Military Transport Market Grows

The military transport market underwent a major change in 2003. For decades, European countries have failed to spend more than token funds on dedicated military lift. But in May, Europe's Occar (Organisation Conjoint de Cooperation en matiere d'Armement) arms agency signed the firm procurement contract launching production of the Airbus Military Co.'s A400M.

The contract calls for a total of 180 aircraft to be delivered to the launch customers as follows: Belgium, 7 planes; France, 50; Germany, 60; Luxembourg, 1; Spain, 27; Turkey, 10; U.K., 25. The intriguing aspect of these healthy numbers is that none of the signatories, except for the U.K., have ever operated a transport in this class before. Most have relied on C-130s, or smaller dedicated military lifters and tiny numbers of converted civilian jetliners.

The contract followed final German Parliament approval for that country's purchase. The schedule calls for a 77-month, single-phase development and production program. First flight is scheduled for September 2007 with first deliveries in 2009 and full operating capability around 2010.

While the A400M program spent many years in limbo, the requirement for this plane has been greatly increased by political change. The strategic rift between the U.S. and Europe, worsened by tensions arising from the second Iraq war, highlighted Europe's need for military self-sufficiency. If the continent's leading powers, especially France and Germany, want to create a multinational superpower independent of the U.S., they need a rapidly deployable out-of-area force projection capability. This translates to a requirement for airlift.

Purchasing U.S. aircraft off-the-shelf would be difficult; the high price tag would result in few taxpayer-pleasing local economic benefits. The only remaining alternative for the Europeans, therefore, is the A400M.

Airbus maintains that A400M unit cost will be around $80 million but the scope of the project and preliminary budget numbers indicate unit costs could rise to the $120-130 million range. The C-130J, a considerably less capable plane, sells for $67 million, which includes little in the way of development cost amortization (A400M pricing includes this). Therefore, while the A400M program is nominally valued at 15.3 billion euros ($17.5 billion), the reality is likely to be in excess of $22 billion.

Not content with their domestic market, in March 2003, Airbus and French industry officials indicated that four countries--Australia, Canada, Norway and Sweden--were each studying purchases of 6-10 A400Ms. Yet like the partner countries, none of these A400M export target markets have any experience with aircraft in this class. The international market for military airlift is small. Deliveries of dedicated military lifters to countries outside the U.S. and the old Soviet Union have never exceeded $900 million annually, excluding the RAF's C-17 lease. The military airlift market's dismal historical performance then casts doubt on any plan to enlarge the A400M's order book.

Assuming the A400M goes ahead as planned, the result is one of the biggest market transformations in aerospace history, with the top line of this segment growing from a 1984-2000 average of $700 million per year to a post-2003 annual average of $2.5 billion.

THE U.S. MARKET: CONTINUED STRENGTH