Darren O

Ray, I usually agree with your insights, but I think you’re wrong on this story.

First, the facts have changed since the first reports went out. It has now emerged, via a clarification from Sipho Mkwanazi, Armscor’s general manager for acquisitions, that the R47 billion figure was a total cost of ownership estimated cost priced over at least 30 years and taking into account, amongst other things, “spare parts, retention of skills and the SA National Defence Force having to pay for private freight charters for six years (to 2016) while it waits for delivery.”

This makes a lot more sense than the initial reports. There is no way on earth that these aircraft, no matter how advanced, could cost R6 billion each. But R30 – 40 billion in total operating costs over a 30 year period is in line with what we’d expect for a high-performance transport like the A400M. The actual unit cost of these aircraft is probably around 100 – 120 million Euros each, and I would expect the acquisition cost for the SAAF to remain under R10 billion once the new contract is finalised.

So it’s not accurate to refer to this as a ‘R47 billion’ deal, especially as all that money will be allocated as normal from the SAAF’s operating budget each year. It’s also worth pointing out that the A400Ms are being acquired partially to replace another type, the Air Force’s recently-retired Boeing 707s, so a significant portion of that operational expenditure was already being spent every year.

Second, this acquisition will not likely adversely affect the budgets for health, education, policing, welfare or housing. This is because the annual payments are paid from the Special Defence Account, a segment of the annual defence budget specifically allocated for new acquisitions. With the payments from the 1998 Arms Deal now winding down, the account’s funds have been freed up for requirements such as this one. Other projects in the funding pipeline are the Army’s requirement for new APCs and logistics trucks, the Air Force’s need for specialised maritime patrol aircraft and the Navy’s patrol vessel project.

It’s important to recognise these acquisitions don’t necessarily represent *increased* spending, just a continuation of current spending. And with the defence budget having represented between less than 5% of the total state spending budget on average over the past decade (something likely to continue), I think it’s fair to say it’s hardly squeezing funds out of more deserving departments. You could cancel all SANDF procurements and re-allocate the money for them to the national treasury and you’d get a less than 1.5% increase in available funds.

As for whether the country needs these aircraft, the opinion of most military experts seems to be that we do. The Air Force’s existing fleet of C-130BZs are ancient, having first flown in 1963, and cannot continue flying with the current level of utilisation for much longer without being augmented or replaced by a new type. In any case, their range and payload are both limited and are insufficient to provide enough of a logistical backbone for the SANDF to properly supply its peacekeeping contingents on the continent. And they certainly aren’t capable of meeting the airlift requirements for rapidly transporting a significant number of troops and their equipment to a hot spot in Africa on short notice, as required by South Africa’s obligations to the African Standby Force.

It could be argued that we should not be engaged in peacekeeping, that we should not have committed to the African Standby Force and that it’s not our responsibility to be the ones who can provide a rapid and response in numbers to a future Rwanda-type scenario. I’m certainly amenable to those arguments. But the fact is that these are the commitments SA has and so long as we have them we’re going to need sufficient airlift for it. That these aircraft will be able to double up as aerial refuelling aircraft and can conduct long-range search and rescue patrols like the 707s used to do is also valuable.

And as for why there was no tender process for the aircraft, it’s because the process was driven from outside the SANDF. The latter had expressed its desire for the A400M a number of times in the early ’00s, but did not believe it would receive approval from cabinet. The change came when Airbus Military offered the SA government a stake in the development of the aircraft, guaranteeing billions of Rands of investment for local firms like Aerosud and Denel Saab Aerostructures and the injection of significant investment into related aviation industries, furthering the government’s goal of creating an aviation-industry hub of excellence in SA, with the purchase of 8 aircraft being necessary to secure a 7.5% workshare in the program. So the whole deal is most properly seen as an R8 billion investment in local industry with the side benefit of acquiring an aircraft type that the SANDF needed.

Ray, I usually agree with your insights, but I think you’re wrong on this story.

First, the facts have changed since the first reports went out. It has now emerged, via a clarification from Sipho Mkwanazi, Armscor’s general manager for acquisitions, that the R47 billion figure was a total cost of ownership estimated cost priced over at least 30 years and taking into account, amongst other things, “spare parts, retention of skills and the SA National Defence Force having to pay for private freight charters for six years (to 2016) while it waits for delivery.”

This makes a lot more sense than the initial reports. There is no way on earth that these aircraft, no matter how advanced, could cost R6 billion each. But R30 – 40 billion in total operating costs over a 30 year period is in line with what we’d expect for a high-performance transport like the A400M. The actual unit cost of these aircraft is probably around 100 – 120 million Euros each, and I would expect the acquisition cost for the SAAF to remain under R10 billion once the new contract is finalised.

So it’s not accurate to refer to this as a ‘R47 billion’ deal, especially as all that money will be allocated as normal from the SAAF’s operating budget each year. It’s also worth pointing out that the A400Ms are being acquired partially to replace another type, the Air Force’s recently-retired Boeing 707s, so a significant portion of that operational expenditure was already being spent every year.

Second, this acquisition will not likely adversely affect the budgets for health, education, policing, welfare or housing. This is because the annual payments are paid from the Special Defence Account, a segment of the annual defence budget specifically allocated for new acquisitions. With the payments from the 1998 Arms Deal now winding down, the account’s funds have been freed up for requirements such as this one. Other projects in the funding pipeline are the Army’s requirement for new APCs and logistics trucks, the Air Force’s need for specialised maritime patrol aircraft and the Navy’s patrol vessel project. This also means that if the A400M purchase is cancelled, the funds will most likely remain within the SANDF budget for other acquisitions.

It’s important to recognise these acquisitions don’t necessarily represent *increased* spending, just a continuation of current spending. And with the defence budget having represented between less than 5% of the total state spending budget on average over the past decade (something likely to continue), I think it’s fair to say it’s hardly squeezing funds out of more deserving departments. You could cancel all SANDF procurements and re-allocate the money for them to the national treasury and you’d get a less than 1.5% increase in available funds.

As for whether the country needs these aircraft, the opinion of most military experts seems to be that we do. The Air Force’s existing fleet of C-130BZs are ancient, having first flown in 1963, and cannot continue flying with the current level of utilisation for much longer without being augmented or replaced by a new type. In any case, their range and payload are both limited and are insufficient to provide enough of a logistical backbone for the SANDF to properly supply its peacekeeping contingents on the continent. And they certainly aren’t capable of meeting the airlift requirements for rapidly transporting a significant number of troops and their equipment to a hot spot in Africa on short notice, as required by South Africa’s obligations to the African Standby Force.

It could be argued that we should not be engaged in peacekeeping, that we should not have committed to the African Standby Force and that it’s not our responsibility to be the ones who can provide a rapid and response in numbers to a future Rwanda-type scenario. I’m certainly amenable to those arguments. But the fact is that these are the commitments SA has and so long as we have them we’re going to need sufficient airlift for it. That these aircraft will be able to double up as aerial refuelling aircraft and can conduct long-range search and rescue patrols like the 707s used to do is also valuable.

And as for why there was no tender process for the aircraft, it’s because the process was driven from outside the SANDF. The latter had expressed its desire for the A400M a number of times in the early ’00s, but did not believe it would receive approval from cabinet. The change came when Airbus Military offered the SA government a stake in the development of the aircraft, guaranteeing billions of Rands of investment for local firms like Aerosud and Denel Saab Aerostructures and the injection of significant investment into related aviation industries, furthering the government’s goal of creating an aviation-industry hub of excellence in SA, with the purchase of 8 aircraft being necessary to secure a 7.5% workshare in the program. So the whole deal is most properly seen as an R8 billion investment in local industry with the side benefit of acquiring an aircraft type that the SANDF needed.

Lastly, in terms of the specific requirements the SAAF has, there have always really been only two viable types: The A400M and Boeing’s C-17. The latter is more capable, but around 50% more expensive to buy and a fair bit more expensive to operate, which means it’s not really an option. Other aircraft like the C-130J cannot match the A400M’s payload and range. The A400M is an almost perfect match for the SAAF’s needs.