Eurofighter Typhoon Negotiations Bang Goes The Poker Game!

The loudest noise in European defence circles in mid-September was that of continental industrialists and defence politicians rubbing their hands together with glee. The reason? In one fell swoop, a few comments made under pressure in testimony by UK Secretary of State for Defence, Geoff Hoon to the House of Commons Defence Select Committee, fatally weakened London's negotiating position [sic] over the Eurofighter Typhoon Tranche Two, and work beyond that.

In effect, even before the nitty-gritty of Tranche Two negotiations have commenced, the UK has already shown its hand by laying practically all of its cards on the table. So the next time a gathering of European defence ministers want an after-dinner card game they will probably plump for poker, for if Mr Hoon plays the game the same way that he plans negotiations then the others will clean up!

The Hoon bean-spilling resulted from questioning on what appeared to be a mis-match between stated numbers of fast jet pilots and the number of combat aircraft the UK plans to buy or operate over the next decade.

The number of pilots is 225, while the aircraft figure is over 500. As the Financial Times pointed out in a comic aside, one for each pilot for the day job and one for relaxing in at the weekend, with a few to spare!

In his answers, Mr Hoon – correctly – stated that, "We do not have a contract for the third tranche of Typhoon." But his reply was part of a series of exchanges in which he added that the UK is not obliged to buy the third and final Typhoon tranche. This was clearly put as: "The position in future, we will have to deal with as and when, for example, we decide or not to acquire the third tranche of Typhoon . . . ."

These were the "fatal" mistakes. The Hoon remarks have been lapped up by the UK's European partners and will almost certainly be used in the upcoming Tranche Two negotiations, which have already dragged on for way too long. Mr Hoon did add a phrase or two about the UK's dedication to 232 Typhoons, which he actually referred to as an "ambition" not as a "commitment" – a surprising choice of word.

But, crucially, the earlier Hoon comments have been wellnoted on the Continent. And much as sharks smell blood from a long distance and home in on it, so the UK's partners in Typhoon have scented a weak British position over the programme – a position that they will exploit ruthlessly.

Hoon's words exemplify the danger of using one language to address the home audience and another for overseas consumption. There was, on this occasion, a mixed message from the UK's topmost defence official, and the ultimate communication is that the UK has problems over its Typhoon obligations. Just days before the Defence Committee session, continental loins were girded for the new Tranche Two negotiations campaign season.

Although the "official" line is that there is until the year's end before a deal must be signed and a production gap ensues, with penalty clauses becoming enforced, the German and – especially – the Italian positions have hardened. Talk now is that contract signature is really required within a month or so and inkwells are being opened in Europe's capitals for firm and uncompromising ("extremely robust" is the way one European puts it) letters to be written to the UK.

Their tone will reflect the comments of a senior EADS executive prior to the Farnborough air show: "Three nations did their sums and one didn't." But stress will be increasingly laid on the agreed penalty clauses that can – and will – be enforced if the UK does not move rapidly forward with a Tranche Two contract signing.

There is a blend of relish and determination in the way that the other three partners are looking to hold London's feet to the fire. Relish in that the seeds of the situation were sown by the UK itself, by the drawing up of a watertight contract in the first place. Relish too in that the frequently de haut en bas manner in which the UK is perceived to have treated the other three countries over many aspects of the Typhoon programme has come back to haunt it. And determination that London will not be able to evade its responsibilities, and to ensure that German, Italian and Spanish industry will not suffer from ostensible British budgeting errors.

The continental trio's feelings of justification for their stance are supported also by their belief that they have bent over backwards to compromise on Tranche Two timings and specifications. Berlin had to find tens of millions of additional Euros to fund new, brought-forward Tranche Two features, even though this was counter to German budget plans. Madrid and Rome also had to find further unanticipated funding. And Germany provided Litening pods for integration on late-batch Tranche One aircraft to permit use of Enhanced Paveway, a weapon unique to the Royal Air Force.

All of this has led the three to ask, "What more can be reasonably expected of us? What more without getting the next tranche underway?" If it transpires that if there is dissent over early integration of Storm Shadow with Typhoon, then they will dig their heels in. As one involved has told Defence Analysis, "If the UK wants early Storm Shadow integration, then London can find the aircraft to do the work, find space in the development and test programme for it, and London can pay for it – we won't".

A Fuss About Little

At the heart of the issue is the UK's commitment to Typhoon, especially the last tranche, is a simple fact, namely that no decision needs to be taken on Tranche Three for at least five years. There is little, if any, mileage to be made from making statements about Tranche Three today, when nothing needs to be decided for quite some time. In fact, there is a great deal to gain from declaring openly, "The UK is totally committed to buying all three tranches of Typhoon, a total of 232 aircraft".

For come 2008-10 when negotiations on production of the aircraft come to pass, the situation is bound to be very different. Does anyone believe, with the budget squeezes in both Germany and Italy, as well as Italy's awesome over-commitment to practically every programme under the sun, that they will be in a position to commit and find cash for all the Tranche Three aircraft that they have "committed" to?

Of course not. And even if those countries declare a formal commitment to buying all of their stated offtakes, will they not look to stretching it out over a longer period, a move that will require either negotiation or payment of penalties? Almost certainly.

So, all four nations will be sitting round a table trying to reach a group decision on the way forward for the final Typhoon Tranche. And if this truly is a four-nation process, then no-one will have to pay penalties and all countries' desires will be satisfied.

And a final thought. Desperation can lead to irrational judgments, often with an associated desire to lash out wildly. There have been suggestions – some pretty harebrained suggestions – that the UK, faced with the bind that it is in over Typhoon, could simply renounce the programme and walk away from it, either from the final Tranche or the whole thing. Those who propose this, apart from forgetting that the UK government has signed a solemn and binding contract, choose to ignore the other potential implications of such a rash move.

If London can simply rip a contract up and say "to hell with it!" then what would stop Germany, Italy or Spain doing similarly on contracts that other UK firms have signed with their governments? What of AgustaWestland's deal for Lynx upgrades in Germany? What of hundreds of millions, even billions, of pounds-worth of other defence trade with those nations? And what if retaliation took non-defence businesses into account? Just think of the odour that the UK would be held in as a result. No-one would come near Britain for defence deals for years – perhaps decades – to come.

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