BLACK SEA BLOG: Romania jets into bed with the US

By bne IntelliNews April 21, 2010

bne -

For a country desperately trying to convince an increasingly sceptical EU that it's finally getting a grip on its endemic corruption, Romania's decision to scrap a promised transparent tender for fighter jets and instead propose buying $1.3bn worth of second-hand US F-16 planes appears to many to be a funny way of going about it.

The ensuing revelations in the weeks since the Romanian president's office announced on March 23 that after a meeting of the Supreme Defence Council (CSAT, in Romanian initials) - an unelected advisory board that has no executive powers but is very influential by dint of its appointment by the country's president - it had been decided to send a proposal to acquire 24 used F-16 fighters to parliament for a vote, has only heightened the murkiness surrounding the deal and stoked the controversy.

At the heart of the matter is President Traian Basescu's assertion that the reason to recommend buying the second-hand jets from the US is purely economic. On April 12, Basescu said on live late-night television that of course the Romanian military wants to replace its aging MIG 21 Lancer planes with new Gripen or Eurofighter jets, two of the main competitors in the tender that had been promised by the Romanian government since it launched the request for information in 2008, but they would just have to make do with the old F-16s, because the country is just emerging from recession and has a very tight budget.

That's true: Romania's finances are in a mess and the government is keeping things running with the help of €20bn in loans from the International Monetary Fund (IMF), the EU and others. However, the claim that the F-16 deal would save taxpayer money has been somewhat undermined by Saab, the Swedish maker of the Gripen fighters, on April 15 publicly releasing the bid it had intended to make in the tender, which tells a rather different story. "We made sure MPs [members of parliament] have the details of our offer so they can debate it properly and we also decided to go public with it so the media and Romanian public can make a comparison with the US offer," Richard Smith, Saab marketing director for Gripen in Romania, tells bne. "If there's not going to be a tender and only a debate in parliament, then MPs should have all the information available to make a legitimate vote."

Basically, Saab's offer involves the same number of planes, 24 new Gripen C/D multirole jets, for the same price, €1bn. Given the jets are new, the Romanian military won't have to spend money modernising them, which it would have to do with the old F-16 jets the US is hawking. Saab has also offered a number of sweeteners, such as offsetting (a kind of industrial compensation that the US has said it won't provide) 100% of the value of the contract with Romanian companies; a 15-year repayment plan (the US requires the money upfront); and low interest rate finance through the Swedish National Debt Office. Mats Aberg, Sweden's ambassador to Romania, also pointed out to AP that the Gripen jets are smaller than F-16s, so Romania wouldn't have to adapt its runways to use them.

This suggests that price is not the only determinant in the president's calculations. And if that's the case, then what else is?

Powerful lobby

Inevitably, any defence procurement contains a huge political element. The acquisition of the F-16s will actually be a first step in Romania becoming part of the US' long-term F-35 Joint Strike Fighter programme, which will see it receive its first deliveries of the cutting-edge fighter jet designed and built by Lockheed Martin, with Northrop Grumman and BAE Systems as major partners, around 2020. Basically, Romania is hitching its defence wagon to the Americans; as analysts point out, you can only switch to F-35s if you have flown F-16s.

Experts on the European side also acknowledge the heft and skill of the US lobby in these matters. The US brings a certain lobbying power that individual EU nations simply can't match. "One of the problems that Gripen and other European makers have is that we don't go in with the EU lobby at our backs, it's always the aircraft manufacturer's government, in our case Sweden," admits Saab's Smith. "If a US president makes a phone call, then it's a serious conversation, and the US ambassador is extremely powerful in that respect."

The current US ambassador, Mark Gitenstein, has ties to F-16 maker Lockheed Martin, after lobbying on behalf of it and other defence contractors to Congress when he was a partner with the law firm Mayer Brown. And the US lobby's tentacles reach deep inside the Romanian establishment. While the Romanian taxpayer is unlikely to benefit from any decision by parliament to buy the old US jets, certain Romanian individuals - and allies of the president - clearly will. Upgrading the old F-16s will mean big contracts, the list of possible contractors for which, Jane's Defense Weekly says, includes Elbit Systems, the Israeli company that, through its Fort Worth, Texas subsidiary, is one of the suppliers of the F-16 avionics. Head of Elbit Systems in Romania is Dudu Ionescu, a former defence minister and interior minister. Then there's General Constantin Degeratu, who only retired as senior security and defence advisor to President Basescu on December 31, 2009 before taking up his new position as managing director and CEO for MIC & Associates, a US consultancy that lobbies for, amongst others, US defence firms vying for business in Central and Eastern Europe.

There's no word yet when the Romanian parliament is to start debating the F-16 recommendation from the Supreme Defence Council, so the situation remains very fluid. However, what is certain is that this has been a huge PR disaster for Romania and has angered Brussels, already smarting from the country's politicians being unable or unwilling to put their house in order.

The timing of the announcement by the president's office was incredibly cack-handed, coming as it did just a few weeks before Bucharest hosted the Black Sea Defence & Aerospace exhibit on April 13-15, at which Saab and Eurofighter were planning to proudly display their two products that would've featured in any tender. Those areas in the exhibition hall instead lay empty.

While analysts like Niels Schnecker, a former F-16 American pilot working in Romania, argue the investment in US jets will help Romania's military further integrate to Nato standards and buying the Gripen fighter would be like buying a restaurant kitchen to fit in a flat ("it's cool, but isn't it an exaggeration?"), the Europeans coolly point out that such a decision would be better arrived at after an open tender. "If Romania decides they want to go in one strategic direction with the US, then so be it. But I believe there should be some kind of open, transparent process to get there," says Saab's Smith.

This view is echoed by the Swedish Ambassador Aberg: "Nobody is questioning the sovereign right of the Romanian government, presidency and parliament to choose whatever type of multirole they want. What we are questioning is the previous promise made by the government that there will be a transparent acquisition process, a fact which has not happened so far."

The European Commission's competition authorities did not return calls about their view on Romania's plan to buy the US jets. But it's safe to say that with the prospect of European taxpayer money flowing out of the EU into US coffers after those same taxpayers have already stumped up large amounts of cash to help keep the EU member afloat, this issue is likely to further poison Bucharest's already strained relations with Brussels.

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