By Avascent Analytics team
A quick look at the biggest stories of the week
US • Japan • Poland • UK • Philippines • Egypt
Avascent Analytics introduced a segment to the Weekly Wire called “Beyond the Headlines.” Each week, we will provide an in-depth look on various defense topics, ranging from country-specific defense news to emerging technologies impacting defense.
Missile Test Portends Continued Indian Investment in Nuclear Forces
Shane Mason, Senior Market Analyst
On December 10, India tested the Agni-V nuclear-capable ballistic missile for the third time in 2018. The solid-fuel, rail-mobile missile can deliver a nuclear warhead over 5,000 km and reach major Chinese cities from bases in central and southern India. Local press is reporting this was the final hurdle before inducting the Agni-V—Agni is Hindi for “fire”—into the armed forces, although more tests are likely.
Avascent estimates that India spent an estimated $1.5 billion on the Agni program in the last five years, and forecasts that it will devote another $3.5 billion through 2029. This judgment assumes that domestic politics, economics, and the desire to strengthen the country’s defense industrial base will continue to be the most important factors driving Indian defense procurement. Indian attempts to develop platforms have historically fared poorly. Problems associated indigenous capabilities in other areas, like tanks and aircraft, have been legion. Given the secret nature of nuclear systems and international rules limiting the transfer of long-range missiles, India must develop its own strategic missile forces.
Procuring indigenously-produced ballistic missiles allows decision-makers to avoid the toxic politics of defense procurement that has bedeviled nearly every Indian government for the last four decades. Large-scale defense imports, like the purchase of 36 Rafale fighter aircraft worth $8.7 billion in 2016, inevitably trigger serious allegations of corruption from the political opposition. Scandals involving defense contracts effectively brought down Prime Minister Rajiv Gandhi in the 1990s and threatens to undercut the current government as it heads into a general election in 2019.
Another benefit of increased investment in the nuclear program is that transactions can be conducted in rupees rather than dollars. The rupee has been the worst-performing Asian currency in 2018, falling 13 percent since the beginning of the year. When the rupee loses value—due to tightening US monetary policy or a spike in oil prices—the cost of defense imports increases, cutting into India’s purchasing power. Buying platforms from local firms also helps in shoring up India’s foreign exchange position. While Indian reserves currently cover more than nine months of imports, maintaining a strong supply of U.S. dollars has been a source of concern in New Delhi since the country faced a balance of payments crisis in 1991.
Finally, investments in the country’s nuclear program strengthen India’s defense industrial base. Agni missiles have been designed, developed, and manufactured by the Defense Research & Development Organization (DRDO), the research wing of the Indian military, and public sector firms like Bharat Dynamics and Bharat Electronics. All these stakeholders enjoy significant political backing from the Indian Ministry of Defense and employ thousands of scientists and engineers. Efforts to grow the country’s industrial base, including the defense sector, are a key part of the government’s “Make in India” initiative, and pressure to privilege local firms over foreign counterparts is unlikely to diminish in the near term.
According to an anonymous Air Force official, the service’s highly classified B-21 bomber program completed the critical design review on December 6. Air Force officials had previously estimated the completion of the critical design phase by the end of 2018, indicating that the program remains on track. The B-21 is anticipated to enter production in 2025, provided the program continues as scheduled. The Air Force is looking to acquire up to 100 bombers to eventually replace its fleet of B-2 Spirits and B-1B Lancers. Unit cost estimates for the B-21 bomber have the number at $550 million per bomber, or roughly the equivalent of four to five F-35s.
As Japan’s new National Defense Program Guidelines and a subsequent Mid-Term Defense Program approach release, the two biggest items that have been discussed are the conversion of the Izumo-class DDH into an aircraft carrier, and the purchase of up to 100 F-35s (both A and B variants). The Izumo-class conversion entails modifications to allow it to operate the F-35B. The current debate hinges on the definition of what this ship is to ensure that it is not an “offensive” platform from a legal standpoint. The government appears to be moving towards a scenario where future F-35Bs would not be permanently based on the Izumo-class vessels. Instead, the F-35Bs would be based on land, with the Izumo serving as a backup base should ground air bases be neutralized. This would help address Japanese concerns that a converted Izumo-class would constitute an offensive capability. The other major talking point has been the purchase of additional F-35s. While the 100 number has been repeated many times, the final number could end up being less. As stated in a previous edition of the Weekly Wire, Japan has many competing priorities and may be forced to either reduce the size of the F-35 buy, spread the buy over a very long period, or delay other priorities, depending on the size of the defense budget over the next few years. Some reports suggest that Japan may consider closing its assembly line in Nagoya and simply buy aircraft from the US production, which could save up to $40 million per F-35A.
The Polish Minister of Defense has officially recommended that the Polish Air Force accelerate the Harpia Fighter Program in the upcoming Armed Forces’ Development Program. The Harpia program covers the procurement of 32 aircraft to replace Poland’s aging inventory of MiG-29s and Su-22s. The program became more of a priority this year as flying operations of both aircraft were completely suspended for several months after a MiG-29 crashed in July. Under the accelerated timeline, Poland would begin funding the program in 2020, indicating a planned contract signed within the next two years, and new aircraft delivery expected to begin in 2024. The five competitors for the contract are Saab, Lockheed Martin, Boeing, Leonardo, and local firm Fights-On Logistics. While their offers have not been disclosed, it is believed that Saab will offer the Gripen NG, Lockheed Martin will offer either the F-35 or the F-16, Boeing will offer the F-15 or F/A-18E/F, Leonardo will offer some combination of Typhoons and M-346s, and Fights-On will offer the F-16.
On December 10, the UK Ministry of Defence announced that it had awarded three contracts for the Competitive Design Phase of the Type-31e Frigate program. Contracts are valued up to £5 million ($6.3 million) have been awarded to each of the three teams, headed by BAE Systems, Babcock and Altas Elektronik UK. While the design phase in now underway, negotiations will also commence with each of the teams for the design and build contract, which will see a single contract awarded in 2019 with first delivery still planned for 2023.
Babcock and BAE Systems have been known to be competing for the program for some time, although BAE Systems has now taken the leading role in its teaming arrangement with Cammell Laird supporting the bid as a subcontractor. A new contender has emerged with Thyssenkrupp Marine Systems entering a bid through its British subsidiary Atlas Elektronik UK. Atlas Elektronik UK leads a team that includes shipbuilders Harland and Wolff and Ferguson Marine Engineering based in Belfast and Glasgow respectively. Harland and Wolff and Ferguson Marine Engineering now factor into the plans of two of the three teams, following a previous announcement that both suppliers were involved in the Babcock bid which also includes Thales and BMT. The selection of either the Atlas Elektronik or Babcock bid would therefore provide an economic boost to Scotland and Northern Ireland, which could be a positive factor for both bids.
On December 7, the Philippines selected Sikorsky’s Black Hawk utility helicopter ahead of the Leonardo Helicopter’s AW139 and Korean Aerospace Industries’ Surion. According to the Philippine Defense Secretary Delfin Lorenza, a total of 16 Black Hawk helicopters are to be ordered in 2019 with a budget of $240 million set aside for the procurement following the cancellation of a $233 million order for 16 Bell 412 helicopters. Lorenza has stated that the Black Hawk was selected after Sikorsky changed its offering to the Philippines to allow 16 platforms to be ordered for this budget rather than 10. It has also been stated that Russia’s Mi-171 helicopter was not considered due to difficulties arising from sanctions on Russian exports imposed by the US. At the same time, Lorenza has confirmed that the Philippines will be procuring approximately eight T129 ATAK attack helicopters from Turkish Aerospace Industries. This would make the Philippines the second export customer for the ATAK platform after Pakistan.
On December 7, Egypt signed an agreement to purchase an undisclosed number of UAVs from China’s National Aero-Technology Import and Export Corporation. The model of the UAV was also not disclosed, but is believed to be the Wing Loong II, which can be used to perform both strike and reconnaissance missions. As such, the new UAVs will likely be used to help combat extremist groups in the Sinai and the Sahel. The Wing Loong II is advertised as being roughly comparable to the Predator UAV made by General Atomics, and this purchase fits into a larger trend of Middle Eastern governments turning to China to acquire advanced unmanned systems which they are unable to buy from the US.
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