While Lockheed Martin is bashed over the escalating cost of its F-35, the life cycle costs of other fighter planes have often been overlooked, as customers and primes alike focus on the initial procurement cost rather than ‘cost of ownership’ of such planes. The procurement of 30 M346 jet trainers by the Israel’s Ministry of Defense (IMOD) was regarded as an example of well managed and relatively transparent acquisition program, since most of its elements are run by publicly traded companies in Italy, the US and Israel.
In July 2012 the IMOD has reached an agreement on a multi-year maintenance and support framework supporting the Israel air force (IAF) next generation jet trainers. The total project is budgeted at $603 million over 20 years. To provide this support Israel’s two largest defense contractors – Israel Aerospace Industries (IAI) and Elbit Systems – established a joint venture called ‘TOR Advanced Training’. Adding the procurement costs of airframes and engines, the aircraft full life cycle cost is expected to almost triple the amount previously quoted during the program was first introduced in July 2012.
The contract will be signed in the coming weeks, following the finalization of financing procedures. In order to meet the project’s tight schedule, IMOD has released an interim purchase order and financing covering approximately $27 million to Elbit Systems, to launch the logistical center and maintenance infrastructure for the new aircraft over the next three years. The full cost of this setup is expected to cost $110 million. In early January, 2013 Elbit Systems awarded the M346 manufacturer Alenia Aermacchi $140 million for its part of the aircraft service and support contract. According to the Italian company, the CLS services, which include supply, maintenance and overhaul of spare parts for 30 Israeli M-346.
[ismember]IAI and Elbit Systems are currently supporting other trainer fleets (T-6A, A-4N/TA-4N and Grob 120A) at the IAF Flight Academy at the Air Force Base in Hatzerim, near Beer Sheba. The new center will add volume to the existing infrastructure. For specific services such as the engine support, TOR is signing back-to-back contracts with service providers. One such contract was signed earlier this month with Honeywell, as part of the $735 million engine order for the new aircraft. As part of this contract, Honeywell will provide spare parts, maintenance and support via through TOR. The program will be tuned to maximize asset availability and reduce unplanned grounding time.
The $110 amount allocated to Elbit Systems will also cover the development and production of simulators necessary to support the pilot training. Elbit Systems is already operating a comprehensive ‘simulation farm’ at the IAF Base in Hatzor. However, the new simulators are expected to support the flight academy in Hatzerim, thus saving flight hours and improving flight safety, particularly in practicing emergency procedures. Elbit will also provide certain avionics systems for the M346, some of these are believed to be used as ‘in-flight simulators’ to better prepare cadets for the next-generation aircraft like the F-35 Lightning II expected to arrive in Israel toward 2017-2018.[/ismember]
IAI and Elbit Systems will split the remaining amount, to be paid by the MOD based on the flight hours operated by the air force. Elbit Systems said it expects its share to amount to $310 million over the period of 20 years. According to IMOD data the cost per flight hour will be similar to the cost currently paid to IAI for the maintenance of the A-4N/TA-4N Skyhawk used for advanced training.
[nonmember]How much the Israeli M346 really cost? Defense-Update walks you through the financial maze of the tripartite trainer deal. More information on the program projected life cycle cost is included in the Full Version of this article, available via our Premium Subscription.[/nonmember]
IAI will prepare to provide line and depot maintenance to support the fleet in Israel while Elbit Systems will provide logistical support for the fleet and simulators.
[ismember]In July 2012 Israel has ordered 30 M346 Master jet trainers from the Italian company Aermacchi. At the time the procurement cost mentioned was $850 million, of which only $600 were directly attributed to the manufacturer Alenia Aermacchi; the costs reflected a flyaway cost of $20 million for 30 aircraft alas, this price excluded the engines, which were bought directly from the US manufacturer Honeywell. Last week Honeywell signed the contract for supplying the 60 F124-200 engines, plus spare engines, spare parts and lifetime support, a contract worth $735 million.[/ismember] With the cost of engines and support program figured in, the IMOD expects to spend about $2.2 billion for its new trainers over the next 20 years – more than tripling each aircraft ‘out of factory’ cost, from nearly $20 to $65 million, reflecting the total ‘cost of ownership’ of these aircraft. This cost is rated at about the third of the cost of a modern F-35 stealth fighter.
[ismember]Separation of airframe and engine buys is not uncommon, particularly in the commercial aviation market and in acquisition programs patterned after US practices. Committing to a 20 year period enables the IAF to base its pilot training activity on a solid, predictable basis, committed in the Israeli defense budget for years, similar to the multi-year procurement cycles common in the US.
Singapore, opting to buy and support the aircarft acquired 12 M346 Master jet trainers at a cost of $410 million, reflecting $34 million in flyaway cost. This cost seems to be valid also in the UAE deal that didn’t go through, where the Emirate negotiated the acquisition of 48 Masters for an estimated amount of $1.5 billion, reflecting around $32 million flyaway cost.
Considering the cost quoted the airframe and engines, the flyaway cost for the Israeli trainer is expected to be significantly higher than the $20 million originally reflected by the Italian-Israeli G2G contract, and could end up at around $45-50 million per plane. The reason is the form of acquisition opted by the Israelis – although the aircraft are acquired and paid for by the government, the commercial contracts with TOR and Honeywell turn the acquisition of the engines into something similar to an ‘operating lease’, over a period of 20 years. While this scheme freezes the operating cost, it also comes with a significant price tag.[/ismember]
The IMOD direct payments for the 30 aircraft will be spread over a period of 10 years – more then two four year planning programs, therefore limiting the impact on the domestic defense budget to around $60 million on an annual basis. The engines are likely to be covered by the US military aid to Israel, leaving the Israelis to bear roughly $25 million annually ‘out of their pocket’ for operations and support. This cost corresponds to the average amount required to maintain the current TA-4N Skyhawk trainers that will be phased out. Over the 20 years ‘life cycle’, Israel expects to pay about $60 million to own each of these Italian Masters.