Monday, March 29, 2010

FT: Romania’s planned jet purchase draws fire

By Chris Bryant in Vienna

Published: March 29 2010

European aerospace manufacturers have cried foul over Romania’s proposed $1.3bn purchase of secondhand US F-16 fighter jets after they claimed Bucharest had announced the decision without a proper tender process.

The proposal also triggered questions about how Romania can afford such aircraft as the recession-hit eastern European nation battles to cut public spending to comply with an International Monetary Fund programme.

Romania’s Supreme Defence Council announced last week an intention to purchase 24 used F-16 aircraft from the US to replace a rapidly ageing fleet of Soviet-made MiG-21 aircraft.

Gabriel Oprea, defence minister, insisted on Friday that Romania needed the planes to fulfill its commitments to the Nato alliance, which the former communist country joined in 2004.

The government said the deal reflected the Romanian-US “strategic partnership” and was justified given a shortage of public funds – the old F-16 aircraft come free but will require refitting and servicing. Parliament must first approve the purchase.

The announcement dealt a blow to rival European defence contractors Saab of Sweden, and the Eurofighter consortium. Both had hoped to bid for the contract.

“The decision surprised everybody,” Richard Smith, Saab’s Romanian marketing director, told the Financial Times. “We had been told to expect a tender process. But there’s a lack of any process at all.”

“Eurofighter regrets Romania’s decision was made in the absence of an international call for tenders, the standard European Union procedure,” the consortium, which includes EADS, BAE Systems and Alenia/Finmeccanica, said.

Romania has been looking to replace its air-defence fleet for years, but lacked sufficient resources even before the financial crisis hit.

Last year it was forced to turn to IMF for a €20bn bailout and is now following a strict programme to rein in bloated public spending.

The cost of servicing and equipping the initial batch of F-16 aircraft for delivery from 2013 is estimated at $1.3bn, including pilot training.

However, Romania has also indicated the possible purchase of a further 24 F-16 aircraft, which could significantly increase the final bill.

In 2008 a Pentagon notice on the possible sale estimated the total price of all 48 jets at $4.5bn including servicing, training, refitting and other add-ons.

“It’s quite financially insane … as they will have to finance this somehow. Does Romania have this kind of money available now or not? I don’t believe they do,” said Mr Smith.

Saab said it was prepared to offer attractive financing terms and noted that the F-16 deal appeared to lack so-called “offsets” – customary side-deals guaranteeing economic benefits in kind to the purchasing country, such as employment opportunities.

Romania’s socialist opposition has called for parliament to be given full details of all the bids before approving the F-16 sale.

The furore is a blow to Romania’s attempts to tackle a perceived lack of transparency and reputation for corruption, which Transparency International, the anti-corruption wathdog, has ranked amongst the worst in the EU.

Romania is the only member state that has not signed the EU’s defence procurement code of conduct.

The IMF declined to comment on the sale. In 1997 the Washington-based lender successfully urged Romania to drop a planned $1.4bn purchase of US-made helicopters because of budgetary constraints.

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