HX Home Stretch

Yesterday we got to see another HX presser, this time dealing with the final year of the competition. Held by the usual suspects – Minister of Defence Antti Kaikkonen, major general (engineering) Kari Renko of the Finnish Defence Forces Logistics Command, and Program Director Lauri Puranen – there were no big shifts in the messaging. However, there were some interesting comments, and a confirmation of the current schedule.

Current schedule, including the ‘silent period’

Beginning with the schedule, the request for Best and Final Offers (BAFO, or RFBAFO) will be sent out “within January”. For those without a calendar nearby, that means sometime during next week. The legally binding offers will then be returned before the end of April. The speakers acknowledged that this is a tight schedule, but as no major changes are expected compared to the packages currently discussed all manufacturers have confirmed that they should be able to meet the deadline. It is however notable that while the Air Force/MoD/LOGCOM have been negotiating with the manufacturers about what would be the offer FDF wishes for, the manufacturer is still free to offer exactly what they want. In reality, as the purpose is to get chosen, the two will probably align quite well.

The bids will be made up of a single short physical cover letter, and approximately 50 digital documents/files dealing with the offer itself. The Finnish authorities will then start going through them and evaluating the combat capabilities of the offers, a job which by the fall (October) should have led to a recommendation that will be sent to the MoD. According to Kaikkonen the MoD and government will look at the national security and foreign policy aspects. After this, the government will present their suggestion for new fighter to the parliament, which will vote on the matter. Note that as opposed to certain other fighter procurement programs, Finland has a) a strong tradition of majority governments, b) a strong tradition of MPs following the party lead when voting, and c) a strong support throughout the parliament for the program, which means that this is expected to be something of a formality. Edit: the parliament won’t hold any further votes, as they already approved the acquisition budget. The government will however present their findings for the relevant parliamentary committees before the contract is signed. After this, the final negotiations with the preferred bidder will take place, leading to a major signing ceremony where a number of small and large contracts dealing with the overall acquisition are signed. This ceremony will take place before the end of the year.

Having been part of some minor contract negotiation processes in the maritime sector, this is probably the part where the schedule feels most strained in my opinion. Even after the return of a legally binding offer to a (semi-)public tendering process, there’s usually a surprising number of details to work out. If the recommendation spends even a month going through the MoD and parliament, time will quickly start to run out regarding the end of the year deadline. On the other hand, much depends on how controversial the suggestion by the MoD will be. If everything goes smooth and the BAFO is largely unambiguous, it certainly is possible to keep up the pace, but I wouldn’t be surprised to see some last minute delays.

The pillars of the process – equality, non-discrimination, and transparency

To understand the messaging, there will be no talks between the Finnish authorities and the manufacturers following the return of the BAFOs. Another more interesting detail is that Finnish authorities won’t comment on the bids until the papers are signed. I’m not quite sure how this will be handled in practice, whether the winning bidder will be announced when the recommendations are being made to the parliament, or whether the general public won’t know who has won until the doors to the signing ceremony are flung open and the journalists sees who sits at the opposite side of the table?

Another interesting aspect is to what extent the manufacturers can keep discussing their bids with media and the public? In theory, once the BAFOs have been returned the bidders can no longer influence the process directly, and as such could potentially be given freer hands to lobby the benefits of their bid. However, this would on the other hand seem to run contrary to the decision to keep a lid on the details until the signing. Earlier interviews have made clear that the BAFO will include details on what the manufacturers can say and when, so I guess we will get our first idea of the new playing field within a week or so.

For the platform itself, some new details could be seen. One is that the language has indeed changed significantly from the early briefings when it comes to the joint air-sea domain. While the early briefings usually talked about “supporting the maritime domain” with those involved explicitly refusing to say whether that included kinetic anti-ship missions, Puranen now split up the naval support mission to include not only ISR and providing targeting information, but also maritime strike.

The obvious question is in which direction the wind is currently blowing? The answer is that it’s rather turbulent. Renko was rather open with that the winning bid hasn’t yet been drafted:

The competition is very close, all contenders still have challenges in some decisive areas.

While he obviously didn’t start pointing fingers, he mentioned a number of key areas including contract terms, life-cycle costs, the technology readiness levels, and industrial participation arrangements. Tempting as it might be to start to slot different contenders into some of the points above, the complexity of the overall program makes it a largely useless task. Just to give an example, while most probably start thinking about the F-35 Block 4 and JAS 39E Gripen when discussing technology readiness issues, it could very well be related to some key systems of the other contenders as well where the FDF or MoD has questions regarding timelines and performances (Radar Two, the NGJ-family, and the whole Rafale F4-standard comes to mind). Similarly, speculations on who is weak and who is strong on the other issues is largely just that – speculation.

One comment that went largely unnoticed as far as I can tell but which will have a significant impact on the outcome was made by Puranen. While running through all the things looked at as part of the evaluation, he mentioned that they are evaluating:

If they [the armament] start to run out, from where do one get more?

While the requested armaments package is significant, it still will likely run low rather quickly in any kind of serious shooting war (based on the historical fact that no matter how much ammunition any force has gone to war with, usually it will run into shortages rather quickly). And at that point, there’s quite a bit more weapons from Lockheed Martin, Boeing, and Raytheon found in warehouses around the world than those made by MBDA or Safran. In my opinion, this is probably one of the stronger cards of the US contenders, even if both Gripen and Eurofighter are also happily slinging AMRAAMs and US-built smart bombs (and Rafale carrying some US-made air-to-ground weapons such as the GBU-49 and GBU-16).

Otherwise, the messages were largely along the same lines as has been heard before during the last five years. The aircraft will be operated into the early 2060’s, and there will need to be “other users as well” (Puranen). This time it was Kaikkonen who got to use the classic line of “We’re not going to buy an aircraft we can’t afford to operate”. Speaking of which, the operational costs per year will be capped at 250 MEUR (in 2021 Euros), roughly corresponding to 10% of the defence budget, while the MLU costs will be routed in through the normal FDF acquisition budget as was done with the Hornets.

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For the additional funds provided for the acquisition, not one but two pie charts were included to show the breakdown of the funding. Of the 10 Bn EUR, 21 MEUR are going to the expenses of doing the competitive tender, and 579 MEUR will go to the costs of the FDF during the five-year transition period. This include infrastructure changes, personnel expenses, C4I integration costs, costs of potential contract changes, and everything else that’s needed. The remaining 9.4 Bn EUR will then be allocated to buying the aircraft, engines, weapons, sensors, spares and replacement parts, maintenance support, and additional training needed outside of the scope of normal FinAF training routines. However, of this sum some (approximately 400 MEUR) will have to go to expenses paid by the Finnish state, and won’t be available for the bidder to use. This includes e.g. project management costs and government furbished equipment, as well as part of the industrial participation costs. As such, the total money that can be used by the manufacturer for tailoring their bid is around 9 Bn EUR. The amount varies somewhat due to the differences in costs for the national part of any given tender, e.g. if your aircraft will fit inside current hangars you’ll have a bit more to spend on your part of the package to take an obvious example. Still, Renko took time to underscore several times that the amounts available are “very close to each other”.

Let’s all take a moment to realise what this means for Saab’s bid – the company is able to include all the added costs associated with introducing a brand new aircraft type in the form of the GlobalEye 6500 alongside their primary bid of a competitive package of fighters and the equipment they need, and still remain “very close” to the competition. Granted Boeing’s feat of including the Growler with associated equipment is also impressive, but while the jamming pods are expensive revamping the training, maintenance, and infrastructure to include a pair of 30 meter long aircraft with a 45 ton max take-off weight is quite something. Just to put things in perspective, the Learjet 35 that the Finnish Air Force currently flies is about half as long and has a MTOW of 8 tons, with the C-295 transports having a somewhat smaller footprint while operating at a marginally higher MTOW. And despite the costs of introducing what would be the largest aircraft in FinAF inventory, Saab’s bid apparently is “very close” to the competition.

JAS 39E Gripen and GlobalEye – apparently a surprisingly cheap combination. Source: Own picture

It is also obvious that Renko is not amused by the hints, and is some cases outright accusations, that those involved in the program have their own agendas and would be operating outside of normal civilian and political oversight. He took a strong stance by making a point of publicly and clearly praising the team that he described as highly competent and taking great pride in their professionalism, and also noted that everyone strongly believe that they are working towards the best solution for Finland. He also noted that while the COVID pandemic had not caused significant delays and the procurement decision will be taken this year as originally planned, it had required considerable additional effort (and let’s remember that it is in fact a rather small core team) to mitigate the issue and ensure that what at its lowest point was a 6 month slippage in the schedule was clawed back. In the same vein, Kaikkonen reiterated that there is no alternative to multirole fighters, regardless of what some have claimed.

13 thoughts on “HX Home Stretch

  1. asafasfaf

    “will present their suggestion for new fighter to the parliament, which will vote on the matter.”

    There will be no parliament vote, unless somebody from the left makes a new law initiative regarding HX. Only “valtioneuvosto” will make non public voting.

    Eduskunta approved HX’s budget last year, it didn’t make much headlines.

  2. Thomas Björklund

    The bottleneck is not weapons, it is being to maintain the systems in war. As Gripen can use Meteor, Amraam, Iris-T and Sidewinder, getting these weapons from either European conountries or the US is the smallest problem. Saab is also part of the Group that develops and produces Meteor and Iris-T. The main problem is to service airframe, radar, ECCM and engines in war. Finland will not have any possibilities to repair this for the F-35 in Finland, but will have to sent it to other locations. Saab can maintain airframe, radar and ECCM in Finland. As for engines, here you have to have spare engines, but with a common pool of spares with Sweden, that can be easier to handle.

    Also, if Finland goes for Gripen with GlobalEye, then Sweden and Finland will be able to use these fighters and AEW in a common pool. Sweden, will most likely buy 4 GlobalEye – that makes about 160 fighters and 6 GlobalEye. I also hope, that Sweden, as part of an offset deal, buys 2 + 4 Pohjanmaa (Österbotten) class frigates.

    1. John Carmichael III

      Sweden currently operates 2 Saab 340B turboprop AEWC planes. Given their budget constraints my guess is that they replace the older planes with 2 new GlobalEyes. If Finland is also operating 2 GlobalEyes – that makes 4 total – which should be sufficient. I guess it’s possible that Sweden could continue operating the older turboprop AEWC planes – but it’s more likely that they are retired and possibly sold off on the cheap to another user.

  3. PG

    It starts to get realy thrilling the HX challenge!
    If you look at the hole, north eastern flank of europe and the build up of forces!

    Norw. F35 and F16, Fin. F18, Swe. JAS, Den. F35 and F16 locks like a god mix?

    Future

    Norw. F35 and F16, Fin. JAS, Swe. JAS, Balt. JAS, Den. F35 and F16, Pol. F35 and F16……..?

    All of them using more or less the same kind of wapeon and within all treatys there will be even easyier to build up stock of surplies!

  4. EMK

    Regarding Puranen’s comment, my understanding from the presser was that supply security (incl. arms and other stuff) would be evaluated on pass/no pass basis – bidder either provides a satisfactory supply scheme or not. And in the latter case, its game over for the bidder – it will not be part of the final evaluation phase (the performance evaluation war game). Maybe I misunderstood this?

    @Thomas Björklund
    Maintenance will surely be an important part of the final evaluation phase as it partly determines how many planes are available for missions at any given time. But that is not the only important factor. For example, survivability plays a big role in that numbers game as well.

  5. CasperHauser

    Hi Corporal,

    What is your view on the FDF maximum operating and maintenance budget allocated for HX of 250m€ (~ 300 MUSD) per year , does that not effectively kill f35 from the competition? or is that a problem for later? Would be interesting to hear your view on this, e.g. by looking at some of the metrics available.

    F35’s 35000$ cost per flighthour
    Airframe lifetime (8000)
    Average fly time for a Finnish pilot/airframe per year today.

    Me running numbers it points towards a very small fleet of F35’s….in the 30s to low 40’s and that is if only operating costs are included in the 250m€ which hardly is the case….

    1. Charly

      As Puranen said, the only people on the planet who know how much it costs to fly jet X/hr within the FDF context is the FDF/FiAF. The manufacturers calculate it differently and different national systems (for maintenance, personnel etc) means that flight hour calculations generally aren’t comparable. This is the reason why FDF asked manufacturers for a breakdown of the ‘sub-components’ of their calculations, so that the FDF can then ‘recalculate’ based on national (non-public) information.

      There’s effectively no chance of FDF choosing the F35 if the offer included only 30s-low 40s in terms of frames.

    2. Esa Koivuniemi

      As Charly said below, calculating the cost per flight hour is next to impossible without all the information. That being said, you can rule out the most outrageous numbers (like $35k/h) from the get go just by doing some sanity checks and thinking a bit.

      You might start by dividing the purchase price with airframe service life to get fixed part of the flight hour cost. For example, the F35A purchase price was $78M (2019). Lifetime 8000 h. $78M / 8000 = $9750. Then you’d start adding various other costs like spares and maintenance.

      Even that’s the way civilian aviators and aviation industry approaches this calculation, it is not the right way here. Civilians add the fixed part (purchase costs) to the equation because they have to collect the initial investment back during the lifetime of the plane. Its not so with military. The operating budget is totally separate thing from the initial purchase budget, so the flight hour cost calculation for operational purposes should not include the fixed part at all.

      That put’s all the candidates on the same starting point in terms of operating costs. After you’ve excluded the purchasing costs from the equation, what remains and what separates the candidates is mainly the maintenance demand (maintenance hours / flight hour), cost of spares, running costs of organization / facilities required by given system and things like that.

      In summary, although there are differences between the candidates when it comes to operating costs, I am not convinced at all the operating costs would turn out to be a show stopper for any of the candidates.

  6. IED

    Available missiles will be an issue in case of conflict. But I am not so certain this would favour the US bids in any way. The US military is seriously understocked for a major war when it comes to available missiles – just as most other nations – because of limited shelf-life and the associated cost of keeping a large inventory.

    If a conflict appears, the US would move to quickly increase stocks in priority order. First priority is likely the US navy, then the other US services, after that NATO Allies in immediate conflict area, then NATO allies in lower conflict areas etc. Where Finland stands in this order is not difficult to figure out. The one exception would be if the conflict was isolated to the Scandinavian/Baltic area when Finland would probably be restocked before Turkey but after Denmark and Norway.

    European made missiles would have a slightly different order of priority. Not that european nations have a larger inventory than the US (quite the opposite) but Finland being on the border to Russia most of Europe is likely to consider a well stocked finnish airforce a good thing.

  7. asafasfaf

    As Puranen’s speech was like a Gripen E marketing event, supply of weapons could be continuation of the same and in “Saab talk” this supply problem is solved by integration-easiness, more options to choose from.

    Earlier it has been made quite clear that HX weapons must be in Finnish hands as “promise of delivery” deals are political by nature, and political security promises are mostly prohibited from the competition. Promises are cheap, actual hardware is real.

    1. I fail to see how his speech was good news for Gripen (besides the fact I mentioned that it seems the baseline Saab-package is cheap enough that the GlobalEyes indeed can fit inside. That’s impressive, but his line was that all offers are closely matched and competitive). Sweden also does not sport the kind of large weapon stocks that quickly can be used to refill Finnish inventories in times of war (especially considering that poor endurance in a long conflict was listed as an issue for the Swedish Armed Forces in open budgetary documents as late as last summer).

      1. Thomas Björklund

        One aspect of Swedens increased defence spending is that ammunition depots will be increased and that also goes for air to air missiles. An upside with Gripen is that it already today can use Amraam, Meteor, Sidewinder, Iris-T, A-Darter and MBDA MICA. Meteor might be integrated with F-35 by 2025 but the timetable might be delayed. So, with Gripen, Finland can get air to air missiles from more sources than with F-35.

    2. EMK

      When it comes to HX competition, supply security issues do not determine ranking order of the candidates in any way, shape or form. Supply security is strictly on/off issue. If a bidder cannot offer an acceptable solution to supply security, it won’t proceed to final phase of the HX evaluation and is, consequently, out of the competition. And if an offer is acceptable to FDF, that bidder stays in competition. Nothing more. Its as simple as that.

      Details, complexities and uncertainties regarding the supply security matter hugely when things start to go south and stockpiles grow smaller. That’s obvious. And we can debate, speculate and argue about pros/cons of various possibilities forever. But as said, in the end, these details won’t affect the ranking order of the candidates at all.

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