HELLENIC AEROSPACE INDUSTRY (HAI) S.A., Aithon Narlis*: HELLENIC ARMED FORCES MODERNIZATION CHALLENGE: MAKING THE IMPOSSIBLE POSSIBLE
After 8 years of continuous austerity Hellenic Armed Forces need to face challenging decisions if they want to continue operating efficiently in order to preserve peace, stability and prosperity in the East Mediterranean. For these reasons the Hellenic Armed Forces and particularly the Hellenic Navy and the Hellenic Air Force must continue to preserve their deterrence capability before Turkey, a rogue state which started challenging the superiority of the Hellenic Armed Forces after more than 20 years of continuous armament acquisition program and massive local development and production of weapon system.
Basically what Turkey wants is to rebuild the Ottoman Empire by occupying progressively those territories which had lost during the XIXth and the beginning of the XXth century. That has become more imperative as the possibility of exploiting energy resources from the sea turned to be a realistic potential. That, beside any geopolitical influence, brings also wealth, something which has triggered the “looting DNA” of the Turkish / Neo Ottoman leadership, a tradition they seemingly carry until today from their Ottoman ancestors, from which all the nations who had lived under the Ottoman rule had suffered a lot. That is not a fantasy but a conclusion, which must awaken Greece’s leadership, Europe and the US, from the fact of the recently disclosed maps by the Turkish Ministry of Defense about the EEZs they are considering as rightfully theirs . Moreover retired Colonel Ümit Yalım who was TMoD’s former Secretary General has recently published a paper with a map claiming that that 3/4 of the Crete Island and the surrounding rocks and islets and Gavdos Island belong to Turkey [2 - 4].
Undoubtedly wherever Turkey sees potential wealth she is ready to loot it by claiming the relevant territory or rights, by advancing whatever incredible and unbelievable argument, unless the balance of power does not weight in her favor, since the only language Turkey obviously understands is the language of power. To deter Turkey’s expansionism, adventurism and recklessly playing with the fire, Greece needs to undergo an extensive military modernization program which is seemingly unrealistic under the budgetary restrictions of today. However one shall not forget that at the end Greece’s territorial integrity and the freedom a part of Greek population is in stake, which must be of highest priority.
Greece and Turkey have pursued so far different acquisition policies. Greece continued to procure as recipient country while Turkey progressively converted from a recipient country to an almost a self-sustained in defense equipment manufacturing and supplier country with successful exports. Turkey has succeeded in that by following a very consistent long term policy in terms of acquiring technology and assuring local production and local development in critical building blocks, by binding the foreign suppliers with such contractual obligations in any international procurement. The most important structural reform in sustaining successfully that policy was the Turkish Government’s decision in conceding the majority of the shares of the state owned defense industries to the Turkish Armed Forces Foundation, and make their military staff to have financial interest in supporting and keeping wealthy their own industries. By this the Turkish government also reduced drastically the corruption cases usually referred to the famous “bahshish’.
Recently Fabrice Wolf, a former Pilot of the Aéronavale, has published a series of papers [5 - 7] in demonstrating the real possibilities in reducing the nominal cost for the acquisition of the Belhara frigates from the Hellenic Navy and similarly the cost for the acquisition of advance air systems by the Armee de l’ Air and l’ Aeronavale. In both cases the concept Wolf was proposing is that the French state can subsidize the acquisition cost since this subsidy will be paid back by the incomes to the treasury through taxes generated by jobs which will be created in the development and production phases. Following F. Wolf, such subsidy will bring a discount of almost 50% in the acquisition price. The same reasoning applies to the Greek case, if Greece participates in the European common development and co-production projects.
Greece had already participated in the development and production of the nEUROn UCAV. Greece’s only aerospace industry, the state owned Hellenic Aerospace Industry (HAI), has designed and manufactured nEUROn’s exhaust assembly, the surrounding aft fuselage assembly, and finally the vehicle monitoring system and the avionics test rig. Thru this activity the company has developed unique skills, knowhow and technology which will bring added value to Europe’s new aircraft projects, those which F. Wolf calls UCAV-1G (as the nEUROn’s operational offspring), SCAF-6G (alias FCAS, a piloted 6th generation aircraft along with the UCAV-1G, which are under discussions between Dassault Aviation and Airbus) and MALE-RPAS.
The case of the MALE – RPAS:
The MALE-RPAS is a medium altitude long endurance UAV project under study and France, Germany, Italy and Spain have already signed an agreement. Being the most mature project, it will be probably the first to enter in service, in 3034, if the negotiations result to a happy end and therefore it will be also the first to be considered as a case study in the analysis, in order to investigate what would be the acquisition cost for Greece for 10 aircraft.
F. Wolf in  estimates the value of the aircraft to 85M€. If Greece wants to buy 10 aircraft she will need to pay 850M€ between 2034 and 2044 during the aircraft’s production period, let’s say 85M€ per year.
However considering that France’s needs are for 50 aircraft (following F. Wolf, 40 for Armee de l’ Air and 10 for l’ Aeronavale) and assuming that Germany, Italy and Spain need 40 aircraft then the total production will raise to 100 aircraft, including those aircraft needed by Greece. Therefore in the case that Greece decides to participate to the project instead of a direct purchase, and accordingly to finance the 10% of the development cost, thus 500M€ (=10% of the estimated 5,000M€ R&D cost as given by F. Wolf), then the country would need to pay 1,350M€. It will be demonstrated in the following paragraphs that interestingly though the real cost for Greece will be only 686M€ for the period of design and production of the aircraft (2026 – 2044), significantly lower than the cost of a direct purchase, because Greece’s participation will create jobs and these jobs will bring a total estimated income of 664M€ to the Greek treasury thru taxes, imposts and savings of unemployment allowances.
The estimated costs and schedule for MALE – RPAS as given by F. Wolf are: 5,000M€ for development in a period of 9 years (2026 – 2034) and a 10 years long production period, 2034 – 2044, which will bring an income of 8.500M€ to the industry for a sale batch of 100 aircraft. Greece participating by 10% in the project she will need to pay:
55.5M€/year for the design and development of the aircraft for the first 9 years and 85M€/year for purchasing 10 aircraft for the next 10 years, a total amount of 1,350M€.
The Greek aerospace industry will get therefore contract of an amount of 55,5M€/year for the design and development for the first 9 years and contracts of an amount of 85M€/year for manufacturing the 10% of the 100 aircraft, during the next 10 years.
The investment to the defense industry will create 1667 jobs for the first 9 years and 2550 jobs for the last 10 years. Greek defense industry is not a large sector to have statistical data, however considering that being less competitive than the European average where every job generates an average income of 100.000€, it is fair to expect that each 1M€ of investment to the Greek aerospace and defense sector will create 12 jobs (direct employment positions to the aerospace industry with an income per employee in the order of 83,000€) and these 12 jobs will open 6 additional positions to the subcontractors (indirect employment). Finally these 18 positions will bring 12 additional positions to the auxiliary sectors of the economy, mainly consumption and services like transport. Therefore each 1M€ of investment will create 30 jobs, so 55,5M€ x 30 = 1665 jobs and 85M€ x 30 = 2550 jobs.
The average wage in Greece is 1,200€/month = 16,800€/y year (14 months) and each job creates an average income to the state of 11,000€ in terms of taxes, imposts, AVT and employer’s share. Therefore for the first 9 years the 1667 employees will return to the state treasury 1667 x 11,000€ = 18.3M€/y and for the second period of 10 years the 2550 employees will return 2550 x 11,000€ = 28M€/y. Additionally the industry will get 8% profit from yearly investment and contracts from which they will pay to the state the 15% as enterprise profit tax, thus 0.6M€/y and 1.020M€/y for the periods of 9 years and 10 years respectively. Finally and most important the jobs will remove from the unemployment pool equal number of people who receive actually unemployment allowances of 5,040€/y/person minimum for a period of one year. Therefore the state will save 5,000€/y for each job opening and by continuously keeping these people employed. Basically 1,000,000 of unemployed cost to the state 5,000N€/y. This equals a saving for the state of 8.4M€/y and 12.8M€/y for the periods of 9 years and 10 years respectively.
Following the above calculations the total income + savings for the state for the state is 9y x (18.3M€ + 0.6M€ + 8.4M€) + 10y x (28M€ + 1M€ + 12.8M€) = 9y x 27.3M€/y + 10y x 41.8M€/y ≈ 664M€. Therefore the real cost for Greek state to procure 10 aircraft is expected to be reduced to (500M€ of R&D investment + 850M€ acquisition payments) – 664M€ = 686M€ in a period of 19 years.
It has to be noted that the advantage for the Greek state is expected to be much higher for several other reasons which are difficult to be accounted in numbers:
The above calculation does not take into account the increased profit in the relevant sectors such as the consuming and transport which will bring additional profit tax to the national treasury from the companies of the supporting sector.
Greece loses every year young technicians and engineers and other professionals who immigrate seeking better jobs. Though the state and families have already invested for their education and training and the country does not profit from their productivity.
Other sectors which are initially considered to be independent to the defense industry will grow since everything is really interrelated. One of those is the construction sector which will push also the industry related to it (paints, cement, etc…). That will bring a raise in the land and housing values and will draw up the taxes.
The 10% of production of the total aircraft batch will be exported to the final integrator. The export among the other activities (consumption, private investment etc…) will have positive impact to the GDP.
Finally the geopolitical advantages are also difficult to account since increase of stability and security will draw up the overall economic activity.
The case of UCAV-1G
The UCAV-1G is the operational offspring of the nEUROn demonstrator project. Dassault Aviation and British Aerospace were under discussions some years ago to join the nEUROn and the British Taranis together into a common operational stealth UCAV. Though there are fog and doubts about the outcome regarding the Brexit and seemingly UK has decided to focus in partnership with Italy on its own future aircraft, the Tempest project, with a target to enter in service in 2035. In this regard it is fair to assume that the UK will invite also Turkey to participate in the project since UK is helping Turkey to develop her own stealth manned aircraft (the TAI TFX project). Therefore there is a real possibility that the Turkish aircraft project and the Tempest will probably join together at some point.
France at the other hand is working with Germany on another FCAS project where France brings the technology acquired throughout the nEUROn project and the Rafale and Germany brings the technology from the Eurofighter Typhoon. The Franco-German project will be a composition of manned aircraft and UCAVs and seemingly it will enter in service in the very late of the 2030s, perhaps in 2039.
Two things are worthy to be noted though: (a) The RAF has filled the gap between the Typhoon and the Tempest by acquiring the F-35 as BAe is a partner to the project. Equally if the US decides to allow the delivery of F-35s to Turkey, the Turkish Air Force will be equipped with F-35s while waiting for their new home built aircraft or what the Tempest will become. (b) France and Germany rely on the Rafale and Typhoon so far and they have no option to fill the gap since they have to wait 20 years for a new aircraft, and that if and only if everything goes as been planned. Under these circumstances the only option for Germany would be to acquire F-35s and fill the gap. So, questions will naturally arise what France will do about that.
The situation for Greece is similar to France’s. Hellenic Air Force is equipped with M2000 and F-16 aircraft. If Turkey persuades at the end the US to allow the F-35 aircraft to be delivered to TAF, despite the S-400 deal, then the HAF will face a very serious dilemma: Then HAF will need an aircraft which will counter and eventually outmatch the superiority that F-35 brings to TAF. Greece cannot wait for more than 20 years for the FCAS to enter in service. Therefore if she will not find a viable interim solution she will need to fill her needs with the F-35s to only gain some balance of power since F-35s cannot be countered by F-35s. Yet this decision will be a political suicide for the government, because the acquisition of the F-35 from Greece, with Turkey partnering in the project, it will be equivalent to funding the Turkish defense industry with the money of the Greek taxpayer and in turn to feed further the Turkish expansionism, aggressiveness and bellicosity, unless other countermeasures will be proposed from the US side. It will be also a geopolitical suicide for Greece because of obvious reasons.
The only alternative for Greece right now comes from the UCAV-1G project because despite being bonded right now to the Franco-German FCAS project it can be developed in a parallel path and generate an operational system in 2027. This could supply the HAF with an aircraft capable to deter Turkey against any hostile action or invasion they plan against Greece and Cyprus because it is a suitable vector for conducting powerful punitive actions.
If such an option comes to be true then Greece would like very much to participate, at least that would be a rational decision, because beyond the military and geopolitical advantages, she would like also to safeguard the intellectual property and to take profit of the added value generated from her participation in the demonstrator phase. The restraining force in this case is the budgetary constraints for one more time.
The defense valorization doctrine as named by F. Wolf applies to this particular case as well. Not been aware of the needs from other potential recipient countries, only France’s and Greece’s needs will be taken into account for this purpose, thus 175 total aircraft, 40 for the Hellenic Air Force (2 squadrons) and 135 for France .
F. Wolf has predicted the schedule of the UCAV-1G program in two phases, R&D phase for a duration of 7 years (2020-2026) and production for a duration of 10 years (2026-2035). The estimated R&D cost is 7,000M€ and the cost of the aircraft 75M€. Therefore taking into account a procurement decision of 40 aircraft from Greece, that will cost to the state 3,000M€ for a period of 10 years or 300M€/y. At the other hand if Greece responds positively to an invitation from France to participate into the program by funding the 10% of the R&D cost then the total payments for Greece will raise to 3,700M€ for a period of 17 years. These costs are out of the reach for the nation’s economy as she is today. A more careful consideration though will show that things are not so desperate as they seem at first place since the participation to the program will bring money to the treasury and therefore lower the total program cost for Greece down to only 2,710M€. This is a “discount” of 27% over the total program and a cost 9% lower than the cost of a direct purchase.
If Greece participates in the UCAV-1G program for 10% she will need to pay 100M€/y for the first 7 years and 300M€ for the last 10 years for purchasing 40 aircraft, which result to the following calculations:
The Greek aerospace industry will get contracts of an amount of 100M€/year for the design and development for the first 7 years and contracts of an amount of 131M€/year for manufacturing the 10% of the batch of 175 aircraft, during the next 10 years.
The investment to the defense industry will create 3000 jobs for the first 7 years and 3930 jobs for the last 10 years, considering again that every 1M€ of investment to the Greek aerospace sector will create30 jobs, thus 12 jobs (direct employment positions to the aerospace industry) and these 12 jobs will open 6 additional positions to the subcontractors (indirect employment). Finally these 18 positions will bring 12 additional positions to the auxiliary sectors of the economy, mainly consumption and services like transport.
For the first 7 years the 3000 employees will return to the state treasury 3000 x 11,000€ = 33M€/y and for the second period of 10 years the 3930 employees will return 3930 x 11,000€ = 43.23M€/y. Additionally the industry will get 8% profit from yearly investment and contracts from which they will pay to the state the 15% as enterprise profit tax, thus 1.2M€/y and 1.6M€/y for the periods of 7 years and 10 years respectively. Finally and most important the jobs will remove from the unemployment pool equal number of people who receive unemployment allowances of 5,040€/y/person minimum for a period of one year and continuously keeping then employed. This equals a saving for the state of 15M€/y and 19.65M€/y for the periods of 7 years and 10 years respectively.
Following the above calculations the total income + savings for the state for the state is 7y x (33M€ + 1.2M€ + 15M€) + 10y x (43.23M€ + 1.6M€ + 19.65M€) = 7y x 49.2M€/y + 10y x 64.5M€/y ≈ 990M€. Therefore the real cost for Greek state to procure 40 UCAV-1G aircraft is expected to be reduced to (700M€ of R&D investment + 3,000M€ acquisition payments) – 990M€ = 2,710M€ in a period of 17 years.
It has to be noted that the above calculations didn’t take into account the aircraft which will probably be sold to Italy, Spain and Sweden if these countries decide to participate. A second scenario would be that the three countries purchase a total of 100 aircraft. Then the total aircraft to be produced would raise to 275. In this case the total income and savings for the Greek state will increase to 1,360M€ and lower the program cost for Greece down to (700M€ of R&D investment + 3,000M€ acquisition payments) – 1,360M€ = 2,340M€.
The FoS (Follow on Support) cost for Greece has not been taken into account. Yet, considering the involvement of the local industry for the maintenance, repairs and mid-life updates of the Greek aircraft and also at some percentage of the aircraft of our partners in the programs it is fair to consider that this cost will be covered by great extent by the incomes to the state this activity will generate.
The above calculations do not take into account the increased profits in the relevant sectors such as the consuming and transport which will bring additional profit tax from the companies of the supporting sector. Also other sectors which initially are considered independent to the defense industry will grow since everything is really interrelated. One of those is the construction sector which will push also the industry related to it (paints, cement, etc…). That will bring a raise in the land and housing values and will draw up the taxes. Moreover the 10% of the production of the total aircraft batch will be exported to the final integrator. The exports among the other activities (consumption, private investment etc…) will have positive impact to the GDP.
Greece loses every year young technicians and engineers and other professionals who immigrate seeking better jobs. Though the state and families have already invested for their education and training and the country does not profit from their productivity. That will progressively change, though it is difficult to calculate the positive impact. The medium and long term impacts of the technology to the Greek economy and competitiveness, although certainly positive after 8 years and beyond, have not been taken into account, neither the psychological impact to the economy overall.
Finally the geopolitical advantages are also difficult to account since increase of stability and security will draw up the overall economic activity.
This article aims to show that the modernization of the Hellenic Air Force is a complex operational, political and economic puzzle involving the developments in Europe about the common development of production of aircraft, along with Greece’s participation itself in the EU. Certainly if Turkey wasn’t the regional bully and was behaving like any European country, then the situation would be much more different. Unfortunately though Greece has to live in this particular neighborhood and spend huge amount of money to defend herself from being territorially and geopolitically mutilated in the foreseen future. The participation in international projects which aim to the development and co-production of defense systems is the only way to significantly reduce the acquisition cost and convert the purchase of defense equipment to an investment which will bring economic growth and create important employment opportunities.
At the end what seems to be an impossible task at first place, the modernization of the Hellenic Air Force, can only be possible and affordable by substituting the policy of direct purchases of weapon systems with the systematic participation to the European common development and production of defense systems.
* Electronics Engineer - Avionics at Hellenic Aerospace Industry