News analysis - Breaking the bank

Peter La Franchi/CANBERRA

The Australian Department of Defence's new 10-year spending blueprint contains a shortfall of between A$10 billion and A$32 billion ($5.1 billion-16.2 billion) over the allocation approved by government as part of the Defence white paper published last December.

The plan, provided by the DoD to the Australian Senate's Defence, Foreign Affairs and Trade Committee, shows that aerospace alone accounts for A$11.72-21.09 billion of new spending over the period.

The full package of Royal Australian Air Force, Royal Australian Navy, Australian Army and Joint Services equipment acquisitions total A$23.71 billion to A$45.75 billion. The list ranges from new air warfare destroyers, fighters, surface-to-air missiles and upgrades to existing hardware.

The white paper's 10-year plan (Flight International, 12-18 December 2000), identifies new-capability investments and equipment upgrades totalling A$13.73 billion over the period.

As reported exclusively by Flight International last week, the blueprint includes acquiring Northrop Grumman RQ-4 Global Hawk unmanned surveillance aircraft in Australia's 2004-05 defence budget at a cost of up to A$250 million. It also reveals that approval is being sought, in this month's defence budget, for 20-24 more SikorskyS-70A Black Hawks, and approval for the structural refurbishment of Boeing F/A-18A/B Hornets.

Aerospace-related projects in this month's budget package totals A$1.49-3.07 billion. The overall package, details of which will be released on 22 May, totals between A$4.86 billion and A$8.87 billion. And it includes a further A$1 billion in upgrades to the RAN's Collins Class submarines.

The scheduling data is the most detailed information on proposed acquisitions made public since the release of the white paper. The information has been eagerly awaited by industry.

Even allowing for the part transfer of costs beyond 2011 and project scheduling slippages, the data shows that the white paper underestimate the cost of new capabilities by a minimum average of 42%. This is despite government claims that the spending figures are "the most specific long-term defence funding projections provided...in more than 25 years".

DoD estimates are based on a formula that expresses a project's value in a funding range. For example, the proposed buy of Raytheon SM-2 missiles for the navy is valued at $250-500 million.

The scale of budget over-runs detailed by the blueprint points to further rounds of project cuts in the white paper spending plan on top of those executed recently. The schemes effectively require additional defence spending allocations to be made by future Australian Governments around 2006-07 if the white paper capability plan is to be maintained. That requirement also indicates that the white paper funding allocations represent no more than a five year solution to a DoD spending crisis which has gripped the Defence Forces for the past two years.

Defence analysts warn that the spending increases pressure on high profile projects, such as the RAAF's Project Air 5077 AEW&C acquisition, to perform as contracted if further cuts are to be avoided.

Source: Flight International