Washington offers the F-16V on leasing to establish itself in Thailand

The United States is increasing initiatives to try to place its F-16V or F-16 Block 70/72 fighter in the Pacific. After the Philippines, it is today to Thailand that Washington and Lockheed Martin have sent an offer relating to the ultimate version of the American single-engine fighter, to assert itself in the effort to modernize the fighter fleet of the forces Royal Thai Air Force.

For the Biden administration, it is a question of placing the F-16V in the face of Chinese and European offers, and thus maintaining military and technological proximity with this historic ally, exemplary during the Cold War, but getting closer to Beijing since a twenty years, in an Indo-Pacific theater of operation in which the country occupies a strategic position.

To attract Bangkok, the American offer is adorned with a contractual aspect which had not been observed for a long time across the Atlantic, concerning exports of American defense equipment. Indeed, Washington offers not to sell, but to lease its new fighters to Thailand, what is more in relatively small batches of only a few aircraft, meeting Thai budgetary challenges, while strengthening the link thus created, with this strategic ally in a theater which is just as strategic.

Thai Air Force upset over US refusal to sell F-35A

It must be said that the American offer was at a severe disadvantage, compared to other Chinese and European alternatives. Indeed, a little over two years ago, the Chief of Staff of the Thai Air Force, Air Chief Marshal Napadej Dhupatemiya, announced that he favored the purchase of F-35A over that of JAS 39 Gripen, to replace its F-5 and F-16, as part of the modernization of the Thai air forces.

US Air Force F-35A
Washington refused to export the F-35A to Thailand in the short term, judging Bangkok too close to Beijing to grant this authorization.

However, the statement was surprising. The Thai chief of staff affirmed, thus, that the F-35A was more economical than the Swedish plane, although already in service in the Thai fighter fleet, which is more than questionable, whatever the point of view. chosen view.

Above all, Bangkok has moved closer, over the last two decades, to Beijing, to equip its armies, by acquiring Type S26T submarines, LPD Type 071E, frigates and OPVs for the Royal Thai Navy, and VT-4 tanks, VN-1 APCs and artillery systems, acquired from the Chinese defense industry.

As could be expected, the American authorities were more than reluctant to sell the precious F-35A, to a long-time ally, certainly, but one which has shown a real dynamic of rapprochement with China . For a long time, Washington tried to convince Bangkok to turn to another model, such as the F-15EX or the F-16V.

Faced with Thai insistence, the United States finally had to officially reject the request for the acquisition of F-35As for the Royal Thai Air Force, just a year ago, causing great disappointment and some anger. on the part of Bangkok which believed, not without reason, to have largely deserved American confidence, through its exemplary loyalty, particularly during the Vietnam War and the Cold War.

The United States is offering the F-16V accompanied by a leasing offer to Thailand to win against the Swedish JAS 39 Gripen.

Beijing immediately seizes the opportunity offered by the American refusal, by proposing, just a few days later, an extended strategic partnership in Bangkok, including concerning the acquisition of sensitive Chinese military equipment.

JAS 39 Gripen Thai Air Force
The Thai air force employs a squadron of JAs 39 Gripen C/Ds, and could turn to the Swedish aircraft to replace the thirty or so aging F-5s.

The Swedish Saab also took advantage of the American refusal, and the Thai reaction of self-esteem, to return to the game with the Gripen. It is true that until the surprising statements of Air Marshal Napadej Dhupatemiya, it was the Swedish aircraft which was considered the favorite to modernize the Thai fighter fleet.

Washington therefore had to be inventive in trying to seduce and appease the Thai authorities, without giving in on the F-35A, in any case, in the short or medium term. To achieve this, the United States transmitted a rare offer on its part, based on an F-16V leasing solution for the Thai air force.

In doing so, they hope to meet Thai expectations, especially since this offer is designed to have a reduced minimum level of commitments, with batches of only 4 to 5 devices, and significant technology transfer commitments, to ensure maintenance of fighters with the greatest possible autonomy.

The offer was conveyed by the US ambassador to Thailand, Robert Frank Godec, directly to Defense Minister Sutin Klungsang. However, he declared that he was surprised by the interest rates proposed, considered very high, although the details of the American offer remained confidential.

Export leasing of combat aircraft and ships, an attractive solution for many armed forces

There is no guarantee that the American F-16V leasing offer is sufficiently attractive, in the eyes of Bangkok, to gain the advantage over that of Saab and Stockholm, which we know is particularly convincing, including on the budgetary aspect.

JAS 39 Griipen Leasing Czech Republic
The Czech Republic, like Hungary, leased their JAS 39 Gripen from Stockholm, allowing them to modernize their air forces ten to fifteen years ahead of their neighbors.

However, the fact that Washington has turned to this financing model, to support an offer to export defense equipment, is, in itself, very interesting. The United States made extensive use of this model during the Second World War, and especially at the start of the Cold War.

It was then a question of allowing the allies to equip and modernize their armed forces, to face the Soviet threat, while they were, for the most part, heavily weakened by the consequences of the Second World War. Thus, for almost three decades, a large part of Western military fleets was made up of ships leased, later purchased, from US Navy surpluses. The same was true for the fighter and transport fleets of the air forces.

From the 60s, while European and Asian countries returned to strong growth and efficient economies, American export offers evolved towards traditional sales, sometimes accompanied by financing solutions. Thus was born Foreign Military Sales, or FMS, which allows the allies of the United States to purchase American military equipment by attaching themselves to contracts with the US armies.

Since then, however, the financial situation of many Western states, traditional or potential clients of the US defense industry, has evolved significantly, in particular with sovereign debts which have sometimes increased considerably, no longer allowing these countries to subscribe to defense offers. traditional financing.

This is where leasing provides an effective solution. Indeed, in this case, the country only has to pay the scheduled annuities, without having to take out a debt for the total value of the equipment. In other words, leasing makes it possible to avoid increasing the sovereign debt, but also to linearize expenditure on the State budget, therefore reducing the impact on public deficits.

S26T Thailand
The acquisition of Chinese ships, such as the S26T submarines derived from the Type 39A, by Bangkok, acted as a pushback for Washington, regarding the export of F-35A.

In a context of globalized economies and sovereign debts financed above all on the markets, leasing is therefore particularly attractive. This is especially true since it is most often only accompanied by a limited commitment over time, for example, 15 years for fighter planes, making it possible to plan a swap of equipment, and not have to finance developments and modernizations of rented equipment.

Obviously, the Leasing offer has certain disadvantages. The most obvious concerns the offerer, who risks finding himself, after fifteen years, with combat planes or frigates, which will have to be re-rented or resold on the second-hand market.

This explains why leasing offers in the field of military equipment are made by States, and not by private companies, for whom such risks require insurance that is almost impossible to take out, or at dissuasive prices.

In addition, Leasing often turns out to be more expensive than state credit, while lower in terms of interest rates. Finally, it creates a permanent reinforced link with the country carrying the offer.

However, when articulated effectively, leasing manages to seduce. This is how the Swedish Gripen was selected by Hungary and the Czech Republic in the 90s, countries which otherwise would have had to extend their warplanes inherited from the Warsaw Pact by ten or twenty years. years, as did many Eastern European countries.

France poorly equipped for this type of export leasing offers

While there are more and more countries facing severe budgetary constraints and having to modernize their armies, particularly after the Covid crisis, the attraction of offers to export military equipment built on a leasing solution, could grow significantly in the years to come.

FREMM-aquitaine
In 2018, Athens insisted strongly on France to rent two FREMM Aquitaine-class frigates, to face Turkish military pressure in the Aegean Sea. However, France has never been able to grant this request.

France, the world's second largest arms exporter, could however have great difficulty aligning itself with such offers, when made by countries like Sweden, Germany, South Korea or the United States.

Indeed, conceptually, the leasing offer is based on a transfer of sovereign debts, from the “lessee” country, to the country “owner” of the equipment. However, France is in a budgetary situation just as deteriorated as these countries for which leasing is proving to be an attractive solution. The United States can rely on the power of the Dollar to compensate for its public deficits in this area.

Moreover, France has long struggled to support its export offerings with financing solutions, particularly towards countries that do not offer smooth profiles, such as Greece, Belgium or Egypt.

In fact, the competitors of the French defense industry, in Europe with Germany and Sweden, in Asia with South Korea, as well as China and the United States, could well have, in the relatively short term, very convincing offers, against which the quality and even the prices of French defense equipment are not enough to convince.

Leopard 2A-RC 3.0 by KNDS Deutschland
German public finances would allow Berlin to offer a very effective leasing mechanism to support its defense equipment export offers.

The solution, for France, could be to rely on an ad hoc private public company, financed by its own channels integrating defense companies, the call to the market or savings, with the guarantee of the state , and designed to carry this type of offer to support French export offers in this area, or even in certain other strategic areas, such as rail or energy.

This would, of course, be a structure comparable to that mentioned in a previous article describing the Defense Base model. Moreover, it is perfectly possible that the two companies become one, to carry out simultaneously, and on the same financing and management channels, the rental offers intended for the French armies and international customers of the industry national defense.

Conclusion

In any case, the American offer transmitted to Thailand, built on a Leasing solution, marks a significant evolution in the perception of the expectations of the global arms market, by the United States, the leading exporter of the planet, by far, in this market.

Nothing assures Washington of success in Bangkok, especially since the Swedish offer, which it is facing, is also attractive, including on a budgetary level, and it is probable that Thai resentment against the United States, following the refusal to export F-35As, remains alive and well.

However, this offer invites Europeans, and more particularly the French, to anticipate developments in the world market, or part of it, to turn to this model, better suited to their own budgetary situations. It remains to be seen whether this evidence will be perceived by the French authorities, or whether they will remain attached to the traditional model, with the risks that this represents for the future of its defense industry exports?

[Armelse]

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