Bulgaria Announces $680 Million Army Modernization Program, but Will It Ever Come to Pass?

By Dan Darling, Forecast International

Bulgaria plans to implement a BGN1 billion ($680 million) military modernization program aimed at decreasing the army’s dependence on Russian-legacy hardware. The program, announced by Defense Minister Velizar Shalamanov, will run through 2020. The modernization will feature the long-anticipated acquisition of new multirole combat aircraft that will allow Bulgaria to begin phasing out its MiG-21 and MiG-29 fleets. It will also involve the procurement of a new submarine and new naval vessels.

Bulgarian MiG-29s are slated for phase out.

Bulgarian MiG-29s are slated for phase out.

Bulgaria’s Defense Ministry is currently drafting a plan that would see defense budgets rise to 2 percent of annual GDP. Under this plan, defense investment would rise rapidly on a year-by-year basis, as current military expenditures reside at 1.3 percent of GDP.

Throughout much of the 2000s, Bulgaria remained one of a handful of NATO members to meet the minimum standard of 2 percent of GDP allocated toward defense, despite being the poorest member of the Alliance. In 2001, the country devoted just under 3 percent of GDP to defense (2.96 percent), but by 2005, that figure had dropped to 2.45 percent. By 2009, with the Bulgarian economy stumbling under the weight of a Europe-wide recession, defense allocations had dropped to 1.86 percent of GDP and then fell nominally by 23 percent in 2010 as the government pursued austerity measures to keep Sofia in the good graces of the European Commission.

As a result of the decline in defense investment, Bulgaria’s longstanding military modernization effort, titled Plan 2015, was pushed out to 2020 under the most recent Defense White Paper (released in 2011). Plan 2015 involved the purchase of ground transportation vehicles, multirole fighters, naval fighting ships, communications equipment, and a reconnaissance command-and-control system.

The latest modernization plan announcement appears, on the surface at least, to be old wine in a new bottle. The requirements of the Bulgarian armed forces have not changed, only the face heading the Defense Ministry has. The latter itself makes this latest announcement appear tenuous, as Shalamanov is part of the caretaker government of Prime Minister Georgi Bliznashki. With parliamentary elections approaching on October 5, his time atop the Defense Ministry may prove short.

More to the point, requests by Bulgarian Defense Ministers are often given short shrift by sitting governments. An example of this came in 2012, shortly after the release of the most recent defense white paper. Then-Defense Minister Anyu Angelov requested that Parliament keep defense spending at a minimum of 1.5 percent of GDP through 2014 – the result was that expenditure fell to 1.2 percent in 2012.

With a poor economy that is struggling to make headway, readily available funding is simply not there to be doled out. An incoming government sympathetic to defense and perhaps alarmed by events in Ukraine may place a higher premium on military investment, but doing so would require not only increasing annual defense budgets but also bringing greater balance to the way the consolidated defense allocation is then spent. Currently, Bulgaria’s Defense Ministry allocates just 5 percent of the defense budget toward capital investment (i.e., procuring new military hardware and upgrading and maintaining existing materiel). Some 74 percent of the budget is devoted to personnel expenses, rather than the desired 60 percent called for in the Defense White Paper. With limited funding thus allocated so disproportionately, the Bulgarian armed forces remain stuck with their Soviet-/Russian-legacy hardware, despite having entered the NATO Alliance a decade ago.

Unless funding both increases and is doled out more equitably than the status quo – an army forced to rely upon using the equipment of their allies for training purposes when joint exercises are conducted on Bulgarian soil – will remain. But if the next government is less sympathetic toward upgrading the armed forces than it is tackling the country’s myriad problems – which include rooting out corruption, strengthening the judicial system, improving public infrastructure, and adhering to EU budgeting and transparency rules – then the matter becomes moot.

Dauria Aerospace Building a Global Technology Company

By William Ostrove, Forecast International

On August 13, Forecast International discussed Dauria Aerospace‘s satellite business with company founder and CEO Mike Kokorich. Kokorich stated that Dauria is building a global commercial technology company. In commenting on the global reach of the satellite industry, Kokorich noted that the company’s headquarters are in Munich, Germany, and that it operates facilities in the Moscow region of Russia and in the U.S. at Moffett Field in California.

 

Dauria Aerospace founder and CEO Mike Kokorich

Dauria Aerospace founder and CEO Mike Kokorich

Dauria is part of the wider push in the satellite industry toward greater commercialization and more miniaturization. A number of new commercial satellite companies have been founded recently, including Planet Labs, Skybox Imaging, and Spire. These companies focus on modern technology and user-friendly applications to attract customers. For many of these companies, the key to success is data. Satellites are simply the tool to gather and transmit the data. As computer components get smaller and cheaper, the companies are able to build small, inexpensive satellites that still provide good capabilities.

As with many companies in the satellite industry, export credit facilities and export insurance are critical to Dauria’s success. Fortunately for Dauria, the Russian government is promoting technology development and export and thus is willing to provide the government backing necessary to obtain export credit and insurance. In fact, for Dauria’s latest contract, to build two satellites for Aniara SpaceCom LLC of India, the Export Insurance Agency of Russia (EXIAR) might provide a direct loan to support the sale.

Many new satellite companies, such as Planet Labs, are designing, building, and operating their own satellites in-house. Dauria, however, utilizes a variety of arrangements with customers. For example, Kokorich describes the company’s current contract with Deimos, a remote-sensing satellite operator located in Spain, as being similar to a time share (credit butt). Each company is able to utilize the satellites for a set period of time, with both benefitting from the data gathered by the satellites. At other times, Dauria simply builds satellites under contract. The contract with Aniara falls in this category.

Perseus is the first Perseus moderate resolution earth observation satellite

Perseus moderate resolution earth observation satellite

Unlike many new satellite companies, however, Dauria does not focus on a single satellite platform. Instead, the company has the flexibility to design and build satellites as needed. Kokorich said that the company would eventually like to have a set of standard platforms that it could sell to a variety of customers, similar to Boeing with its BSS-702 or Airbus with its Eurostar platform. The satellites for Aniara are based on a new Atom platform. Even with standardized designs, though, Kokorich foresees that the company will build custom-designed spacecraft or standardized designs as needed.

Satellites designed by Dauria for low-Earth orbit (LEO) operations will have an estimated lifespan of 5 years, while those designed for geosynchronous (GEO) orbit will have a lifespan of 10 to 15 years. Kokorich stressed here that because the designs are new, lifespans are based on probabilistic models.

Dauria Aerospace has a goal of building a global technology company focused on building satellites and collecting data. The small satellite market is still developing and growing. While there is ample competition, Dauria is getting in early, and has already had success gaining contracts to build satellites for a number of operators. If it can continue that success, it will be well placed to grow going forward.

@B_OstroveFI

Italian Tactical Vehicle Manufacturers Look Abroad for Market Opportunities

By Thomas Dolzall, Forecast International

Although the Italian armed forces maintain a steady level of annual procurement, the Italian government has not traditionally placed a high priority on the acquisition of wheeled support and logistics vehicles.

The relative dearth of contracts from the Italian government has inhibited the ability of Italian automotive and defense contractors to pursue the large-scale production and development opportunities that have proven so lucrative for many other European vehicle manufacturers – transforming them into some of the most influential forces on the international market for wheeled tactical vehicles.

As a result of this relative paucity of domestic contracts, Italian manufacturers continue to find themselves at a competitive disadvantage internationally in the defense and automotive sphere.

IVECO_logo

Nevertheless, Italian defense and automotive contractor Iveco has risen to become one of the most potent forces on the international marketplace for wheeled logistics vehicles, and it continues to provide a robust challenge to Europe’s most established logistics vehicle brands.

Iveco’s international reach has expanded considerably in recent years, with the contractor exerting influence through an array of foreign subsidiaries and a number of vehicle licensing agreements.

Although it will still require several more years of sustained marketing efforts for Iveco tactical vehicles to achieve the brand-name cachet of some of its U.S. and European competitors, the contractor’s recent track record indicates that its market ascent will continue unabated through the forecast period.

Astra VI SpA operates as a component of Iveco Defence Vehicles Division. In turn, Iveco itself acts as a subsidiary of Fiat SpA. Through these subsidiaries, Fiat effectively controls the Italian tactical vehicles market and grants its subsidiary contractors access to an extensive and established international network.

In February 2014, the French Division of General Armaments (DGA) announced that the Ministry of Defense had signed a supplementary contract for the procurement of an additional 250 Iveco PPT logistics vehicles. This latest order builds off a prior contract signed in 2010 for the acquisition of 200 PPT series vehicles. Delivery of the 200-vehicle order began in 2013 and is scheduled for completion by the end of 2014.

Iveco PPT

Both the 2010 and 2014 procurement contracts are organized under the framework of the French Army’s Porteurs Polyvalents Terrestre (PPT) initiative. The PPT program aims to replace much of the French Army’s logistics inventories with a new family of modern, modular vehicle designs. The French Army could acquire as many as 1,800 new vehicles over the length of the program.

This latest order of 250 vehicles will be outfitted with stock, unprotected driver’s cabs of the PPLOG variant, but are capable of accommodating an armored cabin configuration if the operator requires it. Deliveries of this second order are scheduled to begin in 2016.

Iveco Looks to Possible Turkish Acqiuisiton

In February 2014, the Turkish government and Cukurova Holding announced that in April of the same year they would place the long-beleaguered Turkish automotive giant BMC on the market for international sale.

BMC’s assets were seized by Turkey’s Savings Deposit Insurance Fund (TMSF) in 2013 after the contractor declared bankruptcy and failed to deliver a significant Turkish government order for Kirpi wheeled armored vehicles within the agreed-upon timeline.

Despite these past setbacks, however, BMC holds substantial value as one of the region’s largest automotive contractors, with a significant independent product line and robust infrastructure of modern production facilities. As such, open-source reporting indicates that a number of international automotive contractors, including Iveco, are now considering the acquisition of BMC.

The domestic procurement of logistics vehicles by the Italian military will remain a secondary source of revenue for Italian defense contractors through the forecast period. Nevertheless, the Italian Army is undertaking a modest re-equipping and modernization cycle for its wheeled tactical and logistics vehicle inventories that will provide select contractors with regular business through the forecast period. Primarily, this effort will result in the steady acquisition of Iveco 40-10 WM logistics vehicles. This re-equipping program is one of the few to emerge relatively unscathed with the implementation of wide-reaching austerity measures and the contraction of Italian defense spending.

Expanded long-term planning on the part of the Italian MoD has helped mitigate some of austerity’s impact on the Italian military’s logistics capabilities, and over the past year the Italian economy has shown signs of modest stabilization. But despite these improvements, the overall economic situation in Italy remains deeply tenuous, and recent months have seen an unexpected contraction of the Italian GDP that is likely to instill further uncertainty among economic planners and lawmakers in Rome.

@TDolzallFI