The P-8 Decision: Why No Competition, Why No Dates, Why No Costs?

One of the more eye-catching commitments in the 2015 SDSR was the decision to buy nine Boeing P-8A Poseidon aircraft from the US without a formal competition, even though there were a significant number of potential bidders ready to offer innovative solutions to the maritime patrol capability gap. The (implicit) justification for the government’s decision was probably that the inclusion of a requirement to patrol for an extended period over the mid-Atlantic meant that the smaller aircraft on offer from Airbus, L.3 and Lockheed Martin could be excluded. The government also decided not to take further an offer from Japan to consider its Kawasaki P-1 specialist maritime patrol aircraft.

A second consideration might have been to avoid the time delays associated with a competition because of the perceived urgency of filling the capability gap involved. Yet the government did not provide dates for the delivery of the P-8. This is not easy to square with any sense of time pressure, but is compatible with the reality that the equipment budget for the next few years is extremely full.  Could not the Ministry of Defence have held a competition and reached a conclusion by the time that money actually would have been available?

It is also clear that much must have happened in the past few months, since in June a spokesman from Boeing described the situation in June 2015 as follows:

Although discussions with the UK Ministry of Defence are believed to be centered on an initial contract for six firm plus six options, Dodd [of Boeing] adds that Boeing’s involvement has so far been minimal. “We’ve never actually given them (the US Navy) a proposal. They know what they are paying and they know what it costs to support. They also understand the differences in configurations, so they haven’t been asking us for a lot of detailed price and cost data at this point,” he says.

The reference to the US Navy reflects anticipation of a foreign military sale in which the British government would buy through the US Government rather than from Boeing. The eagle-eyed might also wonder to what the reference to ‘differences in configurations’ refers.

In the SDSR, the government also did not give a cost estimate for this project, although it is understood already to have received prices from the US. Therefore, to gain some sense of what it will initially involve, there is a need to search for related information, particularly with what other customers (notably Australia) are paying.

The Australian experience suggests that the P-8 will prove to be a project costing the UK more than £2 billion for procurement, including initial support facilities.

US Department of Defense budget figures suggest that in 2013, 2014 and 2015, the US was spending just over $200 million per P-8A aircraft on procurement alone. The US Government Accountability Office’s final report on this project was in 2014 when it revealed that the US would buy 122 P-8A aircraft for a procurement cost of just over $25 billion, suggesting a unit price of $205.9 million.  However, the programme cost – the procurement plus research and development cost – was $34.37 billion, yielding a unit cost of $281.4 million. Thus a significant influence on the price the UK will be asked to pay may depend on the amount of its R&D outlay the US seeks to retrieve from the UK, as well as post 2014 US inflation rates.

Most significantly, when Australia bought eight P-8s in 2014, it was for (US) $3.6 billion according to the Australian government. This represented a unit cost of $450 million with support facilities included, and indicated the volume of expenditure associated with support and test equipment. Press reports indicate that the Australian price includes weapons (Harpoon missiles and torpedoes) and it is presumed that sonar buoys are also within the project.

Given that the UK will be buying its aircraft at least two years after Australia, some inflation should be taken into account: even an allowance of 2 per cent would add $9 million to the cost of each aircraft. Assuming that the UK’s extra (ninth) aircraft with a smaller allowance for support can be bought for just $300 million, that brings the programme cost to $3.97 billion.

This sum has to be turned into sterling, and the pound exchange rate with the dollar fluctuates considerably. Even since 2011 a dollar has cost as little as 58p and as much as 68p. Obviously, the government will be able to hedge to reduce uncertainty, but this range suggests that the P-8A programme will cost between £2.3 and £2.7 billion to become established.

The in-service support costs will be a more costly story: every platform is different but conventional wisdom in the US is that the in-service costs of a system over a life of about fifteen years are between two and three times the original purchase price: for the UK this looks like a through-life programme of at least £8 billion.

Professor Trevor Taylor
Professorial Research Fellow in the Defence, Industries and Society programme at RUSI.