Peter La Franchi/CANBERRA
A review of foreign currency exchange exposure on Australian defence projects has revealed that the costs of the Royal Australian Air Force's Hawk Lead In Fighter project have risen by A$98 million ($56 million) since contract signature because project costs had not been hedged against exchange-rate changes.
The review, carried out by the Australian National Audit Office, also found that the cost of two Boeing CH-47D Chinook heavylift helicopters has risen by A$15 million since contract signature in June 1998.
The Audit Office also reveals for the first time that Australia's decision to acquire 11 rather than 14 Kaman SH-2GA helicopters was due to a failure to effectively manage foreign-exchange dealings. The audit found that currency exposure has added A$42 million to the total project budget since contracts were signed in June 1997 and warns existing arrangements mean that costs are "likely to increase further".
The audit found, however, that the exchange arrangements for Australia's purchase of Kongsberg Penguin anti-ship missiles could work in the Department of Defense's (DoD) favour, and may see a reduction of project costs by A$630,000.
The audit, released on 31 May, criticises the DoD's financial management practices, including the reliance on the use of spot exchange rates in evaluating competitive tenders. It says exposure on currency deals has added A$2.98 billion to the cost of 220 current defence acquisition programmes. The exchange increases have exacerbated defence budget shortfalls which have resulted in programme cutbacks and a review of spending on all major projects.
The review warns that in the CH-47 case, a major shift in exchange rates between the Australian and US dollars is an incentive for Boeing to delay delivery.
Boeing is facing liquidated damages of A$4,700 a day for failing to meet a contract deadline of 18 March 2000. The audit report estimates that the company could make additional profits of up to A$6.3 million if delivery fails to occur before June 2001 because Australia made advance payments of 50% on the $44.74 million deal at contract signature.
Australia's June 1997 deal for 22 BAE Systems Hawk 100 trainers comprised a A$39.6 million contract with BAE Systems Australia and a £327 million contract with BAE in the UK. The DoD elected to use unhedged forward exchange rates for the deal, with subsequent shifts in the value of the Australian dollar "resulting in the project budget increasing by A$98 million, or 12%".
Source: Flight International
