MoD’s Christmas bill for US helicopters: CZK 12 billion increase requirement

MoD’s Christmas bill for US helicopters: CZK 12 billion increase requirement
13 / 01 / 2020, 09:00

In speed and silence the Government, upon invitation of the Ministry of Defence, approved quite a substantial increase in the budget program of the development of the capabilities of the Air Force, the main part of which is the acquisition of multipurpose and attack helicopters, the system H-1: UH-1Y Venom and AH-1Z Viper. The initial budget of the program was CZK 24 billion. Following the signing of the US helicopter purchase contract, the ministry calls for a one-third increase in the program's budget to CZK 36 billion. Let's recall in this context that the US offers have been described by many as overpriced. The government managed to increase the budget incredibly fast. A contract was signed in mid-December, and at the beginning of January, 12 billion crowns were found.

At the press conference held on 13th December, after arriving from the US, where together with the US Secretary of Defence Mark Espero, Lubomír Metnar signed the contract to purchase eight Venoms, four Vipers and accessories (armament, ammunition, training simulator, pilot training and more), at 14.6 billion, the ministry's argument that the Czech Republic buys US helicopters at the same price as the US armed forces, and that the price is approved by the US Congress has been emphasized and reiterated. It was said that the financing of the project is spread over till 2024. The largest amount will be paid in 2023, Deputy Defence Minister for Acquisitions Filip Říha said. In a way, the development is in favor of critics of the acquisition: the price is higher than what the MoD had expected two years ago, and the purchase of US helicopters jeopardizes other air force development projects.

See also: Leonardo turned to the Office for the Protection of Competition regarding the multi-purpose helicopters acquisition

The original budget of the "Strategic Program for the Maintenance and Development of Air Force Capabilities of the Army of the Czech Republic" was approved by the Government in May 2017 in the amount of CZK 24.624 billion. The acquisition of twelve multipurpose helicopters, newly eight ones and four attack helicopters (because in the opinion of the Ministry and the Army there is no other solution that would meet the basic requirements), was its most important part. Furthermore there is the acquisition of transport aircraft and small transport aircraft, acquisition and modernization of air force radiolocation technologies, replacement of air traffic control systems on air bases, construction and reconstruction of airport infrastructure, etc. The Ministry of Defence, in its submission, which asks for a one-third increase after only two years, literally says of the helicopter acquisition: "This project recorded an increase in initially planned resources from the start of the market research in 2011 until its finalization in 2019, due to the change in VAT, the inflation rate and the USD and EUR exchange rates applicable to the period." In 2017, an amount of 24.6 billion was approved, but at the end of 2019 we find that the originally planned expenditure has been increasing from 2011?

This was also the subject of a comment from the Ministry of Foreign Affairs, which was the only comment on the submitted report. And, incidentally, it is remarkable, as one of the important arguments for the H-1 system is to strengthen Czech transatlantic ties. "Given a significant increase in the original budget of the program by about one-third, two years after its adoption," the MFA asked for more precise arguments for increasing the budget and whether "MoD will finance the acquisition of Bell Viper helicopters within the multipurpose helicopter acquisition project." Even within the Government, there is still some uncertainty about replacing the original project of the acquisition of twelve multipurpose helicopters with a combination of multipurpose and attack ones.

In response, the Ministry of Defence argues that the amount of 2017 was based on preliminary marketing surveys, and although it counted on inflation and exchange rate changes, "there was a demand to raise funds for some more demanding projects." And explicitly mentions the acquisition of multipurpose helicopters (in the concept of the Ministry of Defence, of course, including the AH-1Z Vipers), which "culminated ..., due to changes in VAT, inflation rate and USD and EUR exchange rate for the period." In other words, from 2017 to 2019, inflation and the change in the US dollar exchange rate (what role the Euro plays in the project is not easy to say) lead to the need to increase the two-year-old amount by a third? In fact, more. Because the MoD itself states that the original planned cost of purchasing twelve helicopters increased from 6.1 billion to 17.6 billion (including VAT). That's almost three times more. Still due to VAT changes, inflation and exchange rate changes? Or rather the decision to purchase expensive American helicopters, while leaving aside economically more advantageous European solutions?

See also: Multipurpose Helicopters - Dramatic difference of price between Italian and American solutions

The original requirement (from 2011) for a "light multipurpose helicopter" was, according to the MoD, in the second phase of the project changed to a "multipurpose helicopter" (in 2015), which increased costs (but those were certainly taken into account in 2017), and only the third phase actually brought the requirement of "acquisition of available and proven military multipurpose helicopter with required armament, ballistic protective and technological equipment allowing operational use and combat deployment ", which meant (or "could mean") further increase in costs. In other words: we have decided that we need the H-1 system, and it is expensive, so we need to increase the original budget.

See also: Venom and Viper helicopters purchase: We stand behind our progress, Minister of Defence says

It means that a few weeks after the signing of the US helicopter contract, the MoD asks the Government to increase the budget of the program to which this acquisition belongs. The financial stability of the program is hampered by VAT changes (?), unexpected (?) rate of inflation and dramatic (?) exchange rate changes, as well as (and indeed above all) new requirements that only the H-1 system complies with, according to the Army. And its actual price.

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