. But Ian Philips, a special adviser to Minister of Transport Jeff Radebe, who was instrumental in the development of the deal, says these factors did not play a part.

“The A400M is scheduled to come into service just as the nine Hercules we currently use are due to be retired, and it offers a ... unique opportunity to participate and sharpen up engineering and design skills that are needed in an aerospace industry; that is the basis of the decision.”

He says the A400M is uniquely suited to the wide variety of uses to which the SANDF will put it, from transporting trucks and field hospitals, to troops and helicopters. The C-130J is too small, and the Boeing C-17 used by the US military too big, Philips argues.

Designed to carry massive loads over long distances, and to operate from short airstrips, the Airbus A400M is Europe’s bid for independence from American defence suppliers.

The aircraft’s backers in the South African Air Force (SAAF) say it is ideal for the difficult runways and complex load requirements already confronting them in the Democratic Republic of Congo, Burundi and the Sudan, an air force general told the M&G.

But the A400M is still a paper aircraft. Airbus Military, a consortium of European manufacturers, expects it to make its first flights in 2008—a schedule described by defence industry analysts as ambitious.

Airbus and EADS—the two members of the consortium with the most substantial local presence—have been lobbying for a year in an effort to convince the government to buy into the programme, and they have repeatedly stressed the importance of reaching a decision before the end of this year, two separate industry sources said this week.

The M&G has obtained briefing notes prepared by EADS summarising its sales pitch to the government, which stress both the deadline and the industrial benefits of a deal.

A fleet of six to eight of the aircraft would be an affordable solution to deficiencies in the strategic airlift capabilities of the SAAF, the notes say, and an early contractual commitment by the government is essential if South African defence and aerospace companies are to participate in the more lucrative design and build phase of the development programme.

“The South African industrial benefits from cooperating with the seven [European countries collaborating on the programme] match the South African government’s strategic orientation for the aerospace sector,” the notes point out, before warning that delays will lead to local firms being shut out: “Beyond the definition phase there will be little opportunity to become involved in design and design-and-build activities, and to carry out national customisation.”

Defence industry sources say EADS has dangled contracts worth €400-million over the next 15 years in front of both government and local firms, who are now coming under intense pressure to sign supply agreements before December 15.

Denel has long been identified as a possible participant in the A400M programme, and has already been asked to bid on design-and-build work for the fuselage of the aircraft. Such arrangements are supposed to offset the cost of major defence procurement initiatives by obliging suppliers to give work to local companies.

But the ailing parastatal has complained recently that its offset deals with lead contractors in the arms deal are largely loss-making, because it has been out-muscled in negotiation by the European firms it is contracted to supply.

“We make little or no profit from these contracts,” Denel financial director Pottie Potgieter told the M&G in November.

Philips says the Airbus programme will be different: “Government identified a need for something more than the offset benefits offered by the SAAB and Grippen programmes.”

Asked whether companies such as Denel and the privately owned Aerosud are really in a position to negotiate favourable contracts, he said Aerosud has already signed a smaller contract, and Denel is in the advanced stages of negotiating a complex deal to supply fuselage sections.

“˜The deadline is not an ultimatum; it is to fit their production into the schedule of companies already working on this in Europe,” he said.

Aerosud managing director Paul Potgieter told the M&G that his company has already signed “significant” design and manufacturing agreements with Airbus Military, and that he is very comfortable with the commercial arrangements.

“This is real,” he said.

Denel declined to comment for this article.

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