Thursday, July 14, 2011

Bad or Worse

The Swedish defence industry is at a cross road. During the Cold War the defence industry was supported by the Swedish Government. Experiences from WWII tought the Swedes a valuable lesson. When military equipment is needed, everyone need it at the same time. During a war a small country is at the very end of the list of customers who will receive what they have already ordered and in some cases even paid for.

There were a number of incidents:

- J 9. Sweden bought 120 Seversky Republic EP-106 in 1939. In US service known as P-35. However the war came before they were all delivered and the US decided to keep 60 of the aircraft. Some of the went to war in the Pacific against the Japanese, still wearing Swedish national insignias. Read more at LAE, here, here and here. Also see this video. 144 x Vultee P-66 Vanguard, designated J 10 were also not delivered to Sweden. Read more here. Sweden were forced to buy whatever aircraft they could find on the international market.

The outbreak of war greatly affected Sweden's military buildup, as the USA stopped deliveries of hundreds of new US aircraft to Sweden (among them 60 P-35A and 144 P-66 Vanguard). Only 62 other airplanes had been delivered before the embargo took effect. To complete its war preparations, Sweden searched for other sources, eventually ordering 84 of the Caproni Ca.313S, 72 of the Fiat CR.42, and 60 of the Reggiane Re.2000, an order totaling some 90 million crowns.

The Italian aircraft were not of the highest quality, resulting in many airmens death during the neutrality watch over the Baltic.

- Italian destroyers. In 1940 Sweden needed to enhance the Navy capability to be able to protect the Swedish coastal transports of Iron-ore from northern Sweden from attacks by Russian submarines. Four destroyers were bought from Italy. During the transport back to Sweden the four ships were taken into custody by the Royal Navy. Protests from the Swedish government resulted in that the destroyer could continue to Sweden. The were attacked by RAF on the way to Sweden, but without damage. The Swedish navy were humiliated and many Swedish officers were pro-Germany at the time.

During the Cold War it was important to have a strong Swedish Defence industry in order to truly be neutral and not depending on the west or east block. But nowadays the political ambitions are to buy on the global market at the lowest possible price. EU regulations state that all government purchases should be done by a public bidding process inviting every European manufacturer. The problem is that not all other countries are as willing to follow European laws as Sweden. In most countries the local defence Industry are supported by their government. It is no surprise that e.g. France buy their fighters from Dassault and UK from EADS/BAe.

In Sweden some politicians still believe that there are a need of a strong local industry and that they will need support by the Swedish Government. Otherwise they will have problems to compete on the international market against other manufacturers who get support be their governments.

But there are other possibilities. E.g. for the aircraft manufacturer Saab, there are today a number of very interesting options.

- Sell Gripen to Iraq. At the moment the Iraq government is planning to buy 18 x F-16 from the US. Of course it would be very difficult to compete with the Americans, since they have all the political and military contacts in Iraq. Sweden also avoided getting involved i the Iraq war. Selling military material to Iraq could result in major public outrage in Sweden.

- Work more closely with other aircraft manufacturers. To avoid being absorbed by bigger companies like Lockheed Martin, Boeing, BAe and Dassault the best option might be to cooperate with smaller countries. One very interesting partner is the South Korean company KAI. They are at the moment starting a partnership with Indonesia to manufacture a generation 4.5 fighter.

Established through a merger of three companies in 1999, KAI has a modest experience of developing the indigenous KT-1 Wong Bee trainer, license-producing F-16K and joint-developing T-50 advanced trainer as well as making parts for F-15 (forward fuselage and wings).
The KFX will be developed from T-50 Golden Eagle, a supersonic advance jet trainer jointly developed by KAI and the US Lockheed Martin, with the latter provided the avionics system, flight control and wings. In addition to the US, it is possible that Israel also contributes through an Active Electronically Scanned Array (AESA) radar that will be built domestically in South Korea.

But South Korea is in a hot zone with a troublesome neighbor. Sweden has always been neutral in this conflict and as such part of the NNSC - Neutral Nations Supervisory Commission at the Korean border. A lot of thankful people who were treated at the Swedish UN hospital in Pusan during the Korean War has commented on this page. Sweden´s EU membership and the close cooperation with NATO, including fighting with NATO in Afghanistan and Liberia, is on the verge of kicking Sweden out of the commission. A Swedish company cooperating with a South Korean to build a fighter could be the final step for North Korea to ask NNSC to remove Sweden from this task, which would be a political setback.

Both these opportunities are of course just fantasies. But if the Swedish defence industries are forced to find international cooperation and business opportunities there will be a risk for political problems for the Swedish government.

During the years there has been a number of political incidents related to international arms deals.

- During the Vietnam war, the Swedish Prime minister, Mr Olof Palme publicly condemned US involvment in the conflict. At the same time Swedish companies sold weapons to both US and Australia that were used in Vietnam. Loved by US soldiers were the Carl Gustav recoilless rifle and the 9 mm submachine gun was used by US Special Forces.

- Well known is the Bofors scandal where a employee of Bofors leaked dokuments showing that Bofors bribed key politicians in the Indian government when the bought Bofors Howitzers.

- Saab has problems in South Africa due to the cooperation with BAe to sell the Gripen. Saab president Mr Håkan Buskhe has denied all involvement in any bribes to the South African government and put the blame on BAe.

"A person emplyed by BAE Systems has without Saab’s knowledge signed a for us unknown contract, signed for us up until now unknown transactions as well as signing the audited and apparently inaccurate financial statement for 2003.

The investigation and assembled materials have been submitted to the attorney Tomas Nilsson, who has been asked to comment whether, in his view, the investigation material supports Saab's conclusions. All investigation material has been handed over to Chief Prosecutor Gunnar Stetler at the National Anti-Corruption Unit on Saab's behalf. Saab will be at the complete disposal of the Chief Prosecutor in this case, should such a need arise.

"Saab has a zero-tolerance policy towards irregularities. Our internal investigation and openness in this matter demonstrates how seriously we regard this," says Håkan Buskhe.

Most likely what Mr Buskhe says is true. BAe has been involved in other shady affairs where there are rumors about bribes, e.g. the Eurofighter sales to Saudi Arabia. But wouldn´t it be best for everyone if the lid was kept on? Why do we Swedes always keep digging into our own dirty laundry?

This clearly shows that if the Swedish government does not support the defence industry, they are forces to work on the international market using the same methods as their competitors. These methods are not compatible with Swedish law and traditions. Mr Buskhes acknowledge to the money transaction might be honorable in Sweden, but in international business it might be a financial disaster. International companies might in the future avoid cooperating with Swedish companies since they too often leak information. International customers might avoid Swedish companies since there can be no bribes which unfortunately is what many customers are used to.

Supporting Swedish defence companies might be bad for the Swedish Government since this requires Sweden not to fulfill each and every EU regulation regarding public purchases. On the other hand Swedish companies getting involved in shady business might be even worse for the Government.



  1. Very interesting post. There must be a very fine balance between supporting your own country's local defense industry, and buying foreign material. I for one, think that FMV did the right choice by choosing the PATRIA XA-360 AMV over the BAE Hagglunds SEP/Alligator. The AMV was a safer choice with more reliable technology, giving Finland and Sweden a better co-operation and still enabling Swedish companies with a big industrial offset. In order for the local defense industries to make it, they need to offer great products that are world-class material. There are still some companies in Sweden that meets that demand, Saab, Kockums, Bofors and BAE Hagglunds for an example. But to be honest, I'd rather see a healthy Swedish Armed Forces than a healthy Swedish defense industry. If the Swedish defense industry is to survive they need to keep developing cutting edge technology so that not only Sweden have to buy it.

  2. @Anonymous 13.14: I agree with you. The Patria was a good choice. The Swedish defence industry will probably deliver better products if it is done while competing on the international market.

    But then ISP, the Swedish Export Approval Agency must be more willing to approve contracts with countries like Saudi Arabia etc, where the big business is. A company can not survive or evolve on the small affairs. In Sweden export of military products is forbidden by law and ISP approves case by case when it should be permitted.

    There must also be an end to the Swedish belief that the defence industry should behave in any other way than e.g. Skanska or Ericsson. I f bribes are part of the culture in the country it must be allowed.

    Why not ask the question why some countries demand bribes? There is maybe the ultimate challenge for reporters to dig deep into.