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Eurofighter Meltdown
Struggling against rising costs and American competition.
by Reuben F. Johnson
02/07/2008 12:00:00 AM




Kiev
If you think the United States has problems with the constant price increase of new-generation programs like the Lockheed Martin F-35 Joint Strike Fighter (JSF), take a look at the situation with the four-nation consortium Eurofighter program.

Several news reports, including a January 26 story in the Washington, D.C. based Defense News, state that the bill for the Eurofighter is going to now cost some €10 billion ($15 billion) more than the most recent cost estimates had previously projected. The Defense News report is based on a story from the German magazine Focus, which published its article after having obtained a copy of a letter from Eurofighter GmbH, the German branch of the multinational company that manages the program, with these details. The letter in question was addressed to the German Ministry of Defense (MoD).

The Eurofighter is a multi-role combat aircraft that was designed and built by a four-nation consortium of the UK, Germany, Italy, and Spain. The industrial partners are the UK's BAE Systems, Germany and Spain's EADS and CASA consortiums, and Italy's Finmeccanica.

The rationale for combining the efforts of these partners on the program was that no one nation in Europe had the economies of scale to design and build a new-generation fighter on its own. The numbers to be purchased by the four initial partners plus export orders is around 700 airplanes so far, which is more than any other modern fighter built in the current generation.

According to the Focus report the UK will have to pay an extra €5.8 billion (US $8.2 billion), Italy €2.16 billion (US $3.05 billion), Germany €1.97 billion (US $2.79 billion) and Spain €820 million (US $1.17 billion). The magazine also reports that "other clients" (meaning the current foreign customers of Austria and Saudi Arabia and any other potential future export buyers) will also have to pay additional monies to receive their aircraft.

The main reason for the increase in the program's cost is that the ambitious plans for three production runs--referred to as Tranche 1, 2 and 3--may now have to be scaled back to the point where Tranche 3 will be cancelled all together. No official announcement has been made, but without the additional production of the third Tranche in order to help amortise the R&D costs of the aircraft, the costs for the first two batches must increase accordingly.

As far back as December 2006 the then-UK Defense Procurement Minister, Lord Drayson, said that he would sign no contract to build Tranche 3 airplanes until the program is reformed.

"The area which for 2007 is a big project for me to deliver is further changes in the Typhoon industrial structure," he told the parliamentary committee in testimony on the MoD's 2005 Defence Industrial Strategy. "Before we can go forward on a Tranche 3 decision--and we do not need to take that decision yet--I believe there needs to be a remodeling of the [Eurofighter] Typhoon structure."

But little of this remodeling--or increasing of inefficiency--in the Eurofighter program has taken place. Therefore, expectations that Tranche 3 will be cancelled have risen as the capabilities for the third batch have been dialed back.

Originally, this last, third batch of the production run would have added conformal fuel tanks to increase range to the aircraft, a new, uprated higher-thrust EJ220 engine to replace the current EJ200, and an active electronic scanning array (AESA) radar. These new systems have all been gradually abandoned to the point where Tranche 3's configuration is almost identical to Tranche 2. The advanced capabilities listed above would all have to be retrofitted to the early production batch airplanes, which is another reason for the increase in program costs now being levied on the four partners and export customers.

But another real driver behind the woes of the airplane is the increasing conflict of interest between those Eurofighter consortium nations that are part of the F-35 program and those that are not.

The UK and Italy are both heavily vested in the U.S. program and they now realize that they cannot afford to have the JSF as part of their air force and at the same time procure additional Eurofighters with the advanced systems originally called for in Tranche 3. But Eurofighter is the only new aircraft being procured by the other two partners, Germany and Spain, and they have to stay in to the end and fulfill all of their procurement plans in order to maintain their force levels and replace aging aircraft in their existing fleets.

This puts countries in both categories in a bad spot. The Eurofighter definitely needs all of the future growth capabilities listed above--particularly the AESA radar--in order to remain relevant in any future combat environment. This will come at considerable cost to those "Eurofighter only" nations. For those that are buying the Euro jet and the JSF as well, they are taking a gamble that the US program stays on schedule and that they can afford to stretch out retrofitting of the AESA and other technologies--technologies that the JSF will have on board from day one--sometime down the road.

At the end of the day both airplanes are primarily industrial base program in which the main underlying purpose is to preserve infrastructure and keep jobs from going offshore. The question is which industry is going to be the one that ultimately is "chosen" to survive in the long-term.

JSF promises to preserve industrial capabilities through work share for all of the European partners, plus a host of other nations that stretch as far to the east as Australia, north to Canada and into Israel in the Middle East. Eurofighter has a much smaller number of industrial participants and the inefficiencies in the program structure have become more pronounced over time--calling into question the program's real benefits to industry. Critics have pointed out that Eurofighter, with four assembly lines and flight test centers--one in each consortium member country--and the allocation of work share to each nation being based on the number of aircraft ordered, was destined to be inefficient from Day One.

Sir Peter Spencer, when he was the head of what was then the UK's Defense Procurement Agency, was even less generous when he described Eurofighter as a "charity" program for Europe's aerospace industry.

Not surprisingly, there are plenty of people who want to make sure that this "charity" continues and are rushing to dispel any perception that there is trouble with the program.

The day following the story in Focus, the following E-mail denial was sent by Eurofighter: This is what is known in the aerospace business as a "non-denial denial." Those that stand to have their rice bowls broken by any truncation of the production line are going to keep up the pressure on the four partner nations to stay committed to a third production batch.

Meanwhile, they feel threatened by the resources being diverted away from the UK and Italian MoDs for the F-35. Therefore, as JSF increases in price (and weight) and other problems develop with the program--as they are destined to do with any new aircraft design--there is likely to be name-calling and other unpleasantness being slung across the globe. What is a real danger is that this current conflict may be yet another wedge between the United States and European governments at a time when the two sides of the Atlantic need more cooperation between each other rather than less.

Reuben F. Johnson is a regular contributor to THE DAILY STANDARD.

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