Defence Update

Announcing the delay Minister For Defence Stephen Smith said: “So we are now essentially on the same timetable for delivery of our first batch of Joint Strike Fighters as the United States.

“The budget effect of that is that it takes out of the forward estimates for this year’s budget between $1.5 billion and $2 billion. In round terms it’s about $1.6 billion. So that is an example of where a move, a delay, a deferral of a capability has a significant budget impact.”

In reality, pushing back the acquisition is not a saving at all but a delayed spending measure designed to look like one by shoving the $1.6 billion in costs out beyond the forward estimates period, meaning they are not counted towards the surplus calculation.

As a Defence spokesperson told Australian Aviation: “The overall funding for the New Air Combat Capability program remains largely unchanged, just the programming of the fund have been adjusted. What’s more, the acquisition profile has yet to be finalised, so the original case of four aircraft in 2016 and eight in 2017 could become 12 aircraft in 2019, meaning more funding would be required in that single year.”

A capability gap of some extent now seems unavoidable with the Classic Hornet planned withdrawal date in 2020 and the first 12 F-35s now arriving in 2019. Minimising the impact of any possible capability gap that develops from or is exacerbated by the F-35’s budget delay will demand careful management by Defence.

The Classic Hornet fleet already is being wound down on a carefully planned timeline to meet its original withdrawal date. Defence says the fleet management will be modified to meet any necessary extension but is unlikely to require more centre barrel replacements.

However, there is a positive side to the two-year delay in the next tranche of F-35s, including allowing some of the ongoing concurrency and developmental issues to be resolved before our aircraft are built.

The 2019 delivery of the first 12 F-35s falls outside the current scoping of prime contractor Lockheed Martin, meaning the aircraft may fall into either Low-Rate Initial Production Ten (LRIP X) for into the first multi-year contract.

Lockheed Martin’s Director of F-35 International Business Development Dave Scott said the Government-Industry program team had yet to determine when multi-year contracts would begin: “Between LRIP One and LRIP Four, costs were reduced by 41 per cent.

“These costs changes should flatten out by [2018/19], with a slight increase for inflation. The cost component is based on the rate at which aircraft are produced. Multi-year buys allow for economies of scale, depending on the length of the contract and number of aircraft, but would be cheaper than an LRIP purchase.”

Any savings made in F-35 unit costs would need to be offset against the extended running of the Classic Hornet fleet but from a capability perspective would allow for system demonstration and development teams to complete testing in 2016.

More broadly, Australia’s delay is a kick in the teeth to our program partners. With the US forces’ total fleet of F-35 to be greater by far than any other nation, their needs often have outweighed the greater partnership. US deferrals have meant increased costs for partners buying earlier in the LRIP schedule.

Canada recently showed deft political astuteness by forming all other partner nations into a coalition of sorts, increasing their ability to bargain with the United States by using collective power.

Australia’s deferral distinctly sides itself with the US, shows a disregard for the collective partners and in some ways, goes against our own interests in the program for the sake of political expediency.

The deferral itself seems odd, especially as both sides of politics remain committed to the F-35 program but also fear an air combat capability gap.

It seems that once again, Defence capability will play second fiddle to political machinations — in this case, the appearance of a return to budget surplus.