Thursday, January 29, 2009

US Army Continues to Implement Taiwan PATRIOT Contract

This title would be more appropriate than the sensational media reporting that is making a routine US Army announcement much more than it really is. Admittedly, the Foreign Military Sales (FMS) process can be complicated, but it can be learned. Most important to know is that approval of Taiwan's price and availability (P&A) requests, which implies a US approval to release a system, and forwarding of Congressional notifications, which clears the way for a government-to-government contract, are the critical decision points. The Taipei Times, my favorite Taiwan paper, has one report that is worth comments:

Raytheon Welcomes PAC-3 Deal

(COMMENT: PAC-3 is a missile. There hasn't been a PAC-3 deal yet because there hasn't been a letter of offer and acceptance (LOA) signed between U.S. and Taiwan government authorities that addresses the sale of PAC-3 missiles. Besides, from a business perspective, Raytheon should only be concerned about the ground systems needed to support the PAC-3 missile, and not the PAC-3 itself. The missile is a Lockheed product, with a Boeing seeker and Aerojet motor.

By William Lowther


Thursday, Jan 29, 2009, Page 2

“Upgrading Patriot fire units from Configuration-2 to Configuration-3 will provide Taiwan with enhanced system capabilities to meet current and emerging threats.”— Sanjay Kapoor, vice president for Patriot Programs at Raytheon

The US has approved a US$154 million contract to allow Raytheon Company to further upgrade Taiwan’s Patriot Air and Missile Defense System.

COMMENT: The real contract -- a letter of offer and acceptance (LOA) -- would between AIT and TECRO (on behalf of the Ministry of National Defense and the US Army) to upgrade Taiwan's existing three PATRIOT fire units to the latest US Army configuration. This particular contract worth US $154 million would be between the US Army and a contractor -- Raytheon -- for support in implementing the LOA. The November 2007 Congressional notification, which is the enabler for signing an LOA, indicated that the contract would be as much as US $939 million. In addition, it's interesting that the release appears to have been generated by Raytheon via PR Newswire, a service that corporations employ to get the message out to the public. As of yet, the original DoD contract award notification can't be found. The 26 January PR Newswire release came two days before Raytheon's 4th quarter earnings statement, in which executives had the unfortunate task of telling shareholders that earnings were down.

It is the first positive indication of how the administration of US President Barack Obama will handle military requests from Taipei. There had been fears that the new president might neglect Taiwanese defense as he pushed for better relations with China.

COMMENT: This is the part that is dangerous and needs to be corrected. Because this US Army contract award to Raytheon is only implementing a Bush administration policy decision that was made in November 2007, it is unlikely that the US Army would have felt it necessary to seek policy clearance from the new Obama administration for this specific contract. This is simply implementing an on-going program. Is there symbolism in every single DoD contract that is awarded to US industry to implement Taiwan-related programs? Probably. But only a few -- ones involving a Presidential-or at least Principal-level decision - are truly significant.

In short, this contract award is far from being a "positive indication" of how the new Obama administration will handle Taiwan's requests. That's because senior officials likely had no clue about it. And even they did, stopping it would have been not only a significant departure from established policy, but also an international legal dispute since an LOA has already been signed.

But the new contract has won White House support in the wake of a major policy paper from Beijing that said blocking formal Taiwanese independence and stopping US arms sales to Taiwan were the chief concerns of the Chinese military.

COMMENT: Won White House support in the wake of a major policy paper from Beijing? As noted above, the premise that there was "White House support" is flawed. And the linkage with China's annual defense white paper is probably even further afield. The US Army is just trying to do their job, and the contracting process probably started well before the Chinese White Paper came out.

The Patriot contract was issued by the US Army Aviation and Missile Command at Redstone Arsenal, Alabama, on Monday. It is not part of the US$6.5 billion arms sale to Taiwan that was approved by former US president George Bush last October.

COMMENT: Exactly.

Rather, it is a totally separate deal that follows two other awards Raytheon received last year for Taiwan Patriot support, one in March for upgrades and another in April for technical services.

COMMENT: At risk of confusing things, there is a relationship between the Congressional notification last October for the additional fire units and PAC-3 missiles, and these ground system upgrades. The upgrades, with a total potential value of almost US $1 billion, are necessary for the existing three fire units to be able to fire the PAC-3 missile. They do have some value on their own, such as expanding the range of the existing three radar systems, greater target discrimination, better communications, and maybe an interface with Link 16. Whether or not the upgrades are worth the $1 billion without the PAC-3 missile is another question. From a simple business perspective, hats off to Raytheon for pulling off the delinkage. Caveat emptor...

Under the new contract Raytheon will upgrade Taiwan’s Patriots from “Configuration-2” to “Configuration-3,” bringing them to the same state-of-the-art level as the US Army’s own Patriot system. This means that Taiwan can use Lockheed’s PAC-3 missiles and allows missile launchers to be placed miles in front of the radar that controls the system.


The upgraded Patriots are believed to be capable of intercepting and destroying many — if not most — incoming missiles fired in an enemy attack. But the Patriot is not foolproof and in the case of a large-scale attack involving dozens of enemy missiles all being fired at once at a variety of targets, some would be nearly certain to get through.

COMMENT: The first sentence is problematic. The radar upgrades themselves seem like they would only offer a marginal improvement -- even if that -- in the PAC-2 Guidance Enhanced Missile's ability to engage China's short and medium range ballistic missiles. Because of China's intense efforts over the last 15 years to develop missle defense countermeasures, it's not clear how effective the radar upgrades and even the PAC-3 missile would be against PRC ballistic missiles. These aren't SCUDs. The PATRIOT radar system can only handle so many missiles at once - it is said to have a relatively low saturation point. But if the PRC launched a small number of ballistic missiles against Taiwan at one time -- say five to 10 -- then a PATRIOT ground system and PAC-3 missiles should perform OK.

But when trying to counter a large scale salvo involving multi-axis strikes, a mix of low flying aircraft/UAVs and ballistic targets, HARPY anti-radiation missiles intended to kill the PATRIOT radar, jammers on board re-entry vehicles, maneuvering re-entry vehicles, and longer range ballistic missiles with a reentry speed that precludes the ability of PAC-3 to intercept them, then it becomes really hard. In short, the upgraded PATRIOT ground systems and the PAC-3 missiles, if and when a deal is ever reached, would offer an ability to defend against a limited number of Chinese short range ballistic missiles. And a limited strike, as part of a coercive campaign intended to achieve limited political objectives, is the most likely scenario for use of PRC ballistic missiles against Taiwan.

As part of the new contract Raytheon — the world’s largest missile maker — will provide upgrade kits for radar and command and control components, a radar refurbishment and related engineering and technical services.

Under last October’s arms sales agreement, Taiwan will get 330 of the Lockheed Martin built PAC-3 missiles valued at US$3.1 billion. Bonnie Glaser, a senior associate at the Washington-based Center for Strategic and International Studies, predicted earlier this month that cooperation between Beijing and Washington would not come at Taiwan’s expense. “The US will seek to create an environment in which Taiwan feels secure. Arms sales will remain under consideration, especially new fighter jets. China’s military posture toward Taiwan will be the critical variable in any arms sale decision, along with Taiwan’s requests for defensive weapons to defend itself against a Chinese attack,” she said. China has more than 1,400 missiles pointed at Taiwan and has said repeatedly that it would achieve unification by force if needed.

COMMENT: Again, there was no agreement last October. There was only a Bush administration notification to Congress outlining its intent to conclude an agreement with the Taiwan government. There is no indication that this agreement has been signed. In fact, there may be problems. The reduction in the number of missiles that the Bush administration decided to include at this point in time is said to have affected the unit cost associated with production of the missiles. And the haggling goes on. At this point, one could argue that Taiwan almost has to follow through with the PAC-3 missile procurement. It's already sunk almost $1 billion in laying the necessary groundwork (no pun intended).


Indeed, China’s latest national defense White Paper indicates that Taiwan remains the focus of China’s current military buildup.The Associated Press reported a few days ago that Beijing was keeping this year’s spending figures for its 2.3 million-strong armed forces secret. But last year China announced a military budget of US$59 billion, up nearly 18 percent over the previous year.It was the 18th year of double-digit growth in military spending in the last 19 years.


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