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- $930 million for 6 Apaches is just the maximum possible price that US Congress had to pass.
Actual cost to India would be much lesser.
CHARGES OF WRONGDOING :
Washington’s June 12 notification to the US Congress informing it that the US government is proceeding with the sale of six Apache attack helicopters to India for an estimated $930 million has evoked allegations of wrongdoing.
Noting that this amounts to $150 million for each Boeing AH-64E Apache helicopter, National Herald wrote that Israel paid less for
its F-35A fifth-generation fighters. Observing that the price “seems outlandish”, the newspaper wrote: “In 2017, Boeing and the US Army signed a $3.4 billion contract for 268 AH-64E Apache helicopters at a unit cost of about $13 million per chopper, albeit remanufactured with a few newly built.”
On June 13, activist Prashant Bhushan tweeted: “Modi government to buy 6 Apache 64E helicopters for 930M$ (Rs 1, 000 cr each). US army bought 35 of the same helicopters 3 yrs ago for 691M$ (Rs 120 cr each). Modi pays 8 times market price and sends Rs 5,000 cr of our money down the drain! Kickbacks?”
A keener investigation of these allegations around the Apache purchase shows that the uproar stems from a lack of understanding of the way America processes foreign arms sales.
Such sales fall under two main categories:
1. Foreign Military Sales (FMS):
In the foreign military sales (FMS) category, the US Department of Defense (the Pentagon) acts on behalf of the customer (India), negotiating costs with the US vendor (Boeing), usually benchmarked at the price the vendor last sold the equipment to the US military. Very often, the foreign customer gets the equipment cheaper than the US military did since the production line would have been amortized (initial cost is written off) earlier.
For impending Foreign Military Sales, the Defense Security Cooperation Agency (DSCA) — a branch of the US State Department — must notify Congress, giving the legislature the opportunity to question the sale.
2. Direct Commercial Sale (DCS):
The second category is direct commercial sales (DCS), in which the foreign customer (India) negotiates directly with the US vendor company (Boeing), with the permission of the US government. No Congressional notification is required for this.
A CASE OF APACHE :
The case of the AH-64E Apache is a particularly complicated one: the basic helicopters, including the airframe, is a DCS (Direct Commercial Sale), which New Delhi has negotiated directly with Boeing. However, the engines, fire control systems and radars, key avionics and weapons and missiles are being brought under FMS (Foreign Military Sales).
The DSCA’s (Defence Security Co-operation Agency’s) notification to the US Congress, therefore, relates to only half the Apache helicopter — the parts that come under FMS (Foreign Military Sales).
That should make the $930 million estimations for six helicopters even more outrageous, because it relates to only the FMS portion of the Apache — effectively, just half the helicopter.
In fact, the figure the DSCA puts forward in the Congressional notification is seldom what the international customer pays. Instead, it is the most expansive of estimates, which one US official describes as the “not to exceed” cost of the equipment being cleared. The eventual contract price, which the customer signs with the Pentagon, is almost invariably lower.
Interestingly, the customer often pays less than even the contract price. The Pentagon monitors the cost at which the equipment is manufactured, driving down prices continually to keep its industry efficient. The customer eventually pays a “cost plus” price, which is very often less than the contracted price.
EXAMPLE OF EARLIER PURCHASE OF 22 APACHES :
There are numerous examples of this. In 2010, the DSCA notified Congress about the sale to India of 22 AH-64D Apache helicopters (only the FMS portion) for $1.4 billion. In 2015, when the contract was finally signed, India paid only $900 million for the FMS portion of the contract. With the DCS portion contracted for an additional $900 million, the entire sale cost India $1.8 billion — or $80 million per Apache, inclusive of large stocks of weapons and missiles.
Once all 22 Apaches are delivered, India might end up paying less than that.
EXAMPLE OF 10 C-17 Globemaster III :
Similarly, the DSCA notified the US Congress about the sale to India of 10 C-17 Globemaster III transport aircraft for $5.8 billion. Eventually, India paid $4.1 billion for those aircraft.
MIS-judgment BY National Herald :
The complexity of the data about prices paid by other buyers — especially by the US government — sometimes causes misapprehensions that India has paid a higher cost.
For example, the National Herald data — that the US government bought 268 Apaches in 2017 for $3.4 billion, or less than $13 million each — glosses over the fact that 244 of those helicopters were “remanufactured”. That means they were overhauled and upgraded earlier model Apaches.
Last August, India’s defense ministry cleared the purchase of six additional Apaches for an indicative price of Rs 41.68 billion, which Washington notified the US Congress as a $930 million sale. But that too is a “not to exceed” estimation, which also includes a large amount of weaponry and training equipment. Once India signs the contract for these helicopters, a more exact figure will be available.