Analysing the timing of Defence’s Taipan decision

Last week, the Commonwealth government confirmed plans to purchase up to 40 Sikorsky-built UH-60 Black Hawks to replace the Australian Army’s fleet of 47 Airbus-built MRH-90 Taipan helicopters.

The request has been made as part of a provisional assessment process designed to inform a prospective purchase.

Representatives from Sikorsky Australia – a subsidiary of Lockheed Martin – have informed Minister for Defence Peter Dutton during preliminary discussions that a handful of Black Hawk helicopters could be available over the coming year, with the remaining helicopters potentially delivered by 2026.  

This came amid ongoing concerns over the troubled MRH-90 Taipan fleet, currently in service as Army’s utility aircraft.

The Taipan fleet, originally scheduled to operate until 2037, has not met contracted availability requirements in light of a series of technical shortcomings, and has exceeded operational cost expectations.

Switching to Black Hawks is expected to save the Commonwealth government $2.5 billion, with acquisition and sustainment costs estimated to total $7 billion between 2022-37, compared with the $9.5 billion required to sustain the Taipans.  

“The performance of the MRH-90 Taipan has been an ongoing and well-documented concern for Defence and there has been a significant effort at great expense to try to remediate those issues,” Minister for Defence Peter Dutton said following the announcement.

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“It is critically important there is a safe, reliable and capable utility helicopter available for our service men and women into the future, with reasonable and predictable operating costs.”

The news came just two months after the US State Department greenlit the Commonwealth government’s request to purchase an additional 12 MH-60R Multi-Mission (Seahawk) helicopters, also built by Sikorsky.

The deal, expected to cost an estimated US$985 million ($1.3 billion), will take the total size of the fleet to 36.

The bolstered Seahawk order was also considered as a response to issues associated with operating the Taipan fleet.  

Defence’s decision to prematurely retire the Taipan fleet has largely been welcomed, with many claiming the move was long overdue.

So, what prompted the government to pull the trigger now?  

According to Marcus Hellyer, ASPI’s senior analyst for defence economics and capability, the Taipan decision was an indirect response to the Chinese threat.

Hellyer notes that neither the MRH-90 nor the Black Hawk would have a deterrent effect like the AUKUS-driven push to develop nuclear-powered submarines, but the switch could “impart a sense of urgency” to Defence’s “lethargic acquisition system”.

He points to Minister Dutton’s commitment to hold industry to account for failing to achieve project objectives.

“The MRH-90 project has been going since 2004 and still hasn’t delivered what it was meant to,” Hellyer writes.

“The days when projects could noodle along because we had all the time in the world are gone.”

The ASPI analyst adds that the decision also reflects a greater tolerance for the political consequences associated with scrapping a multibillion-dollar program, given the heightened threat environment.

“[The] new strategic climate means there’s more willingness to accept the poor optics of retiring a $3.5 billion investment early — just as the government was willing to accept what will likely be a sunk cost of more than $3 billion once all is said and done in the cancelled Attack Class program,” he continues.

Further, Hellyer claims Defence can now afford the higher upfront procurement costs associated with ordering the Black Hawks, given it’s “suddenly rich in cash” as a result of the budgeted increase in Defence funding.

“A key reason that the government and Defence hadn’t replaced the MRH-90 is that, even though there would have been long-term savings through the lower operating cost of the Black Hawk, there would have been a big short-term acquisition cost,” he observes.

“…Buying a replacement for the MRH-90 would have meant deferring or cancelling another priority. And with Defence’s acquisition program historically oversubscribed, that would have had a ripple effect of further delays on other programs.

“Now Defence has the opposite problem: it’s got too much cash.”

Hellyer estimates that as a result of the increase in funding and COVID-induced disruptions to the supply chain, Defence underspent its acquisition budget by $1 billion last year.

“That’s likely to occur again this year, with further increases built into the budget and the pandemic lingering,” he adds.

The scrapping of Naval Group’s Attack Class contract is also expected to generate short-term savings of approximately $1 billion this year alone.

Hellyer also delves into the potential implications of the decision to switch to Black Hawks on the local defence industry.

He suggests the Commonwealth government may be tweaking its procurement strategy in favour of a more pragmatic approach, which places less emphasis on local arms manufacturing and sustainment.   

“I don’t think it means the government is walking away from Australian defence industry, but its sense of urgency is shifting its policy,” he writes.

“Since the Coalition was elected in 2013, the industry pendulum has swung from the ‘Abbottist’ view that the defence budget is not an industry support program and we should go to the global market for capability to an unstated policy that everything that can be done in Australia will be done in Australia.

“The pendulum is swinging back a little.”

He continues: “The Howard government’s original decision to buy the MRH-90 went against Defence’s preference for the Black Hawk and was made due to the jobs involved in local assembly.

“But it’s been another case that shows that assembling systems designed overseas with largely overseas components doesn’t necessarily deliver better capability or make the system any easier to sustain.”

The ramp up in Chinese aggression, he adds, has also prompted a reassessment of the procurement strategy.

“Hopefully, we’ll reach that happy middle ground where the government will support Australian defence industry when it makes sense to do so but continue to buy off the shelf overseas when there’s the need and the opportunity to acquire capability quickly,” he states.

“It’s possible that the Black Hawk decision will be the first of several in which Defence puts its embarrassment of riches to use in making some rapid off-the-shelf purchases overseas. And as we all know, the real money for local industry comes through sustaining those systems for the decades they’re in service.”

Hellyer concludes by noting that while it may be tempting to maintain the MRH-90 Taipan fleet for disaster relief or bushfire responses, the “siren song must be avoided”.

“The MRH-90 has been costing $35,000 per hour to operate. Last financial year that ballooned to $50,000 and it was probably the final straw,” he says.

“Even if that could be halved by stripping out military capabilities, it would still be orders of magnitude more than a civilian firefighting or emergency services helicopter.

“Despite the sunk cost, trying to repurpose the MRH-90 will merely extend the drain on resources. We’ve made the decision; walk away, don’t look back.”

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