Airstrike force's future up in the air

By AUDREY YOUNG

The Coalition Government is refusing to guarantee New Zealand's future airstrike force - and the Treasury has already carried out work on savings to be made if it is scrapped.

Prime Minister Helen Clark says the option has "obvious attractions fiscally."

The Treasury work is contained in its report on F-16 fighter aircraft released yesterday by Helen Clark after the cabinet cancelled the lease-to-buy deal with the United States.

The 28 strike aircraft were to replace 19 ageing A4 Skyhawk light-attack jets, which began service in NZ 30 years ago.

The Treasury has gone a step further, estimating how much NZ would save by abandoning all air-combat capability, including the F-16 deal and the Skyhawks.

It puts the savings at $140 million a year in operating costs.

The operating savings would be made in terminating the F-16 lease, disposing of the Skyhawks, disposing of a base, which the Treasury says would probably be Whenuapai, although nearby Hobsonville is also a strong candidate.

The principal F-16 report, by former Act MP Derek Quigley, said the lease-to buy deal was a "a good one" even at an expanded price of $1 billion over 10 years. He recommended that the Government renegotiate with the US for a smaller number of F-16s, and suggested 14.

"The possibility of acquiring a smaller number of F-16s should be explored to maintain expertise and to preserve an operational capability that may need to be expanded should strategic circumstances deteriorate significantly at some point in the future," he said.

But Helen Clark said that acquiring a smaller number pre-empted the decision on whether New Zealand should retain an air-combat capability.

"The arrangements offered to New Zealand by the United States were, by any measure, good ones - but the mere existence of a bargain at a sale is not a reason for buying it."

Whether to retain an air-combat capability would be considered in the official defence review now under way.

Helen Clark said the decision did not have to be made for several years but she spoke positively about it. "There are obvious attractions fiscally for making a decision to dispense with it, given that the annual cost of the Skyhawks comes somewhere close to 10 per cent of the defence budget.

"When you look at that expenditure for a small level of planes and then look at the vast amount of work the Defence Force does in other areas, you would be silly not to question whether or not you should continue making that commitment.

"But it is very much an open question."

She said Mr Quigley's recommendation had been based on the assumption that New Zealand would maintain a balanced defence force, but that decision had not been made.

Mr Quigley's report said: "The abandonment of the air-combat capability would be a fundamental departure from existing policy and would have major implications on a Defence Force-wide basis. There would also be diplomatic issues involved."

When National signed the F-16 deal last year, there was no question that New Zealand would not retain an air-combat capability.

The Skyhawks had been due to be replaced from 2007 to 2011 under the 10-year defence capital plan, which was updated in a 1997 defence assessment leading to a white paper.

It also contained a 20-year capital plan with 45 major projects outlined.

Mr Quigley said the Defence Force was now in "a parlous fiscal position."

The capital expenditure requirement over the next 10 years was more than $5 billion, contrasting with a 20-year estimate in the defence assessment of $4.4 billion.

Upgrading Army communications, acquiring new armoured vehicles, buying new light operation vehicles and upgrading the Air Force's Orions were expected to require an extra capital injection over the next two to three years.

If the option to buy the F-16s had been exercised, the 10-year deal would have cost more than $1 billion - $300 million more than the most recent estimates.

Officials estimated that cancelling the F-16 deal would free $154 million for other projects.

The Treasury report said the defence capital plan "is not now affordable" within the funding that was set aside.

And it suggested that it did not trust figures the Ministry of Defence and the Defence Force provided around the capital plan.

Some of the budget pressures were within the control of the Government agencies and some were not.

Factors that contributed to the pressures included inflation, put at between 3 and 8 per cent on military equipment and not accounted for in the defence capital plan; expansion of projects; failure to implement the 1998 defence real estate review, with an estimated $150 million in savings; and currency fluctuations.

The 1997 capital plan was based on an exchange rate of $NZ1 to US69c. Mr Quigley said that by late 1998, the cost of the 20-year capital estimate had increased from $4.4 billion to $5.6 billion, primarily because of exchange rate movement.