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Get Yer Red Hot Bombers, Tanks, And Missiles

International Business


Expense-account excess is synonymous with the Farnborough Air Show, the aerospace industry's biennial sales extravaganza. Russia's P. Sukhoi Design Bureau did its best to match Western standards. But when the show opened near London on Sept. 6, Sukhoi couldn't afford the fancy catered spreads of its Western rivals. Guests at its chalet had to settle for fried chicken and meat pies flown in from Russia. "We don't have the resources of General Dynamics," a spokesman says, "but we'll match our fighters against theirs any day. We provide more bang for bucks."

To prove the point, a brigade of 400 former Soviets, including Russians, Ukrainians, and Uzbeks, rolled out an array of aircraft rarely seen--let alone offered for sale--in the West. On display were the long-range Backfire bomber, the Yak-141 vertical-takeoff plane, and the Sukhoi Su-24MR swing-wing attack aircraft. Equally dazzling were the rock-bottom prices--as much as two-thirds less than for comparable Western models (table). Says O. K. Moore, director of European marketing at Bell Helicopter Textron Inc.: "If you've got hard currency, they're offering fantastic bargains."

The markdowns show just how desperate things are for Russian President Boris Yeltsin. Weapons are one of the few sources of hard-currency export earnings left. And there's plenty of merchandise to move. With the end of the cold war, the Russians have 1,600 surplus military aircraft and some 10,000 tanks gathering dust at home. Roughly one-sixth of the ex-Soviet Navy--including the $3 billion aircraft carrier Varyag under construction in Ukraine--is on the block.

Russia's push to sell arms is also driven by a critical shift in Moscow policy. Since 1985, Kremlin leaders have talked about converting military plants to civilian uses. Conversion was supposed to refashion the old empire's 1,100 defense enterprises and 900 research institutes into commercial concerns. "The only problem," says Michael D. Maley, Yeltsin's conversion adviser, "was that no one ever said where the money would come from."

SHAKEOUT. So, in a victory for officials who want to retain much of Russia's military capacity, Moscow is testing world markets to determine which plants can make salable goods. Those plants that can make major sales will have hard currency to design and make even better weapons, says Maley, adding that those with modest sales should use their dollar proceeds to convert to civilian production. The rest will be sold off.

Although the U.S. now reigns as the world's leading arms merchant, the Russians are chalking up some successes. In one head-turning deal, China plunked down $1.2 billion in cash and barter goods for 24 Su-27 fighters, and it is scouring the former Soviet Union for more aircraft, missiles, and technical knowhow. Western sources say Iran is another eager customer: It's forking over $2.2 billion for 110 planes, including Tu-22M3 bombers and the highly regarded MiG-29 and MiG-31 jet fighters. Iran has also picked up six diesel-powered submarines.

U.S. defense contractors are learning the hard way just how ruthless Russia's emerging dealmakers can be. FMC Corp. planned to sell 500 Bradley armored fighting vehicles to the United Arab Emirates. Then, Russia offered a substitute--its BMP armored personnel carrier--for a third of the Bradley's $1.5 million price. "We were shocked," says an FMC official. "We thought we had the order." And at Raytheon Co., maker of the Patriot antimissile system, one official complains that the Russians have shadowed his sales team on worldwide trips. The Russians then offer prospective customers a comparable air-defense system, the SA-10, at about half the $150 million or so that the Patriot costs.

Still, a resurgence of arms sales will be no panacea for the free-falling Russian economy. In fact, it's unlikely the Russians will ever match the $20 billion to $25 billion in annual weapons sales that the Soviet Union rang up in the mid-1980s to such client states as Syria and Vietnam on easy credit terms.

`CRAZY.' And while its MiG jets and air-defense systems still command respect, Russia's ability to provide spare parts and maintenance is suspect. When it comes to the most advanced systems, "you'd have to be crazy to buy the Russian stuff," says Loren B. Thompson, deputy director of Georgetown University's national security studies program.

Russia's efforts to elbow its way back into the big leagues of global arms sales could strain its new partnership with the West. Yeltsin has promised not to sell weaponry to renegade states. But with the former Soviet Union's export-control regime in tatters, U.S. policymakers worry about big sales to Beijing or a rearmed Iran. If the sales get out of hand, Washington could hold up financial aid. But with the White House trolling for votes by stepping up its own arms-export push, it may be hard to blame the Russians for trying to get a piece of the action.Brian Bremner and Amy Borrus in Washington, Paula Dwyer at Farnborough, and Rose Brady in Moscow

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