The Weekly Wire: For Your Situational Awareness 9.27.18
Chinese UAV Exports
Luke Penn-Hall, Senior Market Analyst
Chinese-made UAVs have been appearing in military inventories of countries all over the world, from Jordan and Indonesia to the UAE and Nigeria. Avascent estimates that China is one of the top five UAV exporters in the world at present, although the lack of transparency around many Chinese arms transfers makes it difficult to reach exact figures regarding the magnitude of their share in that market. Chinese-made UAVs will usually appear where countries have money to spend and an active insurgency that needs fighting, but usually after the US has turned down a request for said country to purchase an American UAV system.
The growing presence of China as a provider of UAVs is founded upon the need for unmanned strike and surveillance capabilities that US firms are not allowed to meet. There are several agreements that have bearing on the ability of American firms to export UAVs, including the Arms Export Control Act, the International Traffic in Arms Regulations (ITAR), and the Missile Technology Control Regime. For many years, these regulations prevented or complicated the export of larger UAVS or armed UAVS, both of which were highly desired by foreign governments. Chinese manufacturers were not constrained by a similar set of regulations, and so they were able to move into markets where US suppliers could not operate. Additionally, Chinese UAVs tend to be cheaper than their American counterparts, and, while not as capable, they are able to meet the needs of the countries that are buying them.
While the regulations around American UAV exports have changed, most recently with shifts in ITAR in April 2018 to make armed and unarmed UAV exports easier, China is still benefiting from the inroads it made prior to those changes taking place. Based on Avascent data, US firms are still responsible for the majority of UAV sales, with Israel in second place, but concerns about holding on to that lead in the face of increasing Chinese competition continue to persist. And as more US allies start to develop their own indigenous UAV platforms as has happened in the UK, Turkey, South Korea, and Israel, among others – this market will continue to grow even more competitive. For its part, China has responded to this trend by demonstrating that it is willing to enter joint development initiatives with countries that want to make their own UAVs, as it did with Saudi Arabia, but the US has made no such move. Given the pace at which UAV technology has grown and proliferated, it remains to be seen if the US’ regulatory environment will be able to adjust rapidly enough for it to maintain its place in the global UAV market.
Boeing-Leonardo has won a contract to replace the US Air Force’s UH-1N Huey in a shocking upset in the $2.38 billion competition. The 84-helicopter program, which was nearly awarded as a sole-sourced UH-60 contract, will instead be awarded to Boeing for the MH-139 rotorcraft, a militarized version of the AW139. The aircraft will serve as the US Air Force’s principle aircraft for protecting missile fields, VIP transport, and emergency government evacuation missions, featuring a rescue hoist and electro-optical sensors to accomplish these missions. While originally envisioned as a $4.1 billion program, the final fixed price contract value indicates that the competition likely turned into a price shootout, with challengers Sierra Nevada Corporation and Boeing-Leonardo looking to dislodge Sikorsky’s ubiquitous UH-60. In order to unseat the Sikorsky HH-60U bid, Sierra Nevada proposed acquiring surplus US Army UH-60As and remanufacturing them to an equivalent UH-60V standard, but was likely defeated by the MH-139’s ability to leverage the active AgustaWestland commercial production line in Philadelphia. With limited future US military helicopter competitions on the horizon, protests are expected.
The political controversy surrounding India’s procurement of 36 Rafale fighter aircraft from Dassault continues. Last week, former French President Francois Hollande contradicted a New Delhi talking point in an interview, stating that it was the Indian government that insisted that Reliance Group, an Indian company owned by billionaire Anil Ambani, serve as an offset partner to Dassault. Hollande provided fodder to Prime Minister Narendra Modi’s political opposition, which has long argued that the decision to side with the Rafale over the Eurofighter in 2016 was hastily made and corrupt. The government has denied having any role in selecting Reliance as an offset partner for Dassault, and in its rebuttal implied that President Hollande’s remarks were motivated by the Reliance Group’s investment in a film produced by Hollande’s partner, French actress Juliet Gayet.
The strange twist in the Rafale saga threatens to delay the deliveries of the aircraft, strain strategic ties between New Delhi and Paris, and impact India’s fighter aircraft posture. Perhaps most importantly, it inflicts more reputational damage on India, a country already known for the dysfunction surrounding its defense procurement process. Comparisons are already being made to the Bofors procurement scandal of the 1980s and 1990s, in which senior Indian officials, including Prime Minister Rajiv Gandhi, were accused of receiving kickbacks in exchange for awarding the Swedish defense company a contract for several hundred howitzers. The case was still being investigated when Gandhi was assassinated in 1991. Gandhi’s son Rahul is now leader of the opposition as head of the Congress Party and is the most prominent critic of the Rafale deal and Prime Minister Modi.
On September 21, the US government approved Canada’s purchase of 25 Australian F-18A/B Hornets. Deliveries are expected to start next year, and the Canadian government has set aside $385 million (CAD $500 million) for the deal. Canada originally requested 18 aircraft, but added seven additional aircraft to be used for spare parts. Australia’s F-18A/B Hornets were assembled locally between 1985 and 1990. Although concerns about airframe fatigue came up in 2012, newer testing procedures and analysis undertaken in 2016 led the Australian Defence Science and Technology Group to conclude that the Hornet airframes were not as fatigued as previously thought. The Hornets are now slated to be retired by 2023. Canada expects to award a contract for a new fighter aircraft in 2022. Canada can perform additional work on the airframe to improve structural integrity and squeeze a few more years of life out of the Australian aircraft, enough to ensure that they can adequately serve as a bridge between Canadian Hornets and the future fighter.
The Dutch Ministry of Defense has removed a cap for acquiring more F-35s, allowing for potential future acquisitions according to Defense Minister Ank Bijleveld. While there is no motion to acquire more than the 37 aircraft currently on order, it leaves open the possibility to purchase more fighter jets as deliveries for the first order wrap up. One Dutch think tank noted that there is pressure from NATO to increase the number of fighter jets being acquired, with rumors that the Dutch Ministry of Defense might consider purchasing up to 52 aircraft. The Netherlands signed a contract to purchase 37 F-35s in 2013 worth $6.1 billion (EUR 4.6 billion), with the first eight aircraft to be delivered in 2019. The Dutch Air Force will receive six to eight aircraft per year, with all 37 F-35s to be delivered by 2024. The F-35s will replace the Air Force’s fleet of F-16s.