In November 1998 the South African cabinet named British Aerospace (BAe) as its preferred supplier to re-equip the South African Air Force (SAAF), as part of its strategic defence package programme. Cabinet formally went ahead with the purchase in September 1999.

In terms of the deal BAe is delivering 24 Hawk lead-in fighter trainers and 26 Gripen advanced light fighters to the SAAF. All the Hawks will be delivered over the course of 2006 and 2007. Delivery of the Gripens begins in 2008. According to the treasury South Africa has paid out R19,5bn for the two programmes so far, with the final cost expected to be R27,25bn. This makes up 57% of the total of R47,5bn that will have been spent on the packages between 2000 and 2011.

From almost the moment when the British government and armaments industry tabled their proposals to re-equip the South African defence force, in early 1997, there have been suspicions about the way in which they were went about trying to secure that contract. It is now a matter of public record that BAe planned to pay £180m in “secret commissions” after having won the deal. (It now claims to have reduced this to £112m.)

The possible use of bribery by BAe to secure the contract is currently being investigated by the Serious Fraud Office (SFO) in London. Earlier this year, the Mail & Guardian reported that in June 2006 the SFO had issued a request for legal assistance to the South African authorities. According to the document:

"Documents disclosed by BAe have revealed that [Fana] Hlongwane entered into a general consultancy agreement with BAe in 2002 on a retainer of £1-million per annum. In 2005 there was an agreement to pay $8-million as a settlement figure to Hlongwane in relation to work done on the Gripen project.”

At the time the Gripen deal was put together Hlongwane worked as an advisor to the Minister of Defence, Joe Modise. The SFO also claimed that between 2000 and 2005 over £70m had been paid out through Red Diamond Trading – a front-company, registered in the British Virgin Islands in February 1998 – to various offshore entities in connection with the contract. These included: Kayswell Services (£37m), Hudderfield Enterprises (£25m), and Brookland Management (£8,5m).

It is not yet known who the ultimate, and intended, recipients of these particular “commissions” were. However, the South African government seems so confident that the whole process was above board that it has refused to re-open the investigation into the arms deal, which it went to such great efforts to close in 2001. It has also shown a certain reluctance to help the British (and German) investigators with their inquiries.

It remains to be seen whether the SFO will be able to follow the money, all the way to those paid to influence the process in favour of BAe. There is, however, a great deal of information now in the public domain* about how, and by whom, the arms deal process was manipulated to secure the preferred outcome.

There were actually two procurement processes aimed at re-equipping the SAAF. The first, which followed a normal acquisition path, was launched in 1994 before being arrested in July 1997 after both the Hawk and the Gripen had failed to make the short-list. The second was launched in late 1997, and within a year the BAe had effectively clinched the contract. It is useful to examine the first process, before going on to the second, in order to see what the SAAF actually wanted and needed, and what they could have got.

The SAAF historically had a three tier fighter training system. The first tier consisted of the Pilatus PC7 Mk II Astra trainer; the second tier, the Impala Mk I and Mk II fighter trainer (locally built versions of the Aermacchi MB-326); and, the third tier, the Cheetah C and D fighters. The Astra was a new purchase and the air force had 50 supersonic Cheetah aircraft which were operational until 2012. However, by the mid-1990s there was a pressing need to replace the Impala with a more modern fighter trainer.

In a table presented to parliament in mid-1996 the SAAF stated that it currently had 93 “jet trainers” (Impalas) and 72 “medium fighters.” Its projected requirements for 2000 to 2010 were 32 Cheetahs and 42 “jet trainers (to be replaced)”. The SAAF set up Project Ukhozi to manage the replacement of its 94 Impalas with 48 advanced fighter trainer’s (AFT). Project Kambro, which had a much longer time horizon, was established to plan for the replacement of the Cheetah with some 30 odd future medium fighter’s (FMF) by 2010.

On October 14 1994 the minister of defence approved the ‘staff target’ for the fighter trainer. This broadly indicated what was needed, as well as what it was likely to cost. Over the following year the more detailed ‘staff requirement’ was prepared, and it was adopted on October 4 1995 by the Defence Command Council. The envisaged fighter had to be able to carry out both advanced fighter training and combat missions.

A request for information was then sent out to 30 suppliers of whom 23 responded with proposals. These included the SAAB Gripen, the Aermacchi’s AMX-T and MB339FD (Italy), BAe’s Hawk 100, and Air Vodochody’s L-159 (Czech Republic).

The proposals were presented to the Ukhozi Control Council on May 13 1996 and additional criteria for preparing the first level contender short list adopted. These were then submitted to the armaments acquisition screening (sic - steering) board (AASB), and this was approved by the armaments acquisition council (AAC) on July 31 1996. A short list of nine was drawn up which included the AT 2000 from Daimler Benz Aerospace, the AMX-T, the MB339FD, the Gripen, the L159, and the Hawk. Suppliers were then visited in September and October 1996.

By March 1997 the shortlist had been reduced to four bidders – all of whom satisfied the SAAF’s requirements for an advanced fighter trainer. These included: the AMX-T “In production, multi-role, growth path”; DASA’s AT-2000, “Potential for wide-band performance at reasonable cost.”; and, the L159 “Balanced all-round performance at reasonable cost.” The AT-2000 was still in the design stage. This meant that there was “high programme risk”. But it did provide the “best opportunity for industry participation.”

Among the contenders dropped from the shortlist was the Hawk 100 “high cost. Does not satisfy SAAF operational requirement”; the Gripen, “unaffordable”; and the MB339FD “Low performance cannot satisfy user requirement.”

The projected cost for the purchase of the advanced fighter trainers, as of mid-1997, was R5,2bn, and for the future medium fighters R8bn. Up until this point the SAAF had followed the normal acquisition procedures. It had taken two-and-a-half years to progress from the adoption of the staff target, to the point where the SAAF was ready to issue requests for proposals to the short-listed bidders.

In January 1997 the Defence Export Services Organisation (DESO), an arm of the British government, tabled a package proposal for the supply of armaments to South Africa. This included the replacement of the Impala by BAe’s Hawk jet trainer and the replacement of the Cheetah with the Gripen. An article in the Sunday Times (London) later in the year reported:

“Britain has assembled a £4bn package to modernise South Africa’s armed forces in what could be the biggest defence deal since the Al Yamamah 2 agreement with Saudi Arabia. In the same way that the Saudi deal is funded via oil shipments, the equipment for South Africa could be paid for in gold.”

H D Esterhuyse, general manager for the acquisition of aeronautic and maritime projects at Armscor, was invited by Minister Joe Modise, along with other officials, to an informal meeting in early 1997 where DESO presented its scheme. He told arms deal investigators, in an interview in 2001, that DESO “were clearly in discussions with other government officials and the minister.”

It was then decided that they should pursue this proposal and so Armscor structured a small team to interact with DESO. The first formal meeting was held on February 14 1997. Esterhuyse told the investigators that, “At this stage we were already concerned about the actions of DESO and British companies regarding South African politicians and parliamentarians.”

According to the minutes of the meeting the Armscor delegation expressed their concern to the British team “regarding spurious external involvement in the Strategic Defence Package, eg. Lobbying of ministers/parliamentarians.” They also “emphasised the principle of tendering and competitive bids.”

Esterhuyse noted, “This was probably not what the British expected. It was my personal impression that they were under the understanding that they could structure a deal where they were the exclusive suppliers to the South African Defence Force…”

On March 26 1997 there was a second meeting with DESO. At this meeting DESO was asked whether these packages would still be valid if the aircraft component were excluded, and there were told it would not be. According to the minutes:

“DESO indicated the need to include the aircraft proposal to continue with the packages. However, DESO will have to take stock of the situation regarding BAe’s involvement, for which discussions with the SAAF may be required.”

Esterhuyse commented to the investigators: “What we sensed and I sensed in broad terms, was that we were being pushed into an arms procurement for which the Department of Defence was not fully prepared at that stage.”

At that time both the SAAF and SANDF were openly opposed to the purchase of the Hawk and the Gripen. On July 2 1997 the head of the SANDF, Georg Meiring, and the Secretary of Defence, Pierre Steyn, wrote a memorandum to President Nelson Mandela on the DESO proposal. They commented:

“The British proposal does not correspond with the SAAF preference option, which is an aircraft capable of bridging the gap between basic-flying training on the ASTRA and the Cheetah/medium fighter replacement, and of accomplishing combat missions successfully. The Hawk option is not optimal because cheaper options exist for the niche requirement satisfied by the HAWK…”

The chief of the SAAF, General W. H. Hechter, also added his voice in opposition to the BAe proposal. He wrote that the SAAF would only accept the Hawk if “politically obliged” to do so:

“The aircraft systems on offer in the British proposal did not comply with the defined operational and logistical requirements of either the fighter or the fighter trainer replacement programmes. Neither the Hawk nor Gripen systems as offered by BAe during its formal response to Project Ukhozi acquisition satisfied the full requirement specifications.”

“In terms of quoted acquisition and life-cycle support costs both aircraft systems were by far the most expensive options in their respective classes. In order to satisfy the requirement for these two systems the SAAF would prefer not to participate in the stated fighter component of the SDP as there are aircraft systems that are operationally far more acceptable and available at substantially lower acquisition and operating costs.”

In other words the Gripen and the Hawk were not what the SAAF wanted, nor what they needed, and they far too expensive. “The inclusion of the Hawk component in the SDP” Hechter concluded, “would only be considered by the SAAF under extreme duress.”

A few days later, on July 7 1997, the whole procurement process was halted by the SAAF command council. This was ostensibly due to a lack of funds, following swingeing budget cuts earlier in the year. The R13,2bn budgeted for both Ukhozi and Kambro was now said to be “unaffordable.”

The SAAF Command Council now decided to change its staff requirement to that of a mid-range light fighter aircraft (ALFA) – something which would meet the requirements of both projects. This represented a shift from a three-tier to a two-tier system, with trainee-pilots transitioning directly from the Astra to the ALFA. As the Auditor General’s 2001 report noted, the SAAF had been forced to “redesign to cost and not requirement.”

Yet it is not self-evident why this decision was made, since the SAAF still had fifteen years in which to replace its medium fighter. All it required in the medium term was the R5,2bn needed for the fighter trainer.

On September 23 1997 a new request for information, for 48 aircraft, was sent out to prospective suppliers. Eight proposals were received. On October 7 1997 a revised technical value system for the light fighter aircraft was approved by the Ukhozi Control Council, and on the basis of this five contenders were eliminated.

This shift in requirements made the Gripen far more competitive. While it had failed to make the shortlist for the advanced fighter trainer (due to expense), it was now included on a shortlist of three for the ALFA, along with DASA’s AT 2000 (Germany), and Dassault’s Mirage 2000 (France).

The evaluations were presented to an SAAF Command Council meeting on November 17 1997. The meeting decided both to reduce the number of aircraft for the ALFA programme to 38, and to revert to a three-tier system. According to the minutes this latter decision was on the instruction of Minister Joe Modise. However, instead of reverting back to the original structure, which they had properly planned for, the SAAF now opted for a lead-in fighter trainer (LIFT) along with the ALFA.

Whether by accident or – as was more likely – design, the SAAF had dramatically redefined its operational requirements in ways which advantaged the BAe proposals. The Hawk 100 and Gripen were upgraded through these changes from also-rans to contenders.

It is not clear why the SAAF needed a lead-in fighter trainer as pilots were able to convert directly from the Astra to both the Gripen and AT2000 (but not necessarily the Mirage 2000.) In any event it was a decision seemingly made in a day.

In late November 1997 the armaments acquisition council, chaired by the minister, approved the short-listing of the three bidders for the ALFA. According to the rankings submitted to the meeting the AT2000 had the best normalised military value (1,0), then the Mirage 2000 (0,83), then the Gripen (0,81).

The AT 2000 was described as the proposal with the “best cost effectiveness. Also best operational capability.” Its problem remained that it was a very risky programme due to it still being in the design stage. The Mirage 2000 had “the lowest technical and programme risk with high operational capability. Cost provisional estimate that has to be verified.” The Gripen meanwhile was described as a “capable modern fighter with low development risk but high cost.”

According to the minutes of the meeting all three aircraft satisfied the SAAF’s requirements – provided that the risks were covered contractually through government-to-government agreements.

Between November 17 and December 3 1997 representatives from South African industry met with the bidding companies. Following the meetings S de Lancey of Denel Aviation wrote to General P O du Preez, the head of staff logistics in the SANDF. He noted:

“Industry was united behind the fact that the BAe/SAAB industrial participation offer was very poor, and was aimed at the absolute minimum that they could get away with. The IP offered by BAe/SAAB has been assessed by all industry parties present as being very disappointing … It appeared that BAe/SAAB might have thought they had already won the SA competition and did not feel compelled to make sacrifices for SA trade and industrial imperatives.”

In addition, the export Gripen being offered to the SAAF was at that stage a paper design, and in order to fulfil the SAAF’s operational requirements it would have to be extensively redesigned. For instance it had never delivered an air-to-ground weapon.

On February 14 1998 requests for offers for the ALFA were sent to BAe/SAAB, Dassault and DASA. On March 16 the revised and combined staff target and staff requirement for Project Ukhozi were approved. The total cost for the purchase of 38 light fighter aircraft was expected to be some R11bn ($2,16bn).

In May 1998 Chippy Shaik – an ANC cadre – was appointed, on Modise’s instruction, to the position of chief of acquisitions. As Pierre Steyn noted in his testimony to the arms deal investigators in 2001:

“Organisationally the chief of acquisitions is compelled to report to me. However, it soon became apparent in the conduct of this – let us call it ‘weapon package initiative’ – that the minister wanted him to report to him directly, which he did.”

The offers for the ALFA were received from the three contenders by May 14 1998. As with the other arms packages there were problems with the way in which the value of the industrial participation proposals were evaluated. The Gripen bid had, by far, the lowest defence industrial participation (DIP) offer. But, as was to be expected, the non-defence industrial participation (NIP) proposals were calculated by the Department of Trade & Industry to extravagantly advantage the preferred (BAe) proposal.

In any event, however, no competitive evaluation between the three bids was possible, as DASA and Dassault did not submit financing proposals – something which made up a third of the final score. The Gripen proposal of a programme cost of $2217 m, with a finance cost of $1252, was the only complete one on the table.

The results for the ALFA were presented to an armaments acquisition council meeting on July 13 1998. According to the minutes, “Prices in the offer are ‘quoted’ prices; DASA and Dassault failed to offer financing, notwithstanding repeated requests.” The Auditor General’s office was unable to uncover, in its investigation, evidence that such requests were indeed made. Officials from the department of finance, and Dassault, later denied that such requests for follow-up information were ever issued or received.

The proposed cost of the 38 Gripen’s was $3469m or R18,7bn (at the 1998 exchange rate). This was R13,5bn more than the projected cost of purchasing 48 advanced fighter trainers in mid-1997. It was R5,5bn more than the combined cost of the AFT and FMF programmes –scuppered the previous year because of unaffordability. And it was R7,7bn more than had been budgeted for the ALFA only a few months before.

To be continued…

* The most important source of information, on which these articles draw heavily, is the unexpurgated version of the Auditor-General’s 2001 report on the arms deal.

With acknowledgements to James Myburgh and Moneyweb.