Buy or Build

fa18 sm.JPGIt keeps getting harder and more expensive to build modern weapons. The combination of cost and complexity drives companies from the market. The most noticeable effect has been on the emerging economies that tried to become arms producers. Brazil, India, Taiwan, Korea, Israel, Pakistan and South Africa all began major arms programs in the 1970s and 1980s. Even when there was substantial foreign assistance, these countries couldnt sustain their programs. A few decided to specialize in niche production, but none could bear the development costs of major next-generation systems. In those cases where they persevered, the systems they developed tended to be over-expensive, underpowered variants of modern weaponry. This is one reason why all of these countries were also attracted to WMD - its cheaper and easier to build. In the West, shrinking budgets, cost and complexity drove defense industrial consolidation.Making weapons systems requires experience, databases, and integration skills that cant be acquired quickly. Today, only the U.S., Russia and Europe can make a full range of advanced weapons. This is particularly true for combat aircraft, which brings us to India. India was a Soviet client for decades when it came to arms purchases (Britain sold them used aircraft carriers). India is now in the market for a new fighter and, in a shift, is looking at Western sources. With a planned purchase of 126 aircraft, this is one the last big deals out there. The contenders include Boeings F/A-18, Lockheeds F-16, the Eurofighter and Dassaults Rafaele. The Russians will probably offer the SU-30M. All are good planes.Boeing has upped the ante by also offering to coproduce the F/A-18 in India with HAL, Indias big government-owned aerospace firm. Coproduction does not lower the cost for the acquirer. The planes built at the foreign facility are usually more expensive. The hope is that some of the integration skills and experience will rub off onto indigenous programs. When the U.S. and Japan began co-production of fighter aircraft in the 1980s, there were shrieks from protectionists that we were teaching the Japanese how to swallow the aerospace industry, they would soon move over into commercial aircraft, etc. None of this happened, nor is it likely to happen with India. The F/A-18 is a great aircraft, but it entered service in 1981 (the last one, much improved, was built twenty years later).The trend in the global arms industry is to downsize and consolidate. Few countries can afford to sustain modern arms industries, but if India (or China) commits to spend billions of dollars for at least a decade, it could enter the small club of countries able to produce modern combat aircraft. For now its cheaper (and better) to buy than to build.Posted by Jim Lewis

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