Monday, 26 January 2015

The Kawasaki P-1

Some of the latest small talk ahead of the 2015 SDSR (post upcoming) is that the UK might consider purchasing the Kawasaki P-1 Maritime Patrol Aircraft (MPA) from Japan. The Japanese have not long since removed their self-imposed ban on defence exports which would now allow them to sell the P-1 to countries like the UK. And boy does the UK need a new MPA aircraft.

But while the potential of such a purchase has garnered a lot of attention and speculation (and as yet nothing even approaching a public suggestion of interest from the MoD) it also faces a number of issues. The P-1 is so far exclusive to Japan. It has no other orders on the books. Therefore the support infrastructure would exist only in Japan at the start and unlike the Boeing P-8 Poseidon there would not be a global customer base to defray purchase and support costs, not least because the engines are bespoke to the aircraft.

Of course that could change. Kawasaki wants to use the P-1 as the basis for a regional airliner to compete with the likes of Boeing and Airbus, and if that happened then some support costs for the P-1 would fall. There is also the potential for the P-1 to become an export success in its own right, but who would take that first leap of faith and become the first export customer? The UK maybe?

Well I'm a big fan of the philosophy of "you scratch my back, I'll scratch yours". You do something for me, I'll do something for you. And I think just such an opportunity exists with the P-1. Clearly for the Japanese any additional P-1 sales to a foreign customer are a bonus in their own right, but if one country were to take that first leap then it could potentially ease the concerns of others and make the P-1 seem like a more viable option on the global market. And of course we need a brand new MPA.

So why not propose a deal? Start by agreeing a fair and normal price for an order of P-1s, but then add a little twist, either; 1) the Japanese subsidise part of the cost of the UK's purchase, a subsidy that would be paid back in instalments in the future if the P-1 doesn't hit off on the international market, or 2) the UK pays the full price up front, but any future orders by another nation trigger "thank you" payments to the UK for being the first foreign customer, up to a fixed cap.

That way the Japanese only lose out on the deal if other countries follow the UK's lead, but even that is obviously a win for the Japanese. And the UK either ends up paying a fair price for the P-1, which is fine, or it ends up getting a great deal in exchange for having paved the way as the first foreign customer. You scratch my back, I scratch yours.

Or we could just do the normal running for the MoD and pay over the odds...


  1. "Or we could just do the normal running for the MoD and pay over the odds..." - Chris I agree, however I think this plays on a much wider issue which sits outwith of MOD and firmly in Department for Business, Innovation and Skills; the need for a long term UK BIS strategy which is pan-department and is supportive of UK Defence Industrial Base.

    I can only shudder as I think of EU Offset regulations and the impact that has on the "home team", when compared say to "buy American" and wider offset in the emerging Defence markets of SE Asia, particularly S.Korea.

    Maybe it is time for Uncle Vince to capture first mover advantage in what appears to be a buyers market with Japan, and negotiate the lucrative offset deal which UK DIB companies normally find themselves on the recieving end of when selling overseas?

    1. Hello Scott, Thanks for stopping bye,

      I agree wholeheartedly. It always seems incredibly odd that the various chunks of the government don't work closer together on these issue. When you look at the approach some governments take to try and blend defence import/export sales in with their wider economic aims, tax breaks, jobs programmes and the like, it does make me a little green with envy.

  2. Hi Chris,

    Dies the "thank you payments" have any precedents? It's the first I've heard of it, not being from a business background.

    1. It's not the normal phrase you would use. I prefer the term because it accurately sums up what is happening in the deal. A more typical term would be "Conditional Payments" or "Conditional offset payments".

  3. Better and less odd would be "tit for tat" - they buy something big from the UK in return (ASTOR maybe?) and both sides depend on the other enough so retaliation is possible if one side inflates the support costs for the other.
    This would also compensate for the fact that arms purchases at home yield 40-60% returns (taxes etc.), whereas purchases abroad don't. Offset deals approx. cancel this out.

    I don't think economies of scale in themselves are a good enough reason to not buy a system. If that was true, why would anybody ever develop a new military system in the UK for the UK? Where are the economies of scale in RN ship classes with but a half dozen copies per class? They certainly aren't greater than in an aircraft built in the dozens.

  4. Hello S O,

    The economies issue is very dependent on just how big of a saving can really be generated.

    Am offsets deal would work, but Japan is a highly advanced economy and politics (and profit) might not allow that. I think the tempting bait of being a first export customer winning a high profile order would be the best way to secure a nice deal.