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Lifetime cost of over half of Japan Defense Ministry's critical items overshoots estimates

The Ministry of Defense is pictured in the Ichigaya area of Tokyo's Shinjuku Ward on March 16, 2019. (Mainichi/Kazuo Motohashi)

TOKYO -- Analysis of the lifetime cost of 26 items including aircraft and destroyers that the Ministry of Defense designates as critical equipment has shown that 14 of them ended up costing 20% more on average than the original estimate.

    The increases occurred mainly because of changes to specifications after contracts were signed, and also because of a lack of foresight in domestic development plans.

    The administration of Prime Minister Fumio Kishida is preparing for "drastic strengthening of defense capabilities" from fiscal 2023 onward as it remains wary of moves by China and North Korea, but before that happens, it appears there is a need to dissect the ballooning costs.

    The Ministry of Defense annually calculates the "life cycle cost" -- from development to management and disposal -- of 26 types of equipment, with the total standing at about 23 trillion yen (roughly $159 billion), and the Mainichi Shimbun analyzed these items based on recent figures released by the ministry and other information.

    Per aircraft, the C-2 military transporter cost about 104% more than originally envisaged, the P-1 maritime patrol aircraft about 68% more, and the SH-60K patrol helicopter about 53% more. These cost increases at the top end of the scale contributed to an average hike of 20% among the 14 types of equipment that rose in price.

    When looking at the reasons for the increases, it emerged that 10 items required supplementary parts necessary for their maintenance and repair. The average increase in parts costs for the 10 items was 38%, while the cost of such parts for patrol helicopters was about three times higher than originally envisaged.

    Ten of the 14 items whose lifetime cost increased were domestically produced. Usually mass production brings down costs, but the government has restricted exports of defense equipment, and since mass production for overseas markets is unlikely, this tends to push up costs. A series of specification changes after acquisition contracts were signed was also a factor in the increased prices.

    The Defense Ministry updates the life cycle cost of important equipment annually. If the cost is 30% or move above the previous estimate, then the plans are reviewed, and if the cost rises by 50% or more, then the ministry considers suspending the plan. Regarding the acquisition of components whose cost hikes are high, an official from the Acquisition, Technology & Logistics Agency, which operates under the Ministry of Defense, commented, "We can't deny that our previous estimates were too low." The official added that the ministry would have to accept reviews or the suspension of plans.

    The Kishida administration in June 2022 noted that North Atlantic Treaty Organization (NATO) guidelines request that member states maintain defense spending of at least 2% of GDP. In line with this, the administration announced preparations to fundamentally strengthen Japan's defense capabilities within five years. Japan's defense spending stood at around 5.4 trillion yen (about $37 billion) for the initial budget for fiscal 2022, about 0.96% of GDP. The Kishida administration is set to revise its national security strategy and other security-related documents this year to increase the defense budget and solidify measures to secure financial resources.

    However, if costs are not sufficiently assessed, the defense budget could expand unchecked. Takero Doi, an economist at Keio University, commented, "The government's cost consciousness is low based on its perspective of protecting the domestic defense industry, so it probably doesn't have much of a sense of guilt when the cost of defense equipment expands. The 'drastic strengthening of defense capabilities' doesn't mean that that the government has accepted the purchase of relatively expensive equipment. The government and the Ministry of Defense should have a mindset of deploying more effective equipment at a lower cost."

    (Japanese original by Yuki Takahashi, Business News Department)

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