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Australia’s Ill-Starred SH-2G Seasprite Project

23-Mar-2008 17:03 EDT

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SH-2G: rocky shoals
(click to view full)

In 1997, Australia signed an $A 667 million contract with Kaman to purchase 11 upgraded SH-2G (A) “Super Seasprites,” with modernized avionics. This compact helicopter design was thought to be well suited to operation from the RAN’s ANZAC Class frigates, and even from patrol boats with helicopter decks. The first helicopter was unveiled in 2003, but by 2005 up to 40 deficiencies had been identified including inability to operate in bad weather and low-light conditions, and inability to meet Australian airworthiness certification standards. Placing modern avionics into a 1960s airframe proved challenging indeed; the helicopters were restricted to “passenger and supply transport in good weather” in 2005, then grounded in May 2006.

The project is now 6 years behind schedule, costs have risen over 50% to $A 1.1 billion (currently about $900 million) for 11 helicopters, and the program is being used as a case study in the Australian Defence College’s leadership and ethics course. It’s estimated that at least $A 45 million more and 29 months of work would be required to make them serviceable, with full operational status unlikely until at least 2010. Other SH-2 operators include New Zealand (from its ANZAC frigates), Egypt, and Poland.

In 2007, Australia’s Liberal Party government elected to continue the Super Seasprite program – but their successor Labor government has reversed that decision, and come to an interesting agreement with Kaman…

  • The May 2007 Continuation
  • Super Seasprite: Issues and Dilemmas
  • Program Updates [updated]
  • Additional Readings & Sources

The May 2007 Continuation

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SH-2G (A) introduction
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DII-QV

Minister’s release, May 25/07:

“In April 2006, I initiated a full examination of the Seasprite project following grounding of the aircraft due to concerns over the reliability of the Seasprite’s Automated Flight Control System.

The review paid particular attention to the reliability of the Flight Control System and its associated safety implications; the ramifications to Naval aviation of the project being 6 years late; and the performance of the integrated sensor system.

The review examined how to resolve these issues so that the best possible capability can be provided to the Royal Australian Navy.

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SH-2G (A) flight trials
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After detailed consideration of the issues involved, the Government has decided to continue the Seasprite project, subject to satisfactory contract arrangements.

The return to flying will involve a series of controlled steps to assess the contractor’s performance, and to ensure the safety, performance and reliability of the Seasprite.

The Government will take steps to ensure that the contractor’s progress is measured against milestones during the course of the additional work.”

Super Seasprite: Issues and Dilemmas

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S-70 and HMAS Anzac
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This remains quite a good procurement case study, as it represents a difficult decision. On the one hand, the SH-2G-A program has racked up per-unit costs of over A$ 100 million, which would have been enough to buy and equip any new helicopter on the market. Worse, estimates required to get the Super Seaspites into service must, at this point, be considered mere estimates. Further unanticipated issues could easily lift those estimates higher still.

On the other hand, the NH90s Asutralia is buying for its Army and Navy are large naval helicopters that cost an average of A$ 60 million each, have required deck strengthening on other frigates, and may create space issues on the smaller ANZAC Class. Australia’s S-70 Seahawks also require more space than the SH-2Gs as they are about 10 ft/ 3m longer, but they are in current use on the ANZAC Class.

Which leaves one with a classic managerial sunk cost decision. Cancellation earlier in the program would almost certainly have been wise. That is not the question right now.

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AS565 Atlef & Saar 5
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The question is whether the Sea Sprites can be rendered serviceable and perform adequately in their role for less than the cost of buying/ refurbishing and equipping 11 naval helicopters that can perform to an acceptable standard. These alternatives may include larger NH90s, S-70s, et. al., Eurocopter’s smaller AS555 Fennec; or the AS565 Panthers used on Israeli Saar 5 corvettes, and even Chinese destroyers and frigates. Regardless of the comparison, however, the bottom line remains the bottom line. If proceeding with the SH-2G (A) has a strong likelihood of costing less than starting over with another platform, then the correct managerial decision is to ignore sunk costs and proceed on the basis of “least cost to meet requirements.”

Can the Sea Sprites can be rendered serviceable, and perform adequately in their role, for less than the alternatives? That is, of course, the question outstanding.

Program Updates

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SH-2G, flying off
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March 20/08: The government of Australia and Kaman Corp. announce an agreement re: cancellation of the Seasprite contract. Subject to US Government approval under defense technology export laws, Kaman will own the 11 SH-2G-A Super Seasprite helicopters, along with spare parts and associated equipment, for sale on the open market. The Australian Government and Kaman would share in the profits of subsequent sales on a 50/50 basis, with a guaranteed financial return of A$ 39.5 million/ $US 37 million. At least $25 million will be paid by March 2011, plus $6 million (US) each in 2012 and 2013.

Kaman will forego payment on approximately $35 million (US) in net unbilled receivables in exchange for the helicopters, spare parts and equipment, which will be recorded as inventory and is expected to exceed the amount of the net unbilled receivables and the guaranteed payments. The Australian government described it as A$ 30 million worth of spares that will be retained by Australia for use on the Seahawk and Black Hawk helicopter fleets.

The cancellation avoids A$ 150 million in planned spending on the Seasprite project. Australian government release | Kaman release.

March 5/08: Minister for Defence Joel Fitzgibbon announces the likely end of the program:

“In late 2007 the Rudd Labor Government initiated a review of the Seasprite helicopter project, in line with the promises made prior to the election. After careful consideration of all the issues involved, the Government has decided that it intends to cancel the project. Discussions will be commenced immediately with the contractor in relation to the legal and financial arrangements….

To ensure the Navy maintains an effective naval aviation capability, the Government has decided on two measures. First, our interim approach will focus on improving the operational availability of the current [S-70] Seahawk fleet. Second, the Government will investigate the planned replacement of the Seahawk during its [2008 Defence] White Paper deliberations.”

Sept 7/07: The New Zealand Seasprite program may have some issues of its own. The opposition National Party issued a release:

“These [NZ$] 326 million excl GST aircraft [DID: about $220 million] which have been in service for six years were touted by then Defence Minister Mark Burton, as being ‘a significant addition to our defence capability’. But in answers to parliamentary written questions, Defence Minister Phil Goff has admitted that only four of the five Seasprite are being flown regularly.

One has been inoperable – having clocked up zero flying hours – for more than two years because there are problems in obtaining spare parts to repair it following a hard landing. The Government must explain why repairs are taking so long.”

Additional Readings & Sources

  • Australian Minister of Defence Doorstop Interview (May 15/06) – Doorstop on Grounding of Sea Sprites. Includes Q&A. Dr. Brendan Nelson: “The Director of Naval Aviation has had no choice but to ground the helicopters until recent further software problems have been resolved. Late in March [2006] I specifically asked the Chief of Navy and the Chief of Defence to develop and provide me with all of the options that the government might consider: what is the way ahead; how can these problems be fixed; how certain can we be about making sure that the Super Seasprite is able to deliver what was promised by our contractors. Alternatively what modifications could we make to the program and at what cost, and what sort of capability might we get. And thirdly I have also… asked the Department of Defence to provide me with the option of the government considering removing itself completely from the Super Seasprite Program.”
  • Federal Australian Labor Party (May 15/06) – Super Seasprite Helicopters. This is Her Majesty’s Loyal Opposition party. In (20/20 hindsight): ”...this one was a bit of groundbreaking part because you had to put in modern electronic equipment into a very, very dated frame. There was always the possibility, if not the likelihood, of something going wrong. So to trade away your right to recover damages if there’s fault on the part of either the manufacturer or the supplier was a very, very big gamble.”
  • RAN Navy News (July 13/05) – Looking Spritely. RAN provisionally accepts the first SH-2G (A) helicopter.
  • Australian DoD (March 19/05) – Defence Statement: Super Seasprite Helicopters. Vigorously denies the SMH report. “The aircraft is currently undergoing a certification process before it can become fully operational. Defence expects to receive a certified helicopter later this year. Once accepted, the Super Seasprite will fulfil all of its planned roles including search and rescue operations in poor visibility. This is a normal and proper process…” Subsequent actions by the RAN indicate otherwise.