The Weekly Wire: For Your Situational Awareness 1/31/20
According to a report in The Korean Times, the Polish government is in talks with Hyundai Rotem for the potential development and production of Polish variants of the K2 Black Panther main battle tank, a deal that could be worth $8 billion. The deal would see up to 800 K2s produced to replace the Polish Army’s aging fleet of T-72s and legacy Leopard 2s as part of Poland’s efforts to counter the rapidly modernizing fleets of Russian T-72s, T-80s, and T-90s. The proposal slates production to begin around 2023 with completion in 2035. It is unclear at the moment how much of this program will be off-the-shelf versus produced locally. While Poland may choose a more rapid acquisition process in order to respond to Russian aggressiveness, it is more likely that Poland will follow the example of Turkey, which is now indigenously producing the K2 as the Altay, and seek significant amounts of indigenization and technology transfer in order to lead a recapitalization of local industry.
On January 28, the German government decided against purchasing the Triton unmanned system, instead moving forward with the Bombardier Global 6000 aircraft. The Triton is a surveillance platform derived from the Global Hawk, and the acquisition was estimated to be worth $2.5 billion before it was canceled. Initially, the German government was hoping that the Triton would come with a safety technology system that would allow it to be approved to fly near civilian air traffic. However, it recently became clear that European air traffic regulations would prevent it from flying as freely as it would need to in order to perform its surveillance tasks – which is why the program has been canceled in favor of a manned solution. Manned aircraft have fewer restrictions than unmanned aircraft on where they can fly in Europe, although that regulatory environment is changing. At present, Germany will need to move forward quickly in order to secure its order of Global 6000s, as the production line for that aircraft is expected to shut down in the near term.
The US Air Force is officially moving forward with the acquisition of the F-15EX after the service released a presolicitation notice on January 28. The fourth-generation fighters will largely be used by the Air National Guard, serving as supplement for the ongoing F-35 purchase. The acquisition decision, made during the FY2020 budget process, was unexpected, as then-Secretary of the Air Force Heather Wilson had previously announced that the service was not looking to invest in upgraded fourth-generation fighters. The decision to purchase the fighters came from the Department of Defense’s Cost and Program Evaluation office. The F-15EX acquisition will ultimately replace the Air Force’s F-15C fleet . The FY2020 appropriations approved the purchase of eight F-15EX, with the first two aircraft to be acquired under the R&D account as prototypes. The appropriations bill allocates a total of $1.05 billion, of which $364 million will be allocated to the Air Force’s R&D account for the F-15EX. Despite the acquisition of the F-15EX, the US Air Force maintains that the F-35 program of record will not change.
Helidax will lease 12 AS365 N3 Dolphin helicopters to the French Navy for 10 years, as announced by the Direction de la Maintenance Aéronautique (part of the French Ministry of Defense) in late January 2020. Intent to lease AS365 Dolphin helicopters surfaced in early 2018 to fill the gap left from the retirement of 20 old Alouette III light helicopters starting in 2019, as new H160 Guepard’s won’t be delivered until the late 2020s. The civilian helicopters will have to be militarized before entering the Navy by the mid-2020s, potentially being equipped with armored protection, an IFF system, a new hoist and autopilot to facilitate stationary flights, and a machine gun. No value has been announced for this program; however, the Military Planning Law 2019-2025 anticipates a total cost of $283 million (€ 260 million). This is not the first time French Armed Forces have leased military equipment; several Pumas have already been leased on a short-term basis to support logistic operations in Mali, and four Dolphin helicopters were leased for six-and-a-half years for training purposes in 2017 (worth €80.0 million). While a similar program is pending for heavy helicopters for the French Air Force, this new program highlights an shortage of capabilities during modernization phases. This is a direct consequence of previous cuts to the defense budget and indicates related concerns about the country’s combat readiness. It also demonstrates how commercial helicopter operators are improving their market position across military roles. If this program is a success, it could pave the way to greater usage of this type of business model.
On January 24, Philippine President Rodrigo Duterte stated that the Philippines had placed an order for 12 transport helicopters from Russia. If this statement is true, it would be a peculiar decision considering that the last Philippine helicopter acquisition of 16 S-70s was affected by concerns of US Countering America’s Adversaries Through Sanctions Act (CAATSA). CAATSA states that the US would impose sanctions on any country buying defense equipment from Russia, Iran, and North Korea. This likely pushed the Philippines to select the S-70 over the Russian offering. This recent order for 12 Russian transport helicopters may be for heavy lift helicopters. In July 2019, Philippine Ambassador to the US Jose Manuel Romualdez noted that it was seeking to procure heavy lift helicopters, following the S-70 medium lift helicopter acquisition. The US was offering the CH-47. On January 28, Rosoboronexport stated that it had signed a contract for Mi-38T helicopters to an unspecified customer. The Mi-38T and the CH-47 are roughly in the same class in terms of capability. While there are certainly other customers that this Mi-38T sale could potentially go to, it is interesting to note the close timing of the announcements, as well as the similar capabilities of the Mi-38T and what the Philippines is seeking for its future heavy lift helicopters. To be clear, statements from the Philippines regarding platform selections for a given requirement or competition must be taken with a grain of salt, as public statements can be often contradictory.
The Kopter acquisition by Leonardo made headlines at the Heli-Expo. The deal was announced on the very first day of the helicopter tradeshow and it is said to be worth at least $185 million. This acquisition should not come as a surprise, as Leonardo Helicopter has always been keen to keep up with its competitors, mainly Airbus Helicopters and Bell, across the light single-engine segment. While Leonardo dominates the medium market range with the AW139, Airbus and Bell have traditionally mastered the light and ultra-light segments. Similarly, Kopter, initially known as Marenco Swiss Helicopter in 2012, has been seeking investments to pursue its certification and testing phases. In 2018, the Swiss company owned by private Russian investors was hoping to raise another $153 million since the SH09 Kopter development program stalled. Leonardo’s offer could not be timelier.
For Leonardo, this is a unique opportunity to improve their product portfolio strategically in a cost-efficient way, by purchasing an innovative platform that is near certification and market production, and partially saving on the development burden. The acquisition sends a second positive signal to Leonardo investors this month, after the company won the $177 million US Navy Training Helicopter contract, aimed at replacing the TH-57 Sea Ranger. Leonardo has benefited from the tailwinds since its big win with Boeing in 2018 to replace the US Air Force’s UH-1N Huey, a program currently worth $2.4 billion. Leonardo is devoting engineering efforts to bring the AW609 through certification to market – a significant challenge for a new class of rotorcraft in civilian service. The arrangement for Kopter to remain 100 percent independent, while potentially benefitting from Leonardo’s engineering depth and experience, makes sense. Once the aircraft reaches service, Kopter will benefit from Leonardo’s sales breadth, training capabilities, and much-improved aftermarket support network. The devil will be in the details, but the pieces are in place for a very positive outcome.