Podcast: Military Aircraft Opportunities in Europe

In addition to a planned uptick in defense spending in the UK, nations across Europe are planning to overhaul their fighter fleets in the coming decade. 

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Rush transcript:

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Jen DiMascio:

Hi and welcome to Check 6, Aviation Week's Podcast. I'm Jen DiMascio, the Executive Editor of defense and space, and I'm here with London Bureau Chief Tony Osborne and our European data analyst, Samuel Archer. We're here to talk about European defense topics because there are many that have emerged over the past few weeks, from the United Kingdom announcing that it's going to spend big on defense to the revival of the German Eurofighter Typhoon and developments on the Swiss fighter competition. There's certainly a lot to talk about. So Tony, I wanted to turn to you first. And in addition to that, we have a lot of details to share about Aviation Week's military forecast and the opportunities that that presents for companies everywhere. But first, I'm going to turn to Tony, to talk a little bit about what's been going on in the UK. Can you bring us up to speed on where London is on its spending commitments?

Tony Osborne:

Well thanks Jen. It's been quite an interesting week. So last week we learned that this very large integrated review probably won't be reporting this year, and this was going to be sort of an all-encompassing big review, biggest one since the cold war. Which would look at the UK's defense posture, make key decisions on defense equipment and so on. And basically equip the UK for future warfare, future battle space, et cetera. What we did get instead, now the integrated review is going to come in February, and I'll come back to that in a sec. What we did get instead was essentially a 16 billion pound or 24 billion pound boost to defense's coffers. Now it's 16 if you listen to the government's conservative party's manifesto, or it's 24 million pounds overall, over four years. So it's a significant boost and the largest one since the cold war.

What was very interesting was that there was only a few mentions of how this would influence aerospace. The UK will get a space command, a link probably onto the Royal air force because that's the lead partner in its space operations here in the UK. And also probably some more money for the Tempest. But it was quite vague there was very flimsy detail on this. And that's partly because of this lack of strategy that's still yet to come out. So we're going to get this extra few billion of pounds, but we have no idea how it's really going to be spent. And there's a fair bit of criticism about that so far.

Jen DiMascio:

Tell me also, where is the going to come from with Brexit on the horizon? What is the UK's financial situation? Is it going to be able to afford to boost the budget in that way?

Tony Osborne:

This is the big elephant in the room. I mean, we are heading towards, at the moment, a no deal Brexit. The most ruinous form of Brexit, the one that basically sends businesses and unemployment into the heavens. And we're already in a pandemic and then the government's about to really, really tip the UK off the edge by not getting a deal. We wait and see if we're going to get one. So yeah. Where is this money going to come from? So there's talks of no spending increases for civil servants next year. That's only part of the answer because obviously there's a huge amount of money that has been spent on the pandemic. And then there's also talk of reducing our international aid budget, for example. But there's no clear defined answer to how this is going to be paid. To be fair, not many of us are expecting a big hike in defense.

Tony Osborne:

We all thought that we'd probably end up being the only country in Europe to start cutting defense. Obviously the Defense Secretary, Ben Wallace has done a very good job in persuading the Prime Minister that we do really need to be investing. There are still black holes to fill. It's alleged to be at 10 to 13 billion pound black hole in our equipment spend. Where that money will come from, yeah I'm probably going to be paying more tax and goodness knows after Brexit how this is all going to work. I think it's going to be a very difficult first few months or maybe a first few years post pandemic and post Brexit, before how this is all going to work out. What is clear though that the threats haven't gone away. Regardless of what happens after Brexit or what happens after the pandemic. So this needed to be done. How we pay for it, big question, big elephant in the room.

Jen DiMascio:

Thanks Tony. Sam, I wanted to come over to you and let you set the stage for what's to come in Europe because you have studied what countries are going to be buying in the region. What did you find in the military forecast that recently wrapped up for the Aviation Week Intelligence Network?

Samuel Archer:

Thanks Jen. And excellent insights there Tony. Yeah, essentially we track entries and exits of military aircraft over the next decade, in addition to current fleets, average utilization and the costs associated with both operation and MRO. But I won't get so deep into that. I'll do some key takeaways from Europe as a whole that we derive using our forecast tool. And I think chief among them over the next 10 years of interest, I think are entries and exits more broadly. So the top three families that we see entering the market over the next 10 years are the F-35, the NH90 and the F-16. Those are the top three that are known. The highest by far entering service are aircraft that have not yet been chosen. What I mean by that is, there are open competitions and requirements in Europe that will be chosen and start delivering over the next decade. And those total deliveries are by far the highest in the region.

So higher than F-35, higher than NH90 and higher than F-16. So in this, we see really a region in flux here, a lot of opportunity, a lot of unknowns. And a lot of that will become known over the next decade. So it's going to be very exciting there. And just a little bit about what we see exiting the marketplace. We see the F-16 and the Huey exiting in terms of aircraft families. And as you remember, I said F-16 was also one of the highest numbers of aircraft entering the market. That is because we see a huge fleet recapitalization going on in Europe right now, that involves upgrading early model F-16s into more capable, late model F-16s. And we also see some smaller countries replacing old legacy Soviet types with used and upgraded F-16s. So that's just sort of a little tiny snippet of the insights to be gained within the forecast. But I think it lends well to this conversation of recent developments in flux in Europe, because it is truly an interesting space to be watching right now.

Tony Osborne:

I think Sam makes some really terrific points there. I mean, if you just look in the next couple of months, early new year, we should see selection decisions from Switzerland for 36 to 40 aircraft. We've seen a lot of the foreign military sales processes going through the defense security cooperation agency recently. Finland the same, probably Croatia. And then perhaps looking further ahead, I think we're probably going to see some kind of competition emerge maybe from the Czech Republic and Hungary, as they look at perhaps trying to beef up their fighter fleets from the Griffin. I know that Hungary and Czech is seriously considering other options there.

And then of course, looking further ahead, we just had that big order for top-up typhoons from Germany. But we're also going to see, although a parliamentary decision is still some way off, the Tornado replacement, which is going to be a really critical decision. And we already know that, Eurofighter and Super Hornet have been provisionally selected for that. But that's going to be a really significant order. We're talking about 90 odd aircraft. We'll also see top-up orders from Spain for the typhoon. We're going to see additional orders in France for the Rafale. And that's before we even start talking about platforms like future combat airsystem, SCAF. So yeah, there's a lot to play for here.

Jen DiMascio:

Definitely. Well, what are you seeing with the Swiss fighter competition at this time?

Tony Osborne:

The Swiss one is, is really beginning to heat up. So last week we had the best and final offers put in and then the companies could then start talking about what they're proposing. So Switzerland is really interesting one because you've got a neutral nation, all it requires is an air defender. And yet we see F-35, Rafale, Duper Hornet and the Eurofighter in there. I mean, these are aircraft that are essentially overkill for what that country will ever, ever need. I mean, you could argue that the Hornet, as it currently stands is overkill. And that the Tiger's, if only there was a 2020 version of the Northrop F-5 Tiger, someone really needs to come up with that. Some might say it's the Griffin, we'll see. But the point is, Switzerland's a really interesting case and we'd be very interested to see where that goes.

So we've seen Lockheed Martin coming forward and saying that they would like to be able to build four out of 40 of the aircraft in Switzerland. Giving them an idea of how the maintenance overhaul procedure goes. So that would be another, albeit very small, assembly line in Switzerland. But then you've got Eurofighter who's proposing to build all 40 in the country. Now for some people that seems like a ridiculous idea, especially when they build German Typhoons about 200 kilometers up the road, near Munich in Manching, and Italian ones in Turin, which is even less distance. So a fifth assembly line.

Switzerland has actually done this before, they built the Hornet back in the 1990s, they assembled their Hornets, what is now Ruag did that. So you can sort of see where that might be going. We haven't heard anything from the Super Hornet or Rafale teams, but at the moment my money is on the Rafale especially since that was selected the last time they had a fighter competition. So that actually came first in the evaluation, but the Griffin was selected. But of course, if you remember correctly, there was the national debate, which then concluded that the Griffin would not proceed. And this prompted this whole new competition that we're seeing now.

Jen DiMascio:

Well, thanks for bringing us up to speed on that competition. Sam, did you have any thoughts or inkling on where that is headed?

Samuel Archer:

That's hard to say. I think it's going to be a big-ticket item regardless I think. Tony hit it on the head where it's overkill and it's going to be really the most significant purchase Switzerland's going to make this decade. And I don't know if I share the inkling to say my money's on the Rafale, just because my knee jerk is always that F-35, that cost and that capability. If you're going to go for overkill, I feel like why not overkill the most? You know? But that's just my 2 cents. I'll be surprised just because I'll be surprised honestly, any way it goes. Because there's so many factors at play. And I think where in other European countries that I follow closely, it's a little more easy to define what they're going to go with because they prioritize things like European cooperation and interoperability so highly that ,the writing's on the wall kind of who they're going to pick when they put out a lot of their requests and things. But Switzerland's a different beast. And I can't say, but if I had to, F-35.

Jen DiMascio:

Well, let's pick up from there. I mean, the F-35, you were saying, you're putting your money there. What about as a whole, with all of these competitions up for grabs, how well does the F-35 do relative to other fighters? Does the diplomatic situation that we've had between the US and Europe impact that at all?

Samuel Archer:

It certainly does. I think what I've seen, I mean most notably the case in Germany for the tornado replacement. You had a lot of people within military, very publicly saying that the only choice was the F-35. And you had even a head of military coming out publicly and saying that that was the only choice and actually getting kind of canned for it. So I think it tends to be, as it stacks up against it's perennial rivals of the Rafale, the Typhoon, the F18 and the Griffin, it tends to win out because of the cost. It can do what the others can. It can do some things that the others can't and because the economies of scale and diffused assembly lines and everything, it can just be a very attractive offer.

And we see the F-35 winning and predict that it will, in some cases where it hasn't been selected yet. But I think politics when it comes to Europe and the goals are very different than just saying we have the cheapest, most capable fighter. And it gets very complicated when you have animosity between the country buying populous and US government. And you also have certain political and geopolitical incentives to cooperate with your neighbor as opposed to the United States.

Jen DiMascio:

Tony, you want to add to that?

Tony Osborne:

No, I think you make it very fair point. The challenge with Europe is that you've got multiple countries with their own set of ambitions. So countries like Belgium and the Netherlands, they chose F-35 because actually they have a nuclear strike role. And that was really the only way to go about doing it. Germany, that was a difficult decision for them to omit the F-35, but that's really what that whole... The Chief of the Air Force saying, that's why we want a fifth generation fighter. It was all about the nuclear role. Which is the most important political decision of all these things. For countries like Switzerland and Finland, there's no real bellwether for how these two countries will go. They've always done things differently. They're both neutral countries. They don't want to be reliant... They can't be reliant essentially on another country in war time.

Tony Osborne:

So in Finland, that's why Finland has to go down this route of having a very expensive procurement, because it has to buy everything more or less upfront because it's not reliant on anyone else to do it. But there is then the whole question of how F-35 works in neutral countries. And questions about, for an aircraft has been designed to be interoperable in NATO, for things like spares sharing and spares distribution and support, to having data centers back in the United States. How does that work from a neutral perspective? And that's why I have my doubts about Switzerland. That's why I have my doubts about F-35 in Finland. Because those things are really important to those countries. And it really could be something, no matter how capable the airplane is, the inability to be able to do certain things to it in your own country could really weigh heavily on that decision.

And you become very reliant on the United States if you buy F-35. Obviously there will be ways around that. I know that the UK has gone down a route of having... It's sort of paid a bit extra to have that freedom of maneuver. But I don't know how many countries can afford to do that, whether they have the skills and capabilities to do that. It's a really interesting point. There's some very complex political and issues around F-35 that these neutral countries need to go for. Other major countries, yeah I agree, it's going to be the way forward for them. Less so on these neutral ones.

Jen DiMascio:

Speaking of NATO, before we wrap up, I just wanted to touch on the helicopter competition there. Just to kind of draw out some of your good reporting over the fall on what's happening with that large competition.

Tony Osborne:

Still quite a competition. So the discussion is that around the 2035 - 2040 mark there's going to be a lot of helicopters to replace, medium helicopters that is. So we're talking about types like, Mi-17, Mi-8 Hips, VH101 Merlins, Puma family aircraft, and even NH90s. There are going to be around 2000 of these aircraft to replace in that timeframe. So NATO countries are beginning to talk together and say, "How do we replace these aircraft?" Ideally one platform for all of them, one ring to rule them all, one helicopter to replace them all. Now there's five countries, Germany and France, Greece, the UK, and Italy. Now there's already some potential convergence here because we know that Italy and the UK have shown interest in future vertical lift with the US Army. And would like to go around that. Then you've got Germany and France who are adamantly European, and would probably want to try and find some kind of European solution.

And having spoke to Bruno Even, the CEO of Airbus Helicopters this week, he said it right on the chin. He said, Europe came up with the NH90, it did it, it produced it. It took 22 years, but it works. And it's fine. And NH90 came out of exactly the same process. NATO requirements drawn up, and then countries decided to go down the NH90 route. So we could be looking at maybe several countries going looking towards the US. Maybe some industrial cooperation with the US to produce FBL. And then we might see a European solution as well. Who knows how this will come out of it.

We're in the very early stages. The Defense Minister signed this agreement last week, although we reported on it in October. And we are going to see this now progressing to requirements building and so on. We probably won't see a product come out of this until the 2030s. But the thinking is there. Long-term thinking is needed. If you look at how long it took to develop the NH90, it took as long to develop that to develop a fighter. So actually getting started now is not a bad move.

Jen DiMascio:

Well, thank you. That's about all we have time for today. So tune in again next week for another edition of Check 6. You can download us on iTunes, Stitcher, Google, and Spotify. And if you like what you're hearing, please give us some positive feedback, we love it. Thank you