Elbit Wins $70M Order to Upgrade Bulgaria’s Helicopters (updated)
In December 2005, this article reported that Israeli firm Elbit Systems Ltd. has signed a EUR 57.3 million ($70 million) contract for a helicopter upgrade program with the Bulgarian Ministry of Defense. The program included upgrades for 12 MI-24 Hind combat helicopters and 6 MI-17 Hip transport helicopters to comply with NATO standards. The program was expected to be performed over a three-year period, and would be executed with the participation of Bulgarian aerospace and defense industries. See complete news release [PDF format]
Elbit Systems was chosen as the contractor for the repair of the helicopters in competition with British BAE Systems and French Sagem. A March 5, 2007 Elbit release, however, notes that the project has been canceled by mutual agreement, and a settlement reached…
Background: Both Sides of the Fence
Israeli experience refurbishing captured Soviet arms has helped its firms do a good business over the years upgrading Soviet equipment to compliance with Western/NATO standards, and its avionics industry is very advanced. Elbit Systems has performed numerous major helicopter upgrades of both western and eastern rotary platforms.
Since joining the NATO alliance in March 2004, Bulgaria has struggled to find the funds required to bring its armed forces up to NATO standards and ensure interoperability. In the country’s recent 2006 draft budget, defense spending was BGN 1.16 billion (about $687 million), or 2.6% of GDP. The current plan calls for modernization to be carried out gradually, and completed by 2015.
The Deal: Rocky Flight, Autorotation Landing
As far back as March, 2005, the helicopter upgrades had been suspended by Defence Minister Nikolai Svinarov on the grounds that Elbit failed to meet the initially declared criteria. Elbit appealed the case before Bulgaria’s Supreme Administrative Court – and won, leading to the EUR 57 million December 2005 contract noted above.
Negotiations around the contract’s cancellation became public again in late January 2007. After 2 rounds of negotiations failed, in February 2007 newspapers reported a unilateral cancellation by the Bulgarian Ministry of Defense. The Sofia Echo added:
“According to the contact signed, one Mi-24 with restored flying ability and lengthened technical resource and two modernised Mi-17 were supposed to be ready in 2006, but the machines have still not been delivered.”
The March 2007 agreement between Elbit and Bulgaria, on the other hand, takes pains to state that it “recognizes that the cancellation of the contract is by mutual consent and is not a result of breach of obligations by either party.”
The February 2007 reports had Bulgaria seeking EUR 12 million in returned payments, and another EUR 3 million in damages. Under the March 2007 cancellation agreement, Elbit Systems will return part of the EUR 12 million advance payments received, and will also deliver some equipment and items already produced to the Ministry of Defense. This is less than the Bulgarians had wanted; on the other hand, with that agreement, plus the joint statement that all obligations have been honored, the Bulgarian government cannot be sued for the cancellation.