Problems for U.S. Russian Helicopter Order
Jun 1, 2009
By Sharon Weinberger
The U.S. Army signed off on an unusual procurement contract in December 2007: A $322-million order for 22 Russian helicopters bought through a U.S. defense company for Iraq. The contract was a rush order, designed to deliver Mi-17 helicopters in a bid to quickly reequip the Iraqi air force and allow it to perform counterinsurgency operations. But 18 months after signing, not a single helicopter has been delivered, despite full payment. The Army now concedes the contract is over budget and nearly a year behind schedule.
Such are the perils of buying Russian equipment through the U.S. Foreign Military Sales (FMS) system, a unique requirement that is rapidly escalating into the billions of dollars for Iraq and Afghanistan.
Buying Mi-17s, and other Russian equipment, for the Iraqi military seems logical. The Iraqis flew and maintained Soviet (now Russian) aircraft in the Saddam Hussein era. Another important feature: Russian rotorcraft are significantly cheaper than U.S. helicopters, at least in theory.
The Mi-17 is the export designation for the Mi-8 airframe (NATO designation Hip), and after 40 years the aircraft still has brisk sales, with new orders from India, China, Pakistan and Colombia, among others. That has been good news for the factories that produce Mi-17s: Ulan Ude and Kazan. Just a few years ago, work at the plants had slowed to a crawl, but now even getting a slot in the production line can be a challenge.
The U.S. Defense Dept. dubs the aircraft destined for Iraq as counterterrorism helicopters. They are designed to insert and extract special forces and provide limited air assault capability to clear and hold a landing zone, [and] provide self-protection . . . against insurgent small arms fire and SAM defenses. The helicopters will have Western-style cockpits and modifications that include Flir Systems AN/AAQ-22 Star Safire electro-optical sensor and monitor; identification-friend-or-foe system with encryption; AN/AAR-60 Milds (missile-launch detection system) from EADS; and VHF/UHF/HF radios.
When the helicopter contract was awarded to Arinc of Annapolis, Md., a communications and engineering company, it was, by everyones admission, an unusual sale. While the Army has bought Russian helicopters in the pastand modified them with Western cockpitsit never bought anything in the quantity seen for the Iraqi FMS case.
In a controversial move, the Armys Threat Systems Management Office in Huntsville, Ala., sole-sourced the contract to Arinc, rather than soliciting multiple bids. That raised questions about procurement cost. In 2001, the price of a newly refurbished Mi-17 was between $1.2 and 1.7 million, while a helicopter fresh off the production line went for around $3 million. The cost has since more than doubled, with vendors quoting new Mi-17s at around $7.5 million. But the Mi-17s for Iraq are sold for more than twice that pricebetween $13 and $16 million per helicopter (cost varies depending on the batch and whether spare parts and other equipment are included).
Part of what drove up costs is the unusual way the contract was structured: Although Arinc is the prime contractor, its working essentially as an arms broker. And rather than buying the aircraft from the factory, Arinc has a contract with Air Freight Aviation, a Russian company based in the United Arab Emirates. Air Freight Aviation buys the helicopters from the Mi-17 plant at Ulan Ude and modifies them at its UAE facility.
This arrangement has led to cost overruns and delays. The helicopters were supposed to be delivered starting in February, but the Defense Dept. concedes that the date for first delivery has slipped to 2010, and the contract is between 5 and 10% over the original $322-million budget. Officials insist, however, that the plan is to catch up with deliveries, completing the full contract on schedule. As of now, however, none of the helicopters has left Ulan Ude.
Army officials defend the sale, arguing that the urgency of the requirement and the uniqueness of buying Russian equipment necessitated going with Arinc as a sole source. Arinc, despite its lack of experience buying Mi-17s, was selected as the contractor because the company was already in Iraq performing maintenance work on the nascent Iraqi air forces skeleton fleet, which included older Mi-17s and Bell helicopters. Arinc also claimed to Army officials it had an exclusive relationship with the Mil helicopter plantthe design bureau. (Iraqs Mi-17 requirement was, however, known for several years before the contract was signed, and there are over half a dozen U.S. companies with experience buying Russian helicopters and parts for the U.S. government.)
To some extent, the Mi-17s illustrate the problems that have plagued weapon sales to Iraq. Since the FMS process started with Iraq in 2005, approximately $4.5 billion has been spent, but less clear is how much of that equipment has been delivered. Going through FMSrather than direct commercial saleswas meant to avoid the mistakes and corruption that plague direct sales. In one now-infamous case, Iraq entered into a contract to buy Mi-17s from a Polish companymost of the helicopters ended up being too old or in no condition to fly.
The FMS process is meant to protect Iraq from these problems, says U.S. Air Force Col. Lawrence Avery, deputy director of the security assistance office in the Multinational Security Transition Command-Iraq. [They] view FMS as the anticorruption mechanism for their government, because nobody can get their hands on the money, nobody decides who the contracts go to, he told reporters in a recent conference call. Thats all done through the U.S. acquisition system.
But officials in Baghdad cite delays and confusion about the FMS process. The sales become even more convoluted when they involve a U.S. procurement process cross-matched with Russian weapons. In one particularly frustrating case, the Iraqis initiatedthen canceleda large order for BTR-3E1 armored personnel carriers that were to be bought from Ukraine through FMS.
Defense Dept. officials concede that they made mistakes in the Mi-17 case for Iraq, but defend the overall process. While U.S. officials downplay the Russian FMS casesnoting they are the exception, not the rulethe truth is that these sales could prove more common over the next few years as attention moves to Afghanistan. The Pentagon has already approved a pseudo-FMS case for the purchase of 10 helicopters for Afghanistan for $177.5 million. That contract also went to Arinc.
While FMS may guard against outright corruption, it has not done much in the case of the Mi-17s to prevent delays, or even guarantee reasonable costs. If theres a lesson from the Iraqi helicopter case, it may be that the U.S. acquisition system is a poor conduit for Russian weaponry.
FMS works best when you buy and use what the U.S. military is buying and using, because if we give you a price on that, were probably pretty good about it, says Avery. If were buying equipment from countries and companies that weve never worked with, every problem that we run into is a new problem.
