Russia May Buy $12 Billion of Arms From NATO Members, Israel, Report Says

Russia may buy $12 billion of arms from European and Israeli companies, including DCNS and Iveco SpA, over the next five years as the world’s second-biggest arms exporter hunts for higher-quality weapons than domestic companies can provide, according to a Moscow research institute.

The two biggest deals -- about 1.5 billion euros ($1.8 billion) each -- may be signed within two years, according to a report compiled for Bloomberg News by the Center for Analysis of Strategies and Technologies. Russia plans to acquire four Mistral helicopter carrier ships from Paris-based DCNS, and is in talks with Iveco, a unit of Turin, Italy-based Fiat SpA, for as many as 3,000 M65E light armored vehicles, the report shows.

“Russia has been an exception on military procurement, because no other country in the last 15 years tried to be 100 percent autonomous,” said center Director Ruslan Pukhov. “Now we have recognized that you can’t be competitive in all areas.”

While the military has always purchased some weapons from abroad, the search for overseas suppliers increased after the five-day war with Georgia in 2008 revealed weaknesses in Russian technology, Pukhov said. The drive for foreign equipment is now reaching the stage of large-scale deals. Russia ranked 80th in arms imports in 2005-2009 behind Myanmar, according to the Stockholm International Peace Research Institute.

Military Shopping List

Prime Minister Vladimir Putin wrapped up a two-day visit to Paris, where the deal to buy Mistrals was discussed. The purchase would interest Russia only if it were accompanied by a technology transfer, Putin said in an interview with Agence France-Presse published on June 9.

Russia will increase spending on military equipment by 8 percent to 1.17 trillion rubles ($37.2 billion) in 2010, Putin said in December. President Dmitry Medvedev said the military this year needs more than 30 ballistic missiles, five Iskander air-defense batteries, about 300 “modern” armored vehicles, 30 helicopters, 28 warplanes, three nuclear-powered submarines and a corvette.

The Center for Analysis of Strategies and Technologies publishes Arms Export, a bimonthly journal on the weapons trade and defense industry, and Moscow Defense Brief, which covers Russia’s view on security issues for an international audience. Pukhov sits on the Defense Ministry’s public advisory board.

Georgia War

The center “probably possesses the widest range of information on Russian defense procurement, technologies and arms exports and imports of any Russian research institute,” said Konstantin von Eggert, a Moscow-based political analyst and member of the Royal Institute of International Affairs in London. “It has proven accurate in its analysis.”

Medvedev called for an overhaul of the military after the war with Georgia. At least 30 percent of the army’s weapons must be “state-of-the-art” by 2015, he said last month.

“When ordering new weapons and technologies, the army will think first of all about what’s best in terms of personnel safety,” Defense Minister Anatoly Serdyukov said in April.

Russia is still the second-biggest arms exporter, with 23 percent of the market, behind the U.S. at 30 percent, according to the Stockholm institute. Annual shipments more than doubled to $8.6 billion in the past decade, Putin said in February.

The move to buy arms abroad shows “a clear realization” that the defense industry “isn’t ready to supply the armed forces with high-tech, advanced weapons,” von Eggert said.

French Warship

Most of Russia’s purchases will be made in North Atlantic Treaty Organization countries, indicating a shift in Russia’s relationship with the alliance, Pukhov said.

“You have rhetoric that can be quite anti-Western at times,” he said. “Russia’s real policy is to buy arms from NATO countries. This means Russia doesn’t see the alliance as a main threat any longer.”

The biggest item on Russia’s shopping list is four Mistral warships. One vessel will probably be built at an STX France SA shipyard, according to the report. A second may be built by STX in sections and assembled in Russia, and two more may be built under license in Russia, the center said.

Nikolai Makarov, head of the Russian military’s General Staff, said the Mistral contract is almost finished, Interfax reported June 8. The vessel is superior to ships used by Russia, the independent Russian news service cited Makarov as saying.

Russia’s state-run OAO United Shipbuilding Corp. is ready to participate in talks on building the warships at its shipyards, RIA Novosti said, citing Deputy Prime Minister Igor Sechin.

Iveco Talks

The army may acquire as many as 3,000 of Iveco’s M65E vehicles, which would be assembled by OAO KamAZ, Russia’s biggest truck maker, according to the report.

Oleg Afanasyev, a spokesman for KamAZ, said the Naberezhnye Chelny, Russia-based company is in talks with Iveco, though no agreement has been reached. Fiat spokesman Richard Gadeselli said neither Fiat nor Iveco is in talks with Russia to produce military vehicles.

The report cites three more deals that may be concluded within two years. Russia may sign a 300 million-euro joint- production agreement with Tel Aviv-based Israel Aerospace Industries Ltd. to make pilotless aircraft, the center said.

Doron Suslik, a spokesman for Israel Aerospace, said the company is interested in doing business with Russia, though he declined to discuss potential deals.

A contract to buy thermal cameras for tanks from Neuilly- sur-Seine, France-based Thales SA, may also total 300 million euros, the center said. A deal to purchase battlefield optics and navigation equipment from Sagem, part of Paris-based Safran SA, may cost the same.

Licensed production of Thales cameras will begin July 9 at a plant in Vologda, Russia, said Alla Kuznetsova, the company’s Russia chief. Patrick Barraquand, who heads Sagem’s Russian unit, said he couldn’t comment.

To contact the reporter on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

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