US news. A few days ago The Daily Caller, an American publication, posted an article quite interesting for investors by analytical observer George Landrith - 'Defense insanity: U.S. military is dependent on Russian pilots and planes'. This opus, which drew a powerful response in US and European media and has been represented by its author as kind of a voice crying in the wilderness, looks more like an advertising article intended to support not only its national defense complex but also individual sectors of American aircraft building and, as such, draw the focus of investors. As it happens most of the time, the main argument George Landrith uses to wake up consciousness and common sense in his President Obama, is patriotism.
What, in the opinion of the American journalist, poses a problem?
• the U.S. military doesn’t have enough Boeing C-17 airlifters. This is why it has to hire foreigners, in particular, the Russians, to deliver supplies to their troops in Iraq and Afghanistan;
• the deficit of airlifters that the US Army so badly needs will only continue to grow because each year the existing aircraft gets older. But, instead of increasing production of 'indispensable' C-17, the Obama administration plans to cease their use;
• instead, the government plans to hire Russian aircraft AN-124 piloted by Russians to deliver military supplies. This will allegedly cost the budget much less;
In this regard, George Landrith mentions a few figures, obviously in an attempt to arouse righteous anger in the American reader:
- he writes that the Russian-made and piloted transport AN-124 cost taxpayers $47,000 an hour to operate in 2007, for a total of $840 million in FY 2007-08. That money could have procured four more C-17s which, in the opinion of the author, could be hardly matched;
By the end of 2010 the Americans had paid the Russians more than $2 billion leasing foreign aircraft to deliver military supplies. And $2 billion would purchase about eight 'unsurpassed' C-17s that would serve the US Army and Navy for 40-50 years.
What does the American journalist accuse its government of?
As analysts of the Land Association of the US and
Canada
within the , by giving up military transportation to foreigners, the US government, in the observer's opinion, makes several gross mistakes:
1. in this event, American forces are placed at significantly greater risk because the potential enemy (in this case, the Russians) gets important information about their location, numbers, military technology and equipment.
2. There can be a situation when they may not be able to hire foreign powers. This is why it is simply stupid to depend on them.
3. Lease of foreign transport will cost taxpayers more than building our own aircraft.
4. America will lose more high-tech aerospace jobs to other nations.
In addition, the article includes information of purely advertising nature. It lists numerous and 'unique' capacities of American aircraft C-17 and makes a general conclusion that today it is the 'most universal and powerful transport in the world'. Naturally, this is a call to American investors and the government whom George Landrith warns that soon there may be a day when '...we become aware that our military might is comparable to that of a third-world nation simply because we will not be able to quickly and efficiently supply our troops with U.S. airlift assets'.
Should investors seriously treat concerns of The Daily Caller's observer?
It seems, after reading the article by George Landrith, the average American should be worried (wow, we could be overtaken by the Russians?!) and the Russians, on the contrary, should simply rejoice (it appears the states cannot manage without us - it means soon they will fall apart!). How true is this repeated proof of how 'stupid' and 'weak' the Americans are?
1. Firstly, the author of the article overstated the figures a little. If we proceed from the assumption that Russians were paid 840 million dollars for two years of work at 47,000 dollars an hour of flight, it appears that in 2007-2008 aircraft AN-124 should have been an average of 4 hours a day in the air (without holidays and days off). Even there had been several of them and they had taken turns, this is still very much. Obviously, the lease of Russian Ruslans cost the US treasury much cheaper.
2. Secondly, it is always much cheaper to use somebody's aircraft than to buy and use (including repairs, modernization and risk) your own. This is a fundamental economic truth. If the Americans used the 840 millions they paid the Russians for two years to build their own four C-17s, their operation (plus training and salaries of pilots, maintenance personnel, fuel, repairs, provision of airdromes) would have cost a comparable amount.
3. Thirdly, the Americans are actively manufacturing military transport C-17. However, they are mainly exported. In late 2010 Boeing executed a contract with New Delhi (India) for delivery of 10 military transport C-17. The total price of the contract is 4.5 bn. dollars. It appears that the Americans get 450 mln. dollars for one plane while George Landrith claims its production costs about 200-250 mln. dollars. What's the point of leaving them for their own military if a foreign nation is prepared to maintain them literally for chickenfeed?
4. Especially given that the Russians themselves act likewise by selling China and India the best samples of its military equipment while the RF has mainly outdated units within its armory the only difference being that foreigners are unlikely to transport military supplies for Russians.
5. Russia also has quite a few problems with AN-124. In early 2000s their production was suspended as it was recognized unprofitable and the aircraft found unpromising. It was only in 2009 that the RF President Dmitry Medvedev instructed its government to purchase 20 AN-124 by 2020 for the needs of the Russian military:
• about 17 billion rubles will be required to implement this program. In order to shift part of the cost on the US, Russians already made Washington a proposal regarding joint production of an improved transport Ruslan based on Boeing. So far, Americans have not given a specific answer but it is clear now that this will cost them less that production of C-17. In addition, half of the work will be performed at air plants in the US and, as a result, create jobs for the country's citizens. There are quite a few 'buts', including claims the Americans have to the quality of AN-124, peculiar features of notorious Russian business. Other than that, they are quite happy with the current situation with simple lease of Russian aircraft.
However, everything taken into account, there are certain vibrations on this matter both in the White House and Pentagon. George Landrith's article can serve as indirect proof of this.
The Editor's Office of Market Leader and experts of the Masterforex-V Trading Academy hold a survey at the traders' forum: In your opinion, does the US government save money on everything, even on defense?
• yes, the crisis in American economy is much deeper than it seems;
• no, the Americans simply don't like to pay where they can avoid this.
