Is “good enough” the new defense procurement decision-making mantra?

Swiss Defense Minister Ueli Maurer is unabashed in acknowledging that the government did not opt for the most capable aircraft when it decided on the Saab Gripen NG over the Dassault Rafale and Eurofighter Typhoon. Instead, it went with the aircraft that met its objectives—and at a cost that leaves money on the table for other defense needs. It would be simplistic to write this off as a Swiss banker's mentality at work. Actually, the choice is not far off the U.S. KC-X tanker decision in which price topped overall capability in the Pentagon's process when it opted for the Boeing 767 tanker over the EADS A330 offering.

If this mindset catches on, it could prove to be good news for the Gripen more broadly. With a new round of fighter competitions in the offing—many associated with countries without the high-end threat concerns underpinning the competitive landscape in places such as Japan and South Korea—price considerations could be on the rise. Denmark and Bulgaria, for instance, are looking at fighter procurements, and the Czech Republic and Hungary, where Gripen is the incumbent, also have to solidify their long-term fighter plans as their existing leases are coming to an end.

For Saab, the Swiss decision to buy 22 JAS 39E/F Gripen NGs to replace its F-5 Tiger force has the additional benefit of putting the next-generation version of the single-engine fighter on a firm footing. While Sweden had said all along it would buy the aircraft, receiving an export commitment early formalizes the schedule.

Sweden, which was planning to field the aircraft around 2017, had committed to accelerating its schedule to match that of any export customer. Switzerland is expecting to field its first aircraft in 2015, with deliveries spanning 2-3 years, so now Stockholm is looking to place an initial order for around 10 aircraft ahead of its original plans. A day after the Swiss announcement, the Swedish parliament's defense committee confirmed the early purchase of 10 JAS 39E/Fs. The full government is set to sign off on the specifics of the deal next year.

That could be important news for the competition also in Brazil, where Gripen is facing the Boeing F/A-18E/F and Rafale. A type selection is expected in the first quarter, with Brazilian air force officials saying the new aircraft should be fielded in 2017.

For Dassault, the Swiss decision is only the latest in a series of stunning setbacks for Rafale in the export realm. The development is particularly painful coming only days after the United Arab Emirates put its long-anticipated Rafale purchase into doubt, blaming the company for not matching the French government's willingness to cut a deal. But it is also a setback for French President Nicolas Sarkozy, who has been crusading on behalf of Rafale.

The French government/industrial team was optimistic it could sway Switzerland to buy Rafale, in part by promising to provide easy access to training ranges in France and by helping the Swiss air force to overcome the problem of the tight airspace restrictions it faces in its own country.

Dassault argues that Switzerland could have met its requirements with fewer aircraft—at an equivalent or lower cost—if it had simply opted for Rafale. Maurer retorts that the government examined buying fewer aircraft, but wanted to have enough on hand to field two operational squadrons and meet training needs (the program had already been curtailed from fielding three squadrons).

The decision also marks a setback for the other contender, Typhoon. The consortium was hoping Switzerland would be enticed by the fact that three of its direct neighbors—Germany, Italy and Austria—already operate the aircraft.

For Typhoon, but even more so for Rafale, the Swiss choice intensified the pressure on securing India's Medium Multirole Combat Aircraft program—where the two are the sole remaining contestants now that Gripen and others have been eliminated. It is the largest fighter program currently in competition and a decision could come before year-end.

Both can perhaps derive some benefit from the Swiss decision, since Maurer suggests each of the losing contestants provided higher performance, something India may prize more than Switzerland did. What is more, the Swiss defense minister says the offers from all three contestants met the government's requirements in terms performance, industrial participation and 100% contract offsets.

Nevertheless, he left little doubt that the Gripen was a clear choice. The procurement costs were considerably lower—they are expected to come in below 3 billion Swiss francs ($3.2 billion)—and it also held the edge in terms of life-cycle cost over 30 years.

Moreover, Switzerland was pleased with the potential for industrial cooperation on offer from Saab. With the NG development still to be completed, there is an opportunity for higher value technical work. Although a number of Swiss companies should benefit from the deal—they would have, no matter who won—Ruag is likely the biggest beneficiary. A company official notes that it was important that it serve as the maintenance, repair and overhaul center for the aircraft, no matter which candidate was chosen.

Switzerland and Sweden will now begin refining the program. In the next several months, they will decide how pilot training may be set up, including potential training in Sweden. Also still under review is the site of the final assembly plant.

Along with location, the specific aircraft configuration is still under discussion, and that continues to be a contentious point. Switzerland had indicated it would buy an off-the-shelf aircraft, and the developmental nature of elements of the NG is raising more than eyebrows. “The 'Swiss-tailored' Gripen only exists on paper,” complain Dassault officials, adding that “Its technical development and production risk significantly increases the financial efforts required of the Swiss authorities to accomplish the country's fighter aircraft program.”

Once the program is finalized, it will still need endorsements from several political entities, including a submission to parliament around mid-2012, with the goal of completing the deal by the end of the year for inclusion in the 2013 procurement plan. A fighter purchase in Switzerland is always fraught with discord, but the deal is likely to pass because a majority in parliament is eager to make it happen. In fact, the executive branch was ready to hold off, but parliament decided to push the issue in part to take advantage of the strong Swiss franc, which provides a relative price advantage for the fighter.

Maurer says decisions are still pending about the Gripen serving as the eventual replacement of Switzerland's existing fleet of older F/A-18s. It certainly would be a contender, but so would other aircraft, both manned and unmanned, he suggests.

For Saab, there is one more upside; Uncertainty over its Gripen production line has been eased considerably. Of the existing Western competitors in the market for fighter exports, Gripen had the smallest backlog. The Swiss deal, coupled with the Swedish plans, effectively leave Saab in a secure spot until at least the end of the decade.