Military aircraft market: who, why, when? As the commercial transport market remains depressed, aircraft manufacturers are looking urgently for growth in the military sector to maintain sales volumes and profit margins. However, current military operations will in the short-term boost spending on guided missiles and bombs, rather than on aircraft replacements. (Complete Guide).

In the longer term the outlook for new military aircraft sales is much brighter, as 21st Century needs trigger booming sales in long-range transports, tankers, and both combat and multi-role helicopters, and as US-led technological developments such as stealth fighters and sensor platforms result in new types of operational requirements being generated by medium-and even small-size air forces.

Why do air forces buy new aircraft? Sometimes a purchase is made primarily to eliminate a shortfall in the officers' pension fund, anything up to 25 per cent being creamed off the top of the contract value. However, for the purposes of this discussion, it is assumed that most of the spending associated with military aircraft procurement is performed by the major air forces, which use their funds to replace obsolescent assets and to exploit the operational advances made possible by the latest technologies, allowing them to respond to developing needs. Smaller air forces should rationally watch what their larger counterparts are doing, and follow suit to the best of their ability, if necessary forming regional groupings in such fields as aircrew training, transports and tankers.

Developing Needs

Each of what might be termed the 'post-WW conflicts' has significantly changed the face of warfare. Korea introduced combat between jet fighters for control of the air, the small-scale employment of air-to-surface guided weapons and the use of helicopters to evacuate casualties from the battlefront. France's coin (counter-insurgency) operations in Algeria saw the first use of turbine-engined helicopters armed with cannon and wire-guided, joystick-controlled missiles.

Vietnam brought coin operations into the jungle, the use of air-to-air guided missiles and laser-guided bombs, SA-2s and man-portable SA-7s, large-scale in-flight refuelling for fighters and bombers, the employment of helicopters to deploy and extract army combat units, the development of tandem-seat dedicated attack helicopters, gunship conversions of fixed-wing transports and the use of long-range surveillance UAVs and AEW&C aircraft.

The Falklands conflict of 1982 demonstrated the effectiveness of air-launched anti-ship guided weapons, and witnessed the first operations by Stovl fighters from aircraft carriers and their usage of a short airstrip. In that same year, the Israeli invasion of Lebanon saw sensor-equipped tactical drones playing a significant role for the first time. Soviet coin operations in the mountains of Afghanistan in the 1980s showed the need for helicopters to be armed with large-calibre guns to out-range ground fire (as the US Army had discovered in Grenada in 1983), and for dedicated close support aircraft with extensive armour plating and unprecedented numbers of decoy flares.

The 1991 Gulf War may be recalled as a conflict that, being the first 'out-of-area' deployment for many Nato services, placed enormous logistic demands on the air forces of the Coalition, demands that in some respects could then be met only by the US Air Force's Lockheed Martin C-5 or by chartered Antonov An-124s. However, the capacity of airlift (in tonne-kilometres per day) is small in comparison with sealift. Luckily, Iraq did not seek to exploit its conquest of Kuwait by pressing on to occupy Saudi oil fields; hence the Coalition had over six months to prepare for the ground war.

In its aftermath, America stockpiled materiel at depots in the region (and on islands and vessels in the Indian Ocean), rather than ordering new-build C-5s. The experience nonetheless obliged the air forces of principal European powers to review their own airlift capacities, the results of which will appear over this and the next decade.

In terms of transport aircraft derivatives, the Gulf War also provided a forceful argument for the Boeing 707-derived E-3 Awacs, KC-135/KE-3A tanker and the Northrop Grumman E-8 Jstars. All played vital roles, paving the way for sales of analogous versions of Boeing's 767. It was also a technologically advanced war, with the Lockheed Martin F-117A stealth strike aircraft used operationally for the first time and GPS satellite navigation making its debut.

Above all, the Gulf War demonstrated that (in certain circumstances) the overwhelming use of air power could allow ground forces to achieve victory in a very short time (100 hours in that instance) and with few casualties. It also showed the value of precision weapon delivery in minimising collateral damage, and the need for a foolproof means to identify Coalition forces from the air, in order to avoid friendly fire accidents.

Although it lasted only 78 days, and Was geographically and meteorologically much closer to the all-out war in central Europe for which Nato had trained, the Kosovo conflict of 1999 (Operation Allied Force) provided some important new lessons. For example, the effectiveness of Yugoslavia's Soviet-style air defences restricted Nato air operations to over 15,000 ft for the entire duration of hostilities. This, combined with mountainous terrain and adverse weather on all but 21 days, placed severe restrictions on air-to-ground operations. Britain, with only laser-guided bombs for precision delivery, made its contribution largely by being cleared to use non-guided bombs (BL755 cluster weapons) through cloud, but only against those targets where the expected collateral damage was judged not to be excessive. Most of the 14 non-US Nato countries that participated relied heavily on the US Air Force for Sead (suppression of enemy air defences) and Csar (combat search and rescue).

Allied Force involved the first use of GPS-aided munitions, from the 900 kg Boeing GBU-31 Jdam (joint Direct attack Munition), of which up to 16 individually-targeted examples could be delivered by a Northrop Grumman B-2A flying direct from the US, to the Boeing AGM-86C Calcm (Conventional Air-Launched Cruise Missile) launched in stand-off attacks by B-52s operating from Britain. Other examples included the 2270 kg class GBU-37 hard target penetrator, again delivered by the B-2A, and the Raytheon AGM-154 Jsow (Joint Stand-OffWeapon) glide dispenser launched by US Navy and US Marine Corps F/A-18s. The Kosovo operation also marked the first operational use of the General Atomics Predator medium-altitude long endurance drone and of the Boeing C-17. The latter provided a valuable advance in logistics, in being able to deliver cargo direct to relatively small airfields. It also provided a fast turn-round, thus freeing up apron parking space. The successful debut of the C-17 was not lost on America's Nato allies. Another of the lessons of Allied Force was that the 900-plus Nato aircraft placed severe demands on airfields in the region. This resulted in tankers being based further back and given increased crew/aircraft ratios.

Following the terrorist attacks in the US on 11 September 2001, Operation Enduring Freedom began with strikes on targets in Afghanistan on 7 October, in a campaign that was to be characterised by even greater basing problems than with Kosovo, and even greater deployment distances (and longer strike radii from aircraft carriers) than in Desert Storm. Just as the Gulf War had thrown up a need for penetration weapons to destroy deeply buried bunkers, Afghanistan demanded special weapons to attack mountain cave complexes. Both conflicts demonstrated the need for aircraft capable of delivering extremely heavy (two tonne plus) individual munitions. Enduring Freedom included the first operational deployment of the Northrop Grumman RQ-4A Global Hawk high-altitude long endurance UAV, a potential replacement for the manned Lockheed Martin U-2S. Afghanistan may also have provided the first opportunity for Boeing AV-8Bs to be operated close (65 km) to a front-line, generating the high sortie rates that Stovl proponents have always claimed possible.

Lessons Ignored

These various conflicts have produced new types of operational requirements, but air forces have not always followed these through to the procurement stage.

A replay of Vietnam would arguably have demanded a turboprop Stol coin aircraft to provide quick reaction from forward strips against lightly armed insurgents in jungle, but the war actually led to the turbofan-powered A-10, which was literally designed around a massive tank-killing gun. The A-10 was supposed to have credibility in the long-awaited armour battle in Central Europe, but Euro-Nato air forces were less than convinced. In the event, the A-10 proved useful in the close support and FAC roles during the Gulf War, but its inability to strike at second echelon forces made the concept suitable only for a multi-type air force such as those of the United States and the Russian Federation.

The latter has the Sukhoi Su-25 (Frog-foot), which was undoubtedly inspired by the A-10, but has a much thinner wing, providing higher speed and more credibility as a general-purpose ground attack aircraft. It also has record-breaking passive defence measures (armour and flare-dispensers) that in Afghanistan proved their effectiveness against the best shoulder-launched surface-to-air missiles. The Su-25 is widely used in the CIS, and has been exported to Bulgaria, the Congo, Iran, Iraq, North Korea, Peru and Slovakia.

The Gulf War demonstrated beyond doubt the value of a stealth strike aircraft (Lockheed Martin F-117A) in the first few nights of a war against an enemy with a modern air defence system. Although it seems logical to suppose that Britain (at least) would have been allowed to have the F-117, no such contract was inked, nor did the US Air Force move to augment its single wing of these aircraft (currently estimated as having only 52 left from the 59 delivered).

The lack of reaction by Britain may have been due to restrictions placed on use of the F-117, meaning that initial strikes might as well be left to the US Air Force. Part of the explanation may be that the multi-faceted shape of the F-117 was admitted by Lockheed Martin to represent a relatively crude first-generation approach to stealth design, which would soon be superseded (thanks to better computers) by a second-generation approach allowing curved surfaces. Incidentally, the facetted stealth design of the F-117 is of Russian origin; however, as it often happened during the Soviet era, the theory of its inventor was not deemed credible, and the then director of the Skunk Works Ben Rich managed to get the documents smuggled out of the Soviet Union. The stealth-related maintenance workload of this first generation may also have been a powerful negative incentive. In the event, the second generation stealthy strike fighter, presumably to be represented by the same company's F-35 JSF or the proposed FB-22 development of its Raptor, has been a long time in coming.

One of the most important lessons of the Gulf War may have been that low-tech ballistic missiles pose a threat, not only to population centres (as was found in WWII) but also to major military bases. The American response to this threat was to improve base defences by the deployment of Raytheon Patriot systems. As far as can be judged from TV newscasts, not even helicopters were dispersed off base, despite the possibility of Scuds delivering chemical or biological warheads. Perhaps wrongly, the Gulf War thus apparently did little to advance the cause of Stovl combat aircraft and Stol transports. The US Air Force has not switched from the Ctol F-35A to the Stovl F-35B, and the idea of a tilt-wing Advanced Theatre Transport remains a Boeing pipe-dream, although the company hopes to get DoD/Darpa funding to put a tilt-wing with four turboprops and cyclic-controlled propellers on the YC-15 prototype fuselage.

Paradigm Shifts

The biggest change over the last half-century in terms of operational scenarios for the leading air forces has resulted from the comparatively recent disappearance of the threat of a Warsaw Pact armoured thrust across the North German plain. Since that time Nato has found a new role in a UN-sponsored, world-wide version of old-fashioned gunboat diplomacy. Demands for ferry range and radius of action have increased accordingly, and the all-important challenge of disabling a main battle tank (MBT) has been replaced by a requirement to deal with a wide variety of targets, representing everything but tanks, and with increased emphasis on reduced cost of operation.

Although Nato may continue to provide the basis for many global policing operations, the coalitions involved will inevitably vary in composition, and it will thus be difficult to ensure interoperability and secure communications. Such considerations may appear to favour the wider adoption of US equipment. It is certainly clear that--as the result of experience in the Gulf War--Britain (at least) is now more willing to adopt American aircraft, the Boeing AH-64D, Lockheed Martin F-35 and Boeing C-17 being obvious examples. The days when the RAF was obliged to wait years for British industry to develop substitutes for US aircraft have clearly passed.

The principal change in the nature of operational requirements has occurred relatively suddenly, in the last decade. On the other hand, some equally important changes in the military aircraft business have taken place gradually over the past half-century. Two obvious examples are unit cost and service life.

Based on the Pentagon's FY2004 budget request, the unit procurement cost of the Lockheed Martin/Boeing F/A-22. is scheduled to fall from $ 223.4 million for the 20 aircraft funded in FY2003 to $ 187.6 million for the 24 aircraft in FY2005. If the Congressionally-capped production programme figure of $ 43 billion is applied to the total run of 276 F-22s for the US Air Force (reduced from the original 648), the average production cost is $ 155.8 million. However, if the development cost of around $ 20 billion is added, the average unit cost of the F-22 rises to $ 228.3 million, at which order of magnitude very few air forces will be able to afford even one Raptor squadron. It should be noted that the domestic production run could increase beyond 276, if economies can be made. For comparison, South Korea's order for 40 Boeing F-15Ks in 2002 was worth a modest $ 4.0 billion with initial spares and the usual support, implying a unit flyaway price below $ 70 million.

On the up side, avionics reliability has improved substantially, and it is argued (e.g. in the case of the F-35) that, combined with the benefits of a prognostic health management system, this ends any necessity to replace legacy aircraft on a one-for-one basis.

On the matter of service life, in the early post-war era it was taken for granted that fighters and jet trainers would be replaced at ten-year intervals. Today's products, in contrast, are expected to remain viable for 40 to 50 years. With due respect to Northrop Grumman, in 1961, when the US Air Force began receiving the T-38 Talon, few people in the jet trainer business expected it to set records for longevity. Today, benefiting from major upgrade and re-wing programmes, the T-38C is set to remain in service until 2040. At the opposite end of the size spectrum, the first US Air Force B-52H was also delivered in 1961 and is likewise expected to serve until 2040.

Sellers' Viewpoint

The upward trend in costs and the downward trend in numbers of aircraft procured have been evident since the early 1960s. On a few noteworthy occasions these trends have been halted by an outstanding design that delivers excellent performance across a broad spectrum of roles, yet is based on a relatively small and simple airframe/engine combination. The classic example is the Lockheed Martin F-16, of which well over 4000 examples have been built for 22 nations. Although deliveries to the US Air Force began in 1979, the F-16 continues to sell, the most recent deal being a $ 3.5 billion contract for 48 aircraft for Poland (with over $ 6.0 billion in offsets). The company expects to keep the F-16 production line open beyond 2010, and the US Air Force plans to keep the aircraft in service until 2030.

Lockheed Martin clearly hopes to repeat its F-16 success in marketing the F-35, which is scheduled to reach Initial Operational Capability (IOC) with the US Air Force in 2011. In 2002 values, the Ctol F-35A is expected to cost $ 37 million, the Stovl F-35B $ 46 million, and the USN (carrier-operable) F-35C version $ 48 million. Around 2500 units are planned for the US services.

The F-35 programme illustrates many facets of cost-reduction. One of the fundamentals is to maximise the potential market through a design that can replace a broad spectrum of aircraft, and that (for this and other reasons) will be attractive to the largest possible number of countries. The situation that should be avoided in the future is the present head-to-head competition between the Dassault Rafale and the Eurofighter Typhoon, which reduces the size of the potential market, increases unit production cost and (from a pan-European viewpoint) represents a waste of development funds.

The F-35 development programme is introducing an innovative way of reducing the cost to the launch customer, in this case the Pentagon. America's own outlay is being usefully reduced by allied nations paying part of F-35's non-recurring costs, in return for limited access to technical information and the promise of a share in the development and production work (and, in the case of Britain, in actually having some say in the drafting of the operational requirement). Investors are also guaranteed a reduced purchase price. In announcing Australia's participation in the F-35 programme, Defence Minister Robert Hill stated that the decision to invest (A$ 300 million) had been calculated to save the Australian Government twice that amount in the country's eventual purchase.

The F-35 is currently in the systems development and demonstration (SDD) phase, capped at $ 28.3 billion. Friendly nations have been invited to invest at three basic levels. Level One, represented only by Britain, involves taking a 10 per cent share. Level Two, chosen by Italy and the Netherlands, is for 5 per cent. Level Three has Australia, Canada, Denmark, Norway and Turkey each providing $ 125 to 175 million over a ten-year period. Israel and Singapore both took part in the earlier concept demonstration phase (CDP) as fourth-level FMS (Foreign Military Sales) participants, and have been admitted to the SDD phase as Security Co-operation Participants (SCPs). This provides them only with a core data package, and the ability to order specific modelling and simulation studies. The total foreign investment in the SDD phase appears to be approximately $ 4.5 billion.

It may be noted that the Pentagon now appears to be demanding a global system for providing spares for the F-35 family, with a contractor (possibly in the form of a financial consortium) owning stockpiles at various locations around the world, guaranteeing the delivery of spare parts on the sort of timescale demanded by airlines, and charging the operator on a basis analogous to engine manufacturers' power-by-the-hour. That the same system would be available to export customers; indeed the US services would count on other operators adopting it. If the F-35 really does result in a production run of 4000 to 5000 aircraft, this could revolutionise military product support.

The F-35 model of development cost sharing is clearly not applicable to all projects. Firstly, foreign governments will only be persuaded to invest if their advisers conclude that the project is in a class of its own, that it is bound to succeed technically and that their country will probably buy it. In addition, future cost-sharing proposals will depend on experience with the trail-blazing F-35. If it transpires that investors (at Level Three in particular) find that they receive little work from the F-35, they and others will be discouraged from making similar investments. Press reports indicate that Norway is currently disillusioned with the programme. The Royal Norwegian Ministry of Defence has consequently signed an industrial participation agreement with Eurofighter, regarding the future enhancement of the Typhoon weapon system.

It is now being suggested that F-35-style development cost-sharing should also be applied to the US Navy's Multi-mission Maritime Aircraft (MMA) programme to replace the Lockheed Martin P-3C Orion maritime patrol aircraft and its EP-3 Aries electronic surveillance derivative. The US Navy currently has over 300 members of the P-3 family, and its natural Level One partner (corresponding to Britain in the case of the F-35) would be Japan, which operates over 100 P-3s. However, Japan is intent on developing its own P-X to replace its P-3, and is unlikely to pour millions into the MMA. Five other P-3 users (Australia, Canada, the Netherlands, New Zealand and Spain) are allocating serious money to upgrading their existing aircraft, and probably will not have funds available to contribute to MMA development. However, Germany and Italy have 18 Dassault Atlantics each, and might decide to replace them with the MMA.

It thus currently appears that few (if any) foreign countries will provide the US Navy with significant subsidy in developing the MMA. Furthermore, whereas the F-35 may be widely viewed as "the only game in town" in its category, some operators may feel that the P-3 replacement already exists in the form of the Northrop Grumman RQ-4A Global Hawk.

Once an aircraft has been developed, one of the essential factors in achieving low production costs is to have a single final assembly line. However, countries often accept a higher unit cost as the price of having their own prestigious assembly facility. The F-16, for example, has been built not only in the United States, but also in Belgium, the Netherlands and Turkey. In the case of the JSF programme, consideration was initially given to having assembly lines at both Lockheed Martin and Boeing, but the current plan is to have only one line at Fort Worth. There have been reports that this line can deal with only 22 F-35s per month, whereas the demand may peak at around 30. Whether this would justify a second line (for example, at BAE Systems in the UK) remains to be seen.

User's Viewpoint

The operator can respond to the escalation in prices in various ways. One possibility is a "buy-to-budget" policy, which has recently cut US Air Force procurement of the F-22 from 339 (itself reduced from the original 648) to 276 units.

Another approach is to buy pre-used aircraft, although the wisdom of this clearly depends on such factors as the previous owner, how it has been stored, how much fatigue life is left, the cost of refurbishing and updating, spares availability and how long the new operator intends to use it.

From time to time a major operator phases out a type and there are fears among manufacturers that the availability of low-cost pre-used aircraft will destroy the corresponding market sector for years. In reality, such actions rarely have a serious effect. For example, when the German Air Force phased out the Dassault/Dornier Alpha Jet close support aircraft, this had no real impact on either the advanced trainer or light attack market. Portugal and Thailand now each operate around 20 Alpha Jets, but those countries never represented serious prospects for a new-build BAE Systems Hawk (for example). Thailand reportedly bought these Alpha Jets for around $ 27,000 each, and then paid Eads something in the region of $1.5 million each to have them refurbished. The United Arab Emirates had evidently considered the German Alpha Jets at one time, but thought better of it.

On the other hand, early-model F-16A/Bs placed in storage by the US Air Force are having an effect on the market, as illustrated by Thailand recently buying 16 to supplement its 36 new-build aircraft (and substitute for eight Boeing F/A18C/Ds that were cancelled due to budgetary problems).

As an alternative to buying secondhand, an air force can critically review (or dumb-down) its operational requirement. Malaysia, for example, was expected in the late 1980s to buy twelve Tornado strike fighters as part of the eighth production batch, but bought 16 Hawk 200 light attack aircraft instead.

Long-term leasing cannot make financial sense, but in the short-term leasing can usefully overcome a budget shortfall, side-step political objections, give an air force time to consider what it really wants to buy and bridge the gap until a new generation aircraft becomes available.

For example, because the Eurofighter Typhoon will not be available in significant numbers until 2006 or later, the Italian Air Force leased 24 ex-RAF Panavia Tornado F3s from Britain, and is now replacing them with 34 Amraam-operable F-16A/B ADFs, which will be retained until 2010. Likewise, Britain is leasing from Boeing four C-17 Block 12s from the US Air Force line, to bridge the gap until the RAF's 25 Airbus Military A400Ms become available. The C-17 lease will cost around $ 1.125 billion, and run initially for seven years. Britain has to decide by November 2006 whether it wants to exercise an option to extend the lease by one or two years. The agreement includes an option to buy at the end of the lease.

Australia and Canada are both studying the lease of C-17s, and in late 2001 Congress gave the US Air Force permission to lease up to 107 new-build Boeing 767s and four 737s (C-40B/Cs) in order to address an alleged chronic shortage of transport capacity. It now appears that 100 767s are to be delivered as KC-767A Convertible Combi tanker/transports (able to carry a mix of passengers and freight). The lease agreement (like that for the C-40B/Cs) has yet to be signed, but will cost around $ 17 billion for six years. Deliveries and lease payments are due to begin in 2006. Post-lease purchase would cost about $ four billion, but the US Air Force will have an escape clause to buy at any stage.

India has leased 16 F-16A/Bs from the US Air Force since 1997, and is now negotiating the lease of four Tupolev Tu-22M3s from Russia.

In line with the modern trend to regional groupings, the best way for a country to approach the problem of equipment cost-escalation may be to opt out of some non-essential roles and act jointly with one or more other nations in addressing others.

For example, Belgium has decided to specialise in humanitarian activities, presumably in the form of disaster-relief operations, and is teamed with Luxemburg on A400M procurement. Regarding the training of future aircrew, Belgium is expected to participate in the proposed Eurotraining/AEJPT (Advanced European Jet Pilot Training) programme, alongside Austria, Finland, France, Germany, Greece, Italy, the Netherlands, Portugal, Spain, Sweden and Switzerland. It is hoped to launch this programme around 2010 at three bases in northern, central and southern Europe. Belgium has not joined the F-35 programme, and it remains to be seen how (or whether) its 90 remaining F-16A/Bs will be replaced when they are retired in 2015.

New Zealand has opted out of the air combat business and,' in August 2001, offered its remaining Douglas A-4Ks and Aermacchi MB-339CDs for sale. However, the RNZAF is to retain and modernise its transport, maritime surveillance and utility helicopter assets. Its planning is integrated with that of Australia to some extent, notably on upgrade studies for the P-3 and C-130H.

Denmark, the Netherlands and Norway currently have a Deployable Air Task Force with 18 F-16s and a KDC-10, based in Kyrgyzstan. It is proposed to extend the force to include F-16s from Belgium and Portugal. Malaysian MiG-29Ns go to India for maintenance, and the two countries are discussing a common logistics support centre in India for the Su-30MK. Gulf Aircraft Maintenance maintains BAE Systems Hawks for Abu Dhabi and Dubai, and this arrangement may be extended to Hawks operated by Bahrain, Kuwait, Oman and Saudi Arabia.

One form of operation that especially lends itself to jointness is pilot training, provided that language problems can be overcome. The pioneer in this field has been the US Air Force-run Euro-Nato Joint Jet Pilot Training (ENJJPT) scheme at Sheppard AFB, Texas. Many European air forces have benefited from this programme, although the system of tuition does not suit all tastes (Britain's RAF being particularly critical) and some operators have complained that they have to pay for the full syllabus, even if the student is washed out after a few flight hours.

Bombardier's NFTC (Nato Flying Training in Canada) scheme was designed to supplement the ENJJPT, and is attracting a growing number of users. Aside from the Canadian Forces, Denmark, Hungary, Italy, Singapore and the UK have now signed up for training, which is carried out on the Raytheon T-6A (CT-156) and BAE Systems Hawk 115 (CT-155), orders for which currently stand at 24 and 26 respectively. Interestingly, NFTC allows British student pilots to fly much more advanced (glass cockpit) Hawks than the RAF currently owns.

There is clearly scope for further joint training operations, aside from the Euro-training project. Switzerland, Austria and Germany are discussing combined pilot training, possibly using the Pilatus PC-21. One of the Gulf states could (in principle) start a training system for Arab air forces, assuming that (as in the NFTC case) most customers provide their own instructors. Australia and South Africa have both the airspace and the weather for large-scale pilot training.

Further joint Nato operations were presaged at the summit in November 2002, at which it was agreed to focus defence spending on critical shortfalls, including deployability and sustainability. Under this Prague Capabilities Commitment, Germany is to lease C-17s as an interim measure and to lead a consortium of nations aimed at pooling airlift resources and capabilities. Reports indicate that this pool is expected to consist of 14 C-17s and two An-124s. Meanwhile, Denmark and Norway are to contribute tanker assets to Nato, and Spain is to lead a consortium of nations that have expressed interest in pooling their 17 flight refuelling aircraft.

It may just be possible in some countries to save on expenditure by the closer integration of its separate armed service branches. For example, in 2004 the US Navy and Marine Corps are due to begin integrating their tactical aircraft assets. This is expected to allow several strike fighter squadrons to be decommissioned and to realise savings of around one billion dollars per year. Combined with the effect of reducing the number of aircraft in each deployed squadron from twelve to ten, the integration will allow US Navy and US Marine Corps procurement of the Lockheed Martin F-35 to be reduced from 1089 to 680, and in this instance, US Navy procurement of the Boeing F/A-18E/F would be cut down from 548 to only 460.

Boosts and Headwinds

Before discussing the various aircraft categories, it may be worth reviewing some of the factors that help or hinder military aircraft sales.

Firstly, it should be obvious that the aircraft offered must respond to the operational needs of a large number of potential users, at an affordable price, with world-class product support, and that it should be marketed by an organisation that can put together an attractive finance package and suitable offset arrangements.

In a major sale, government assistance may be of crucial importance. For example, Poland's recent purchase of F-16s was reportedly helped by Congress allowing the normal financing rules to be bent, so that repayment on principal is being deferred from five years to eight (during which time only interest payments will be made), and the loan period is increased to a total of 15 years.

However, the US Government is not always on the side of its-exporters. American bureaucracy often delays sales involving defence-related technology and the US is well known for refusing to give customers full access to information on the equipment they have bought. The Raytheon AIM-120 Amraam was sold to Singapore and Thailand on the understanding that the missiles would be held in the US on 48-hour call (despite AIM-120s having been supplied to Australia, Japan, South Korea, and Taiwan).

In recent years the US Government has in some cases adopted a bullying tone, indicating that US aircraft can only be supplied with US avionics, that a nation failing to select a US aircraft would not necessarily be allowed to arm a European substitute with US weapons, and that failure to buy specific US products (e.g., air defence systems and torpedoes) could have an adverse effect on product support for that country's existing US equipment, and on America's willingness to assist in defending that country.

Examples of the Governmental problems experienced by US exporters include the failure to conclude the sale to Turkey of 50 Bell AH-1Z King Cobras (with 95 more to be licence-built), apparently due to America's unwillingness to release information on equipment such as the mission computer. Australia is one of America's principal allies in the Pacific, yet Boeing was fined $4.2 million for offering that country a 737-700 AEW&C with improved transmit/receive modules, and for releasing classified radar signature data on various target types. Likewise, having selected the Eurocopter Tiger in preference to the Bell AH-1Z and Boeing AH-64D, Australia found the US State Department raising objections to Hellfire missiles being supplied for use on the Tiger.

The unreliability of US Government support for international sales may be illustrated by its attitude to South Africa. Most countries ended the UN-mandated arms embargo when democracy came to the Republic in 1994, but (to the fury of several US defence equipment manufacturers) America maintained its embargo, because of alleged infringements of US patents on fuzes for artillery ammunition. By the time that Washington realised that a massive arms deal was going down the tubes, Pretoria had decided in principle not to purchase crucial types of defence equipment from the US in view of the strings attached.

Several other aspects of international marketing are illustrated by South Africa's tri-service $ 4.5 billion arms procurement programme. For instance, it is instructive that in both the Alafa (advanced light fighter aircraft) and Lift (lead-in fighter trainer) evaluations, equal importance was allocated to scores in three areas: risk-moderated cost-effectiveness, offsets and financing arrangements. Offsets were specified in the form of defence industrial participation (Dip) and non-defence industrial participation (Nip).

During 1996-97, the BAE Systems Hawk (which was eventually chosen to fulfil the Lift requirement) was removed from the list of possibles because of its high cost, and since it did not satisfy the SAAF operational requirement. The Saab/BAE Systems Gripen (ulitimately chosen as the Alfa) was meanwhile judged to be unaffordable. The Aermacchi MB-339FD (which was later judged to be the clear Lift winner in terms of risk-moderated military value) was likewise dropped in 1996-97 for its low performance and failure to meet the requirement. The moral is to never give up hope!

In early 1998, a request for offers on the Alfa programme was sent to Saab/BAE Systems (then BAe), Dassault and Dasa. In the subsequent evaluation by Armscor the Gripen won. The Dasa AT-2000 (now Eads Mako) won the Dip contest. Dassault scored badly on both Dip and Nip. Surprisingly, neither the French nor the German teams submitted detailed financing proposals, while the UK/Swedish team scored full marks for a package that provided 85 per cent financing over 20 years, and the rest over seven years. In mid-1998, the final Alfa evaluation placed the Gripen first, the AT-2000 second and the Mirage 2000 third, with 300, 138 and 101 points respectively. It may be noted that the UK/Swedish proposal, costed at $ 2.234 billion, came with offsets worth $ 8.743 billion, whereas French and German offset packages were each worth less than $ 1.9 billion. There can be little doubt that BAE Systems' global business and experience in arranging offsets (starting with the 1977 sale of 50 Hawks to Finland) played a major role in this success.

Turning to the Lift contest, when cost-effectiveness, offsets and financing were evaluated and combined, the MB-339FD came first with 254 points, the Hawk a close second with 245, and the Aero Vodochody L-159 third with 214. Britain again came first in offsets, with $ 1.278 billion (over twice the contract value), the Czech Republic a close second with $ 1.236 billion, and Italy a poor third with $ 0.43 billion. Faced with choosing between the MB-339FD and Hawk, Government ministers preferred the Hawk, based on "national strategic considerations for the future survival of the (SA) defence aviation sector and the best teaming arrangements with the respective bidders". It was also seen as preferable to link the Gripen and Hawk purchases, in order to simplify negotiations and financing.

The bottom line was a $ 2.2 billion order for Gripens and Hawks, linked to a BAE Systems/Saab obligation to provide $ 1.488 billion of defence-related offsets and $ 7.2 billion of non-defence offsets. The contracts include severe punitive measures to ensure strict compliance with offset guarantees. The two companies have met all Hawk/Gripen offset milestones, and the offset programme is running on schedule. The next milestone falls in mid-April 2004, which is the final date at which the SA Government could invoke the opt-out clause regarding tranche three of the package, i.e., the 19 single-seat Gripens.

Overview

What is the sale of new-build military aircraft worth? The largest single customer is obviously the Pentagon, which for FY2004 has requested $12.08 billion for US Air Force aircraft procurement, $8.79 billion for the USN/USMC, and $ 2.13 billion for the US Army, giving a total of around $ 23 billion. At least 25 per cent of that figure relates to modification programmes and spares production, hence the net cost of buying new-build military aircraft in FY2004 will he in the region of $ 17 billion. Since the US defence budget equates to roughly half the global total, world-wide military aircraft purchases are presumably worth something in the order of $ 30 to 35 billion. The US Aerospace Industries Association estimates that its members will record military aircraft sales of around $ 39.3 billion in 2003, but this clearly represents far more than new-build purchases.

Looking at the value of sales in detail and purely in terms of flyaway prices, Richard Aboulafia, Director--Aviation Consulting for the Teal Group, estimates that on a similar timescale world-wide military aircraft production will grow from $ 29.53 billion in 2006 to $ 32.39 billion in 2007. Over the ten-year period between 2002 and 2011, Aboulafia estimates the total value of military aircraft deliveries as $ 288.77 billion, compared to $ 619.36 billion for civil aircraft.

Fixed-wing Combat Aircraft

For FY2004, the US Air Force has requested $ 4.445 billion for the procurement of combat aircraft. The Teal Group forecasts global deliveries of fighters rising from 188 aircraft worth $ 7.92 billion in 2002 to a plateau of around 350 units, lasting from 2007 to 2010 (worth $ 16.5 to 17.5 billion), before falling to 311 worth $15.7 billion in 2011. Over the 2002 to 2011 period, Aboulafia predicts around 3000 combat aircraft with a maximum take-off weight of nine tonnes or more being delivered, with a value of approximately $ 142 billion in 2002 values.

The majority of technical developments in the fighter business take place in the US, Europe and Russia, but in marketing terms what was possibly one of the most significant of recent events took place in Canberra, Australia on 27 June 2002. Just as Eurofighter and Dassault were launching four-year marketing campaigns to address the Royal Australian Air Force's Project Air 6000, Defence Minister Robert Hill announced the Government's intention to participate in the SDD phase of the F-35, on the basis of RAAF advice that it would meet Air 6000 requirements to replace the F/A-18 and F-111. Hill went on to say that, although the intention was obviously to acquire the F-35, that decision would not be made until about 2006.

However, rather than simply announcing Australia's F-35/SDD decision (as expected), Hill continued; "So, rather than investing in an aircraft that may well be out of date within the next 10 to 15 years, what we are doing is leaping a generation. In terms of the alternatives that will be around in the post-2012 era, we don't believe that there is any other alternative that would meet our capability requirements within the costings that we have put in the White Paper". Asked how the F-35 compared with the Rafale and Typhoon, Hill said, "The Air Force gave us advice that there really wasn't, in terms of cap, ability, a competition. This aircraft is at least a generation ahead of the other alternatives".

In the early postwar period, having severed its links with Britain's RAF, Australia's RAAF was widely regarded as an independent market-leader in aircraft acquisition, its selection of the Aermachi MB-326 and Dassault Mirage III undoubtedly helping sales of those aircraft. Whether the same is true today is open to debate. It is clear that Australia has become closely aligned with America in recent times, as evidenced by its support for America over Iraq.

The Australian argument is presumably that nothing can compete with the reduced radar signature (and relatively low cost) of the F-35. This assumes that a full-stealth F-35 will be made available for export, although that decision may be many years off. It also assumes that no significant signature-reduction can be achieved for its European competitors, although Eurofighter is known to have a Typhoon Enhancement Programme (TEP) and Dassault presumably has similar plans for the Rafale.

Above all, the Australian Department of Defence appears to have accepted the Pentagon's view, that F-35-1evel stealth will be of overriding importance in air operations for the next half-century. If this is an accurate assessment, then five of the principal European air forces are either deluding themselves, or are struggling with the temptation to cancel existing orders.

Before leaving Australia's decision, it may be noted that it abandons the preference for twin-engined combat aircraft, which at the time of the F/A-18 selection was a major factor. The RAAF plan for the F-35 (to begin replacing the F/A-18 in 2012 and the F-111 from 2015) has forced the service to launch a two-year study into the possible need for an interim type. Leases have been proposed by BAE Systems on the Typhoon, and by Boeing on the F/A-18E/F. Significantly, the RAAF has also had discussions with the US Air Force on leasing F-15Es.

Around 227 Boeing F-15Es will remain in US Air Force service until at least 2030. Production was set to end with the last US Air Force aircraft in 2004, but the South Korean order for 40 F-15Ks (plus 40 on option) will keep the line open until at least 2008. It is being marketed in Singapore as the F-15T with the Raytheon APG-63(V)3 AESA radar, and could attract follow-on orders from Israel and Saudi Arabia.

Following small-scale sales to Angola, Ethiopia, Syria and Vietnam, the Sukhoi Su-27/30 series is enjoying well-deserved success in China and India. In 2002, India became the first country in the world to place in service a supersonic thrust-vectoring fighter (Su-30MKI). Brazil's preferred choice was reportedly the Su-35 (formerly Su-27M), but the new government has suspended the programme.

Lower down the scale, Malaysia wants to trade in its eight Boeing F/A-18Ds against up to 18 F/A-18Fs, but the RMAF also wants to buy 18 Su-30MKMs, and have its 16 MiG-29Ns upgraded. The USN has requested FY2004 funds to begin the SDD phase of the EA-18G electronic attack derivative, with 78 aircraft planned.

Whether the MiG-29SMT with 50 per cent more internal fuel can breathe life into the series remains to be seen. The most interesting order is for 46 carrier-capable MiG-29Ks for the Indian Navy. The underrated Dassault Mirage 2000 might yet be the subject of an Indian order for 126 aircraft, including 90 licence-produced.

Based only on French Government orders, Dassault and its partners are unable to produce the Rafale at an economical rate, and they are now being obliged to fund development to improve its chances in the export market. Having failed to win the South Korean order, Dassault is hoping for a level playing field in Singapore.

The Eurofighter Typhoon appears to be better powered than the baseline Rafale and its price should benefit from a higher production rate. Greece and Austria have selected the Typhoon, but both deals have been stalled by funding problems. Reports indicate the launch of the second domestic production tranche has been delayed.

Saab/BAE Systems is also suffering from its customers' funding problems, which resulted in the Czech purchase of 24 Gripens being cancelled. However, the Hungarian ten-year lease of 14 Gripens is going ahead, and the South African purchase of 28 aircraft is looking good.

Trainers

The Teal Group predicts that deliveries of military trainer and light attack aircraft will rise from 148 aircraft (worth $ 1.48 billion) in 2002 to just short of 200 units annually from 2006 to 2009, before falling to 154 in 2011. Over that ten-year period, Richard Aboulafia estimates that global production will total 1726 aircraft worth approximately $ 11.5 billion in 2002 values.

The undoubted leader in this category is the BAE Systems Hawk. Around 600 Hawks have been ordered, and the company has a significant production share in the Boeing T-45 Goshawk. BAE refers to a market for around 1500 aircraft in this category over the next 15 years, and hopes to win sales of 400 to 500 more Hawks. Like the Aermacchi MB-339FD, the Aero Vodochody L-159 appears to suffer unfairly from a dated image.

The twin-engined Aermacchi M-346 has a very high thrust/weight ratio, and a fly-by-wire control system that can be modified to simulate specific operational aircraft. It is also designed to fly to high angles of attack. Aermacchi estimates that there are around 3400 advanced trainers in service, 65 per cent of which have been in service for more than 25 years. The company sees a potential market for 2300 replacements over 30 years, and hopes to win orders for 300 to 400.

The M-346 seems likely to be adopted as the Eurotrainer. Eads is nonetheless promoting the supersonic Mako, but development is unlikely to go ahead without a launch order. The other new supersonic trainer is the Korea Aerospace Industries/Lockheed Martin T-50, which first flew in August 2002. A domestic market of at least 94 is assured, and the manufacturer hopes to export 600 within 25 years.

In the turboprop trainer market the standard is set by the Raytheon T-6, derived from the Pilatus PC-9. However, Pilatus hopes to leapfrog the T-6 with the all-new PC-21, which is clearly aimed, in a first step, at the British RAF market. Embraer continues to pick up small-scale orders for the Super Tucano.

Transports

Over the ten-year period from 2002 to 2011, the Teal Group forecasts that approximately 542 military transports will be completed, with a combined worth of around $ 43.9 billion.

The big winner is the 263-tonne Boeing C-17, of which the US Air Force plans to buy at least 180--and probably 42 more. As indicated earlier, the C-17 could well become the standard Nato strategic transport, if only through leases.

Lower down the turbofan range are the 200 tonne Ilyushin II-76MF, Japan's 150-tonne C-X project, and the 103-tonne Tupolev Tu-330, which employs the wing from the Tu-204. The twin-turbofan HAL/Ilyushin Multi-role Transport Aircraft (MTA) or Il-214 is in the 55-tonne class, which generally uses turboprops for better airfield performance.

The 124-tonne four-turboprop Airbus Military A400M (due to be launched shortly with a seven-nation order for 180) is a lightweight in comparison with the C-17, as is the 130-tonne four-propfan Antonov An-70, which is to be produced in both Russia and the Ukraine. The Czech Republic is to accept two An-70s from Russia under a debt-repayment plan, and Hungary and Poland may follow suit.

The 80-tonne Lockheed Martin C-130J was last March the subject of a six-year Pentagon order for 40 CC-130Js for the US Air Force and 24 KC-130J tankers for the US Marine Corps, bringing the global total to 178. The US Air Force roadmap calls for 150 Combat Delivery CC-130Js and 18 Special Missions aircraft (ten WC-130J Weatherbirds and eight EC-130J Commando Solos), and at least 280 C-130E/Hs upgraded by Boeing. The US Marine Corps, the only service to use the KC-130 series in significant numbers, plans to buy a total of 59 KC-130Js.

Lower down the turboprop spectrum, the twin-engined 32-tonne Alenia/Lockheed Martin C-27J competes with the 23-tonne Eads-Casa C-295 and the 16.5 tonne Eads-Casa/Indonesian Aerospace CN-235. Of the two new aircraft, the C-27J provides the largest cabin cross-section, and powerplant and cockpit commonality with the C-130J, but the C-295 (selected by Spain, Switzerland, Poland, Jordan and Brazil) is less expensive. The C-27J (ordered by Italy and Greece) was hurt by the selection of the CN-235-300M for the US Coast Guards Deepwater programme, but there are hopes of a US Army contract.

In the field of tankers, Boeing is expected to be the big winner, with the US Air Force set to lease 100 KC-767As, based on the 767-200ER. This programme was launched by Italy, followed by Japan, each ordering four. There are so far three versions, differing in refuelling provisions and cabin options. In total, the US Air Force has to replace about 550 KC-135s and 59 KC-10s (not necessarily with a single type), so the US Air Force KC-767A lease will be only the start.

Facing off in the British contest are ex-BA 767-300ERs, which are competing with new-build tanker/transport Airbus A330-200s. The B767 and A330 will also compete in Australia.

Turning to AEW&C aircraft, Japan launched the E-767 (based on the 767-200ER) with an order for four, but Australia and Turkey have adopted the 737 alternative with a Northrop Grumman Mesa radar. Boeing hopes to sell over 30 more 737 AEW&Cs. The current American alternatives are new-build Northrop Grumman Hawkeye 2000s and refurbished ex-US Navy E-2C-s. This last option has been adopted by Egypt, and is believed to have been chosen by the United Arab Emirates. The Hawkeye 2000 is to be followed in the next decade by the Advanced Hawkeye, benefiting from a radar-modernisation programme (RMP), a glass cockpit and eight-blade Hamilton Sundstrand/Ratier Figeac propellers.

The other principals in the AEW market are the IAI/Elta Phalcon (as sold to Chile) and the Ericsson Erieye radar, as used on Sweden's Arguses (Saab 340s) and on Brazil's and Greece's Embraer EMB-145SAs. Although Israel was forced by the United States to cancel the sale of four I1-76-based Phalcons to China (costing $ 350 million in compensation), the sale of three to India seems likely to go ahead.

The potential market for maritime patrol aircraft (MPA) may amount (excluding the CIS and China) to around 400 aircraft worth perhaps $ 40 billion. This will be analysed in some detail in issue 6/2003, but (as discussed earlier) the big winner is likely to be the US Navy's MMA, which could eventuate as a Lockheed Martin Orion 21 or a Boeing 737-700MPA. Japan's P-X, Britain's BAE Systems Nimrod MRA4 and France's Dassault ATL3 may remain purely national programmes. There is still a market for refurbished and upgraded ex-US Navy P-3s, such as the L-3 Communications Procyon QR proposal and the Eads-Casa reworked P-3s for Brazil. Meanwhile, maritime patrol versions of the ATR42/72, C-295 and C-27J will presumably sell in small numbers. It is anticipated that the Persuader MPA version of the C-295 will be launched by a UAE order for four.

Helicopters

Rolls-Royce, teamed with the Teal Group, recently presented a forecast of turbine helicopter demands for the ten-year period from 2003 to 2012, predicting that approximately 3800 military helicopters would be delivered new-built, and there would be just less than 1500 major engine-related upgrades. Over that period, military helicopter sales will be worth almost $ 60 billion. Expectations have been depressed by cutbacks in (for example) the Boeing Sikorsky RAH-66 Comanche (now down to 650 for the US Army), but paramilitary sales will benefit from the needs of the US Coast Guard Deepwater programme (Bell HV-911 Eagle Eye drone selected) and the US Homeland Defense Agency.

Global sales of new-build aircraft will be affected by the US Army retiring 400 Bell AH-1Fs and planning to phase out 700 Bell UH-1Hs. Another factor is a series of major upgrades. The US Army plans to have approximately 1200 Sikorsky UH-60As, 500 Boeing AH-64As and up to 430 Boeing CH-47Ds upgraded to UH-60Ms, AH-64Ds and CH-47Fs respectively. The US Marine Corps is to have 180 Bell AH-1Ws and 100 Bell UH-1Ns upgraded to AH-1Zs and UH-1Ys standards. New-build programmes include the RAH-66 for the US Army and the US Navy's Sikorsky MH-60R and -60S, while the US Air Force has a requirement to replace 105 Sikorsky HH/MH-60G Pave Hawks.

Although trends in combat helicopters are discussed in a separate report in this issue, mention must be made of the Boeing AH-64, which has so far dominated international sales--but without new orders the line is expected to close in 2006, pending a Block 3 upgrade for the US Army. The Bell AH-1Z was selected by Turkey and the Tiger by Australia. The Kamov Ka-50 series are strong contenders: the Ka-50-2 is short-listed with the AH-1Z in Turkey, and the Ka-52 is alongside the AH-64 and AH-1Z in South Korea. In the longer term the RAH-66 could export well, if available in full-stealth form.

Operations in Afghanistan have reinforced the Vietnam-era need for helicopters to move ground forces over difficult terrain. The products that may benefit from such demands include the Euro-copter EC725 Cougar, NHIndustries NH90 (now ordered by nine European countries), EH Industries EH-101 (promoted in America as the US-101), the Sikorsky S-70A and the new Agusta/Bell Aerospace AB139, which might be regarded as a true Huey-replacement.

In a naval context, the demand for multi-role armed helicopters is being met by the AgustaWestland Super Lynx 300, Eurocopter AS565 Panther, Kaman SH-2G and the Sikorsky S-70B. Deployment of the tilt-rotor Bell-Boeing V-22 Osprey will depend on the results of the current series of flight trials.

Roy Braybrook, a regular contributor to Armada International, was formerly a Technical Marketing Consultant at British Aerospace, Kingston, working on both the Hawk and Harrier programmes.