Air2030: Contracts in place for F-35A and Patriot
Bern, 26.11.2021 - armasuisse has agreed contract terms with the US government for the purchase of the F-35A fighter aircraft and the Patriot longer-range ground-based air defence system. Assuming an exchange rate of CHF 0.95 to the US dollar, this results in guarantee credits of CHF 6.035 billion for the aircraft and CHF 1.987 billion for the air defence system. This is less than the anticipated financial cost. The planning decision on procuring the fighter aircraft, which has been approved by Swiss voters, allows for a financial cost of CHF 6.3 billion, taking into account inflation forecasts up to 2031 and anticipated payments.
On 30 June 2021, the Federal Council decided to purchase 36 F-35A fighter aircraft from Lockheed-Martin and five Patriot fire units from Raytheon. It will request Parliament to approve the guarantee credits in the 2022 Armed Forces Dispatch. Since this decision was taken, the procurement contracts with the US government have been finalised. Known as letters of offer and acceptance (LOAs), these are initially signed by one party, i.e. by the USA. As soon as Switzerland also signs the LOAs, they come into effect.
Payment schedules as a basis for drawing up the guarantee credits
As soon as the LOAs are signed, the payment schedules also become available. In addition, the DDPS and the Federal Finance Administration (FFA) have updated the inflation forecasts. This has made it possible to calculate the guarantee credits.
The prices offered are in US dollars until delivery. An exchange rate of CHF 0.95 to the US dollar was assumed for calculating the guarantee credits. This assumption has remained unchanged since the June 2021 evaluation report. The rate has been calculated conservatively as things currently stand. Depending on how the rate develops, the Federal Council may apply a different rate in the Armed Forces Dispatch. The Federal Council usually hedges the exchange rate after the parliamentary decision has been taken, thus limiting the currency risk.
F-35A: Potential financial cost undercut
On 27 September 2020, Swiss voters approved a budget of CHF 6 billion for the fighter aircraft in the planning decision. This amount is based on the national consumer price index from January 2018. Based on current forecasts for inflation up to 2031 and the payments envisaged, the maximum financial cost is CHF 6.3 billion.
The anticipated financial cost will be less: calculations currently indicate that a guarantee credit of CHF 6.035 billion will be required for the 36 F-35A fighter aircraft. This covers the following items:
• CHF 3.828 billion for the 36 F-35A aircraft
• CHF 1.927 billion for the logistics package, including ground material, replacement material, documentation, training, and technical support from the manufacturer during the rollout
• CHF 107 million for ammunition
• CHF 86 million for training, mission planning and evaluation systems
• CHF 82 million to cover potential technical risks: the F-35As are being purchased with the same configuration as used by other countries, and the manufacturer will produce the aircraft applying the same standards and procedures as used for over 3,000 aircraft. This means that the risk premium is expected to be low in comparison with other procurement projects.
• CHF 5 million for the assumed inflation level. A low figure can also be used for inflation, as inflation only affects that part of the transaction involving direct orders in Switzerland, i.e. to RUAG.
Patriot: Guarantee credit of CHF 1.987 billion
The US government has also submitted the contracts for the Patriot longer-range ground-based air defence system. They are subject to the same conditions as those for the F-35A. The Patriot procurement is currently expected to cost CHF 1.987 billion.
An exchange rate of CHF 0.95 to the US dollar has again been assumed. The risks are comparable to those of the aircraft procurement.
Offset transactions: CHF 4.2 billion to return to Switzerland
The two procurements result in offset transactions worth CHF 4.2 billion. The aircraft manufacturer has agreed offset transactions worth CHF 2.9 billion, around CHF 1 billion of which will be direct offsets, i.e. orders placed by the foreign manufacturer with Swiss companies in connection with the aircraft procurement. In addition, the manufacturer of the ground-based air defence system has agreed to CHF 1.3 billion in offsets, including CHF 260 million in direct offsets. The offset commitments must be met no later than four years after delivery. No offsets arise in relation to value-added tax, the risk surcharge or direct federal government contracts with Swiss companies.
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