Sunday, June 3, 2018

Ron Mark needs to open up NZDF

A recent front page story in the Dominion Post by Andrea Vance [] pointing out that the NZDF had used the NH90 combat transport helicopters to take foreign brass to dinner seems to have so far failed to embarrass New Zealand’s minor defence empire.

One reason for this appears to be that it seems to be reciprocating treatment its own brass have enjoyed overseas in other defence empires. The other is the way the NZDF is, with the connivance of New Zealand First Party Defence Minister Ron Mark, succeeding in its battle with the truth by its obscuring costs. The figure Vance uses for the cost of the helicopter rides is ridiculously low.

Over the past two years the NZDF’s appropriations in the Budget has become increasingly obscure. The purpose of the budget is to illuminate government spending to the public but in budget 2018 the coalition government seems to be plumbing new depths in avoiding departmental accountability.

Consider this drivel (p60, []):

The appropriation increased by $29.541 million to $839.757 million for 2018/19. This increase between 2017/18 and 2018/19 relates to:
  • increased funding of $28.188 million as a result of the Defence White Paper 2016 funding decisions for the introduction into service of new capabilities that enhance and maintain the delivery of outputs 
  • increased funding of $3.613 million in Capital Charge as a result of the revaluation of assets, and 
  • increased funding of $143,000 due to a reduced contribution towards the share of costs for Budget 2015 whole-of-government initiative 
That’s the explanation for increasing a budget activity code 28-fold from 29 million to 839 million. It doesn’t even pretend to add up and its deliberately clear as mud.

Considering that Ron Mark has had a long record of criticizing the NZDF’s expenditure while in opposition you might think that as a new Minister he might actually try to get some daylight into NZDFs nonsense budget. Is he following a long line of Ministers into meek submission to the Defence Force’s game of hoodwinking the public?

Because if you can’t change an aspect of government by voting you really don’t live in a democracy. Increasingly the NZDF is doing its level best to not to defend democracy as it claims but erode it. How can any politician campaign to change aspects of their portfolio if they don’t get clear information about them? How can the public demand change from politicians if information about what a department is doing is obscure nonsense?

Take for example Vance’s column about helicopter rides for the brass.

The article claims that the cost of operating the NH90 helicopter is $1,182 an hour. This is utter crap. That figure is the marginal consummable cost per hour. It is not the operating cost. A marginal consummable cost is the cost of the fuel, pilot, machine oil etc . It’s like saying the cost of operating a car is the cost of the petrol and oil consumed in an hour of extra driving.

But that is not how you calculate the cost of operating aircraft. For a start aircraft have a limited lifetime based on flying hours. After so many flying hours aircraft require maintenance. So the cost of operating an aircraft has to include the maintenance costs needed to keep the machine flying safely. In the Air Force’s case there is no garage down the road to take its NH90’s to. The Air Force is not just the flier of the aircraft it has to be its own garage as well. So the cost of operating the aircraft has to include the cost of operating the maintenance of the aircraft as well. This is not unusual. It is what any commercial helicopter operator has to do.

In addition to the maintenance costs of operations is the capital cost of operating the asset. If you buy a car you typically have finance costs and insurance costs as well. The government doesn’t borrow from the bank to buy defence kit nor will any insurer (in their right mind) insure an air force helicopter. Government takes money from trade in the economy to fund the things it does (taxation). So Governments charge a cost of capital on all departments including defence. The point of this is to ensure that capital expenditure is properly accounted for, just as it would be by any business that needed to buy a machine for production in a factory.

So what is the cost of operating the NH90?

According to this source [ ] the Swedes were paying just under thirty times more than Vance reported at $31,740 per hour to operate the NH90s, while the Finns (who bought their NH90s for a fraction of the price paid by New Zealand) were paying $25,000 per hour and have brought it down to $16,700 per hour.

This source [ ] claims the NH90 operating cost is US$24,000 $34,370 ( and points out the US blackhawk is a quarter of that). That figure is from Wikipedia (sourced originally from [] based on the Swedish high cabin NH90 model.

This article [ ] on Global Security says the Norwegian NH90s cost US$23,000 or $32,930 per hour.

However a large part of the operating cost comes down to the purchase price which has to amortised (plus capital charge) over the operational hours of the aircraft. The Finns bought their NH90s for $29 million each. We spent $96 million each on each operational NH90, more than three times more. So it should not be too surprising if our operating costs are considerably greater than that of the Finns.

When figures were more forthcoming from Treasury (in 2016) the total operating cost of No.3 Squadron which operates the NH90s and the A109M training helicopters was $229 million. No.3 squadron said “The Squadron is annually allocated approximately 1500 flying hours for the A109 and approximately 1700 flying hours for the NH90 to achieve the stated tasks". Assuming the NH90 costs four times the A109 (and that is very generous because the Swedes report their NH90s cost four times the Blackhawk UH-60 which is bigger than the A109) and you divide the total squadron operating cost by the flight hours you got an operating cost to taxpayers of $107,647 per flight hour for the NH90s and $30,000 a flight hour for the A109s.

On I contrast this with a private New Zealand helicopter firm (Helicopters New Zealand Global) that operates in Afghanistan for the US military (the RNZAF never flew in Afghanistan) and delivers 46,202 flight hours. It operated almost 40 choppers globally for a cost of $194m including provision for tax. So a private firm could deliver 14 times more operational flight hours for less cost and pay tax to help fund the Air Force. In short the Air Force is 14 times less efficient than a private company at delivering flight hours.

This is why every flight hour the NH90s spent delivering bigwigs to dinner matters. It isn’t a $100 per passenger ride as Vance suggested but closer to a $10,000 per passenger ride.

But without honest and open figures who would know what waste the Defence Force is perpetrating. If Minister Mark is even vaguely able to influence the Defence Force the one thing he should demand is open information. There is nothing militarily sensitive about the operating cost of defence equipment. Nobody is counting the dollars when the bullets start flying, but if there aren’t any bullets left because the brass spent it all on dinner that is something we, the owners of this government department should be able to find out.

The US Air Force Comptroller has released this table of costs [] so if the US can release operating costs so can New Zealand. Let’s see it!