By Hiroyuki Kamisawa
The Board of Audit (BOA) investigated the nation’s purchase of U.S. defense equipment made under the Foreign Military Sales (FMS) program at the request of the Diet and reported on the results on Oct. 18. The investigation found that Japan purchased cutting-edge F-35A fighter jets at a price tag that was four billion yen higher than the U.S. variant. The price was so high because the Japanese government allowed domestic companies to participate in the manufacturing process.
According to the BOA, Japan purchased defense equipment worth 388.2 billion yen under the FMS program in fiscal 2017, up more than threefold from the 111.7 billion yen marked in fiscal 2013. The purchases included the F-35A, the Osprey, the Aegis system, and the E-2D early-warning aircraft. The BOA calculated the nation’s per-unit procurement cost of the F-35A, for which Japan is increasing its purchase volume, based on contracts and compared it with the procurement price released by the U.S. for its purchases of the jets.
When Japan purchased finished F-35As in fiscal 2012, the per unit price was about 120 million dollars (roughly 9.77 billion yen at the time), approximately 12.7 million dollars (about 1.03 billion yen) higher than the U.S. price. But the price jumped to some 150 million dollars (roughly 12.96 billion yen) when Japanese companies were involved in the manufacturing process in fiscal 2013, increasing the gap with the U.S. price fourfold to 56.1 million dollars (some 4.6 billion yen). In the next fiscal year or afterward, the price was some 40 million dollars higher than the U.S. price (3.88 billion yen higher in fiscal 2014 and 4.76 billion yen higher in fiscal 2015).
The U.S. explained to the BOA that the price gap was primarily a result of different specifications, the cost of sharing development works, and Japanese companies’ participation in the final stage of the F-35A’s assembly and inspection. The U.S. also said Japanese companies have a lower level of technological skill and the increased workload pushed prices up.
According to the Ministry of Defense (MOD), Japanese firms’ participation was intended to enable them to obtain technological expertise in manufacturing and operating fighter jets and was approved at a cabinet meeting in 2012 along with the acquisition of 42 F-35As. The ministry says the increase in the procurement price was an “outlay to serve that purpose.” Japan also shouldered some 146.5 billion yen for developing the facilities necessary for three companies — Mitsubishi Heavy Industries, IHI Corp., and Mitsubishi Electric — to participate in the manufacturing.
The government stopped participating in this fiscal year and began buying finished F-35As. The MOD kept participating until it submitted a budgetary request last year and tried to purchase six jets for 91.6 billion yen (some 15.2 billion yen per unit). But by switching to purchasing finished jets, the total price of 68.1 billion yen for six jets (11.3 billion yen per unit) was reduced to 23.5 billion yen (3.9 billion yen per unit). As for the reason for the change, the MOD says: “The government decided to procure additional 105 F-35As last year, which increased the need for us to get the F-35As early at a lower price. Japanese manufacturers have acquired improved knowledge about the jets by participating in the production of a total of 30 units. They will continue to be responsible for the jets’ maintenance.”
In the latest report, the BOA pointed out that Japan has not been exempted from the 1.2% FMS Contract Administration Services Surcharge even though South Korea and other nations have been exempted from the surcharge by signing an agreement with the U.S., prompting the MOD to address the issue.