06 July 2018

The Defense Industry – Between Illusion and Reality

Stefan Danila

For the past few months, competing with the much praised (and yet to be accomplished) “2% of the GDP for defense” is the catchphrase “restarting the defense industry”. A tricky message, which shows national interest, patriotism, involvement etc. But do the facts and actions stand up to the words? Are there solid strategies in place, synergistic and efficient actions or is it just another demagogic “concern”?

Image source: Mediafax

[ Romanian Version HERE ]

 

Romania’s industrial development, based on the policies of „scientific Socialism and the construction of a multilaterally developed society”, presumed the achievement of multiple skills in all areas. The events of the summer of 1968[1] caused two major changes in planning this development: the rebuilding of the steel industry and the establishment of an own defense industry, in the context of a favorable attitude from the West towards opposing voices within the Communist bloc. The 80’s brought a new context, one of isolation and self-isolation, which determined the regime to take on construction based on its own licenses (as the access to any kind of license had become difficult, due to prohibitive prices for Romania), a reinvention of technologies with worn down machinery. Competitiveness decreased, so did the quality of the products, even though those destined for export were given particular consideration. The few already purchased licenses were utilized to their full extent.

The defense industry was one of the most important ones in the development strategies of planners back then. Alongside the possibility of establishing capabilities for self-defense, ready to support a lengthy war effort, this industry proved its usefulness through the income it brought to the national budget. Military equipment sells for way more than civil one anywhere in the world. When I was training to become a pilot, the squadron’s engineer showed me a tin bucket. It had produced in Romania for civil use. We had it in the logistic package support of the L-29 airplane, received from Czechoslovakia. The inventory price was ten times higher than it cost at the hardware store!

Alongside known factories in Brasov and Bacau, new factories were built in Craiova and Bucharest for the aviation industry. Being a member in the Warsaw Pact also came with restrictions to importing equipment and components from the West. But their goodwill was cemented by cleverly signed contracts, which permitted the use of components meant for civilians in the military field.

The IAR-316 and 330 helicopters had initially been designed for civilian use, the Brasov Truck Factory was developed for civilian trucks, but manufactured all of the military’s trucks, and the same was true for ARO and for the naval shipyards in Galati, Mangalia and Constanta. An anecdotal case is that of the “sewing machinery factory” in Cugir, in fact machine-guns producer, while cigarette companies were designed to quickly switch to production of 7.62mm cartridges.

The isolationism of the 80’s made it so that the current ROMAERO was known as the “Bucharest Airplane Factory” and caused a similar “Craiova Airplane Factory” to become stuck in manufacturing and perfecting IAR-93 jets (a program later picked up by the Serbians with their ORAO airplane). But at the same time gunpowder was still manufactured in Fagaras, armored vehicles were assembled in Moreni and tanks in Bucharest. Military equipment was exported mainly to the African and Middle Eastern markets, but production lines had not been upgraded. The new products were not competitive, especially because of the denial access to new technologies in the field; they were minor improvements on the licensed models of the ‘60s and the ‘70s.

Because of this, Romania’s defense industry was on the verge of collapse at the beginning of the ‘90s. The demise of centralized planning, the lack of experience and concern for existing facilities were combined with the fears of those who led the privatization of the national defense system. The legendary involvement of the Securitate in running this industry was the main cause for which many of these facilities were never privatized, barring a couple of exceptions. Actually, the Ministry of National Defense (MoD) decided to monitor somewhat the privatization process of these enterprises, in cases where it was required, and also stopped this process from extending, so as to not affect national defense interests. This involvement was possible for the duration of the Technical Reception Committees, as specifically military structures .

There were some exceptions, though. One of them was the former Airplane Repair Plant (URA) Bacau, which was transformed following privatization into AEROSTAR Bacau. The process of MEBO privatization from the beginning of ‘90s went nearly unobserved. Its decline[2] made for cheap shares on the stock market. All of this in the context in which it was said, during the ‘80s, the anything can be manufactured at URA, “even human eyes”!

The MiG 21 upgrading program meant the revival of Bacau’s aviation industry. The costs of the program were low, relative to what was accomplished. From a military standpoint, 110 aircrafts were reinvigorated and modernized, some of them in use even today, more than 20 years following the manufacture of the first modernized plane. More importantly, Air Policing is still being made with these planes, both as a significant national mission and also within NATO’s air defense systems as QRA. Since 2004, this service is both under NATO and national control. Executing a committed mission and maintaining an adequate level of training for the personnel was supplemented by the first foreign mission of a fighter squadron within allied structures in 2007, in the Baltic region.

But the accomplishments were not exclusive to the military area. Retaining and even brining back home highly specialized workforce, rebuilding work infrastructure, new technologies which allow for maintenance work on civil airplanes represent material upsides, which are join by a steady income to national budget. We are, therefore, talking about money, jobs, infrastructure and modern technologies, but also about developing other facilities horizontally. An example in this regard would be “SIMULTEC”, a company that maybe should be better known due to the possibilities it offers, led by a team of professionals (engineers that effectively took part in developing the products), which employs very qualified specialists, many with an impressive background in military aviation.

This is a positive example, but I can also give some negative examples, without naming the enterprises. These are still state-owned. They are a part of all the strategies of reinvigorating /rebuilding /modernizing /etc. the defense industry. One of them was well known for assembling armored vehicles, in Romania and in a number of African states. The collective of specialists have been recognized to be united and qualified for their activity. They have worked hard in the ‘80s, even the ‘90s, and some of them are a few years away from retirement. They do not have the courage to resign, because of age, not knowing foreign languages, education. They are skilled, but they have nothing to use that skill for. The diminished MApN budget of 2006-2016 left them without orders. They received, instead, technical unemployment. Money for not working! I know they did not wish for this, they would have wished to be paid and respected for what they are skilled at. I have also explained this to a well-known former secretary of state from the Ministry of Finance. I have asked for money to be allocated in the defense industry for maintenance, with a specific receiver. He replied that I am bad at this, and that only he knew how to close the budget. And he did close it, probably for too many years and even more consequences for a lot of people. While syndicate leaders helped him by pressuring political decision-makers, who only knew to answer through taking circumstantial measures.

The investors then arrived, saw the production lines, the employees, held talks and concluded the following: the infrastructure needs to be redone, production lines need to be replaced, training and specialized courses are needed, and they prefer personnel under the age of 35, so that they can invest in their training. They were thanked (sometimes!), they were made to wait, but the decision was then clear: this cannot be accepted! But what is, then, the solution? We will pioneer a new product! With its own license, so that we don’t depend on anyone (this seems somewhat familiar!), we will keep all that we have and finance research and development. And that is how funds were allocated for the invention of a Romanian product. Actually, they attempted to modernize an older product, which invalidated by the potential beneficiaries. In the meantime, in Europe, the foundation was laid for a European-wide project.

A different example could be another airplane factory, which manufactured with its own license a fairly good airplane, even if exports failed to happen. In the same context of a lack of funds, the best employees left, a couple remained, they received technical unemployment, the production line was left unused - with all of the expected consequences. There was no attempt made to restructure it for maintenance of other airplanes, there were no orders, and the only support it had left was that of the state budget. In an era of the free market, of competition, it’s hard to explain why you would place an order with an enterprise that lacks other clients. The quality of its products is not attested by the market, prices cannot be compared, and faith in the product is lacking and diminishing ever more.

Military structures were also forced to adapt. After a period of outsourcing some services, the returned to their own capabilities. The maintenance process was reworked to be used in military maintenance bases or centers, even for critical repairs or major revisions. The breath of fresh air given by a bigger defense budget allowed for some acquisitions of tools and appliances, infrastructure repairs and even the building of new production lines. Even if there are some problems left in regards to personnel qualification and certification, guaranteeing their products and the impossibility of taking on complex orders, this process tends to exclude the “defense industry”. More and more often, maintenance contracts are signed with these enterprises as a result of political decisions caused by syndical pressures.

A solid assessment of the “defense industry” was made between 2013 and 2014; that was followed by a “Strategy to restart the defense industry”, by promises and optimistic programs. Unfortunately, practical effects are not notable. The document made in that period, in good faith and with involvement, was maybe too big to be read by political decision-makers (it numbered about 100 pages!), and the same could be said about its synthesis (10-12 pages). It could have been a first step, if conceptual changes were made. The document called for a rethinking of the way we develop products within the defense industry, “from Soviet (Eastern) licensed products, to our own, Romanian licensed products”! The reasoning for this was the membership in the EU, in NATO etc. Unfortunately no serious connection has been made with European products developed through OCCAR[3] (which few know what it stands for!) or through the European Defense Agency (EDA), and neither was it treated as a component of a strategic partnership.

Actually, I think we are among the few talking about “strategic partnerships” without having the military-economic component at least defined through a common program. Recently, we have supported PESCO, which was being developed anyway, even without our support. But we aren’t involved in programs that are financed, just in financing some of them, which are accomplished within the “European defense industry”, of which we are not a part of. Should we aspire to accede to this family? Can we contribute with anything? Of course we can! Even if facilities need to be constructed, we have land. There are former barracks available. The workforce migrating to Europe could return home. Do we have the funds? We could free up part of the 2% or get them from other investment funds. Therefore, what is necessary? The correct answer is the affirmative one. Do we have the means? Of course! What must be done? Involvement, correctness, seriousness and professionalism are qualities which must be required for the task force. Negotiations with strategic partners, involving ourselves in European programs, a set of financial facilities for investments, a law regarding investment in the defense industry. Maybe more, maybe less, but we have escape this area of demagogy and wasting public money in black holes.

Contracts which mention an “offset”, but come to fruition only through additional works, most of the times irrelevant, bring suspicion. A lack of experience, of qualified personnel to negotiate and set up this type of contracts are as damaging as malicious intent is. Otherwise, how can we interpret conditioning the contract to build future corvettes (which will replace current frigates!) on critical repairs and modernizing the frigates, which are outdated? The modernization process which was stopped ten years ago, necessary at the time, is not warranted right now. Here’s the reason: critical repairs and modernizing the three frigates would take approximately 24 months, which would block the production line necessary to build the corvettes (line which would be built at least six months after signing the contract). The objective of modernizing the frigates would be to extend their lifespan of active duty for approximately ten years. The effective timetable in which the corvettes would become operational, with all this delay included, would be approximately five years. After that it would impossible to support simultaneous deployment of the frigates and the corvettes. Therefore, the investment in modernization would not be recouped in operational time.

On the other hand, delaying the decision regarding the completion of the fighter fleet endangers the Air Policing mission, extremely important in the current context. The initial deadline for having a squadron become operational has already been passed. Five years after we signed the contract, declaring complete operational status for air policing with F-16s is difficult with only 12 airplanes, in the context of badly understood “savings” also made regarding personnel training costs. It’s an obvious example of an assessment error, which demonstrates that not having the required personnel and equipment for accomplishing the objective brings losses and additional costs.

The program to purchase armored personnel carriers seems to be split in a lot of smaller programs, maybe to “satisfy” more people. Different equipment for the same mission means different logistic packages, maybe even different production lines for maintenance, which leads to a rise in costs. Despite all this, taking into account the rather high number of necessary APCs, if each purchase is doubled down by the development of facilities with dual scope, which would also produce easy to sell civilian equipment, it could lead to significant economic growth, jobs, competition and high quality.

Therefore, the defense industry could be one of the engines of the Romanian economy’s long term development, if it will be reconsidered through solid partnerships with European states which have cutting-edge technology, as well as with the US and Canada. Taking part in important common projects, involving ourselves in the production, even specializing in a number of areas are solutions to integrate into the current defense industry. Giving up on the losing ideas of pioneering products we don’t have enough expertise for would eliminate part of the losses, and abolishing state aid and technical unemployment would lead to healthy production, in the long term.



[1] The invasion of Czechoslovakia by forces of the Warsaw Pact. Only Romania and Albania refrained from taking part in the action out of member states, with the mention that Albania had stopped actively participating in Pact since 1961.

[2] A renowned enterprise, it began to assemble television sets and washing machines, unofficially, in the ‘80s.

[3] The Organisation for Joint Armament Co-operation

 

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