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Tuesday, April 1, 2008

Eurowatch: Beware the Siren's Song

Giovanni de Briganti

PARIS — The Australian government’s cancellation of a $1 billion contract to buy 11 Kaman Super Seasprites for its navy is the latest illustration of the difficulties involved in over-ambitious retrofits and upgrades, but it is by no means the only one.

The U.S. Marine Corps’ H-1 upgrade program, the U.K. Royal Air Force’s special-forces Chinooks, and the VH-71 U.S. presidential helicopter program are all substantially late and massively over budget because of one common failing: trying to shoehorn too many capabilities in airframes that were not designed for them.

Objectively, the only reason to opt for a retrofit rather than a new helicopter is to save money. As the airframes have been paid for, it stands to reason that replacing old systems and components with modern ones should cost less than buying an entirely new airframe fitted with new systems.

Yet, as is often the case in military procurement, that logic falls by the wayside. Over-eager customers add so many new capabilities that they end up overwhelming the original airframe’s growth potential. Since each major new capability invariably affects other subsystems, a "domino effect" develops and, ultimately, ends up making the entire program unviable.

The Australian contract is a case in point. The original idea was to acquire a relatively cheap shipborne helicopter for the Royal Australian Navy’s ANZAC — class frigates. Australia-like Egypt, New Zealand and Poland — opted for the Kaman SH-2. In 1997, it ordered 11 SH-2G(A) Super Seasprites for A$667 million, with deliveries to begin in 2001. These, it is worth noting, were rebuilt ex-U.S. Navy SH-2F airframes. By the time the government said in early March it would scrap the contract, its cost had risen to A$1.1 billion. Although nine had been delivered by 2003, none of the helicopters had been cleared for operations because they could not meet Australian airworthiness and crashworthiness standards.

The reason given for this debacle is that fitting a state-of-the-art avionics package to 1960s airframes proved far more difficult than had been forecast. That is certainly one reason. But Australia’s decision to add Penguin anti-ship missiles, over-the-horizon targeting, and other capabilities no doubt played a part.

New Zealand’s purchase of five Super Seasprites differed in that these were new-build airframes, fitted with different avionics. These were delivered on time, between 2001 and 2003, and slightly under budget. New Zealand experienced problems, albeit much less serious than Australia’s. Egypt and Poland have been operating their Seasprites since the mid-1990s, with no problems of note. Australia alone experienced such comprehensive problems because its program was the most ambitious.

Unless the Pentagon is very careful, it may end up experiencing a misadventure similar to Australia’s with the VH-71 program. While not — strictly speaking — an upgrade, it also entails retrofitting too many capabilities into an existing airframe.

John Young, the Pentagon’s acquisition chief, warned last month that the cost of the first part of the VH-71 program has risen from $2.3 billion to $3.7 billion, while the second phase will increase from $4.5 billion to $7.5 billion. Total cost of the planned 28 helicopters is now estimated at $11.2 billion, almost twice the original $6.1 billion. This works out to about $400 million per helicopter, which seems a tad expensive even if it’s for the U.S. president.

Interestingly, Young said problems with the program were not due to extra White House requirements. "They’ve not changed their requirements from the very beginning," he said. Rather, government officials and the contractor team of Lockheed Martin, AgustaWestland, and Bell Helicopter failed to understand the scope of those requirements and their cost implications.

Precisely. As in Australia, wanting to shoehorn too many capabilities into an existing design leads to major grief.

Delays and massive cost overruns are also what we are witnessing in the Bell/Marine H-1 upgrade program.

Other helicopter upgrade programs, however, are running smoothly, among them the U.S. Army CH-47F and the German army’s CH-53G. (Talk about fitting new systems on an old airframe.) The key to success is to keep the changes as few and as simple as possible.

Admittedly, that can be something of a problem when a helicopter has been in service so long that it needs wholesale redesign. But if this is the case, it is worth taking a long and hard look at whether an upgrade will generate better value than buying a new aircraft before you sign on the dotted line.

Australia has spent A$950 million on its Super Seasprites (and A$300 million on the Penguin missiles) plus any cancellation penalties it may incur, and has nothing to show for it. It will now have to spend at least as much to buy new helicopters that will do the mission. In the meantime, its frigates still have no helicopter capability.

This perfectly illustrates the financial and operational dangers of upgrades, which are compounded by bureaucrats’ inability to act decisively when a project first shows signs of failure. Australia’s Seasprite saga should serve as a cautionary tale for arms buyers: upgrade lightly, or not at all.

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