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Date Posted:28-Aug-2003
JANE'S DEFENCE WEEKLY - SEPTEMBER 03, 2003
GREEK DEFENCE INDUSTRY: An Olympian effort
Theodore L Valmas JDW Correspondent
Athens
The Greek defence industry is reforming to meet the twin challenges of shrinking budgets and changing market requirements. Theodore Valmas reports
The Greek defence industry is undergoing a transformation in order to meet market requirements and the challenge of shrinking defence budgets. It relies almost exclusively on in-country contracts or offset spin-offs from its Ministry of National Defence (MND) export purchases.
Despite the government's best intentions to support industry, there have been few prime contractorships for Greek companies. The situation is exacerbated by the government's battles to maintain defence funding in the face of tough economic conditions, rising social welfare costs and the need for substantial investment for the Olympics, which are being held in Athens in 2004.
The effort to develop an efficient industrial base, to support the Hellenic Armed Forces' procurement programmes, started in 1976, when the Defence Industry Directorate (DID) was established within the MND.
Until the DID's foundation, the only large defence manufacturer was the privately owned Hellenic Powder and Cartridge Company (Pyrkal).
The founding of the state-owned Hellenic Arms Industry (EBO) and the Hellenic Aerospace Industry (EAV) was followed by the nationalisation of the Hellenic Vehicles Industry ( ELBO) (formerly Steyr-Hellas), as well as the nationalisation of shipyards at Skaramangas and Elefsis.
In 1982, the Association of Greek Defence Equipment Manufacturers (SEKPY) was formed to assist small and medium enterprises (SMEs) taking part in major defence deals, usually as subcontractors. SMEs are key to the Greek defence industry as a way for large international companies to meet government- tendering requirements and procedures have been introduced in an effort to smooth their participation.
Recently, the MND implemented a significant change in procurement contracts, increasing the minimum amount submitted for offsets, from EUR1 million ($1.1 million) to EUR10 million.
Greek industry sources say that the government's policy of increased local input for purchases has helped; but the benefits are limited because of the small size and lack of variety in local industry.
A more general revision of the tendering system is under way but the MND remains tight-lipped on the scope or timelines of the investigation. There is no doubt that offsets have been a boon for some sections of the industry such as electronics (Intracom and EAV), shipbuilding and engineering companies, particularly heavy engineering specialist METKA in the case of the latter.
The MND has turned its attention to improving long-term planning of major armament programmes to boost the chances of Greek industry taking part.
Secretary General of Economic Planning and Defence Investments, Spyros Travlos, believes the key lies in ensuring subcontractors are reliably tied to prime contractors before MND final signature.
"We will insist on the signing of contracts between Greek subcontractors and prime contractors before signing the main contract,'' Travlos says. "Greek industry is participating at an increasing rate in the co-production of equipment by adding high-value aspects, such as electronics and sensors. Long-term planning will promote this development, while participation in European development programmes will further enhance the technological basis of the industry.
"Within the framework of the Greek presidency of the European Union [in the first half of 2003], a significant initiative [was] undertaken to promote the harmonisation of research at an EU level, aiming at concentrating efforts on developing cutting-edge technologies."
Talking to Jane's Defence Weekly, Travlos says the defence and industrial base of Greece has been strengthened through a process of restructuring with the active encouragement and support of the government.
The two shipyards have been returned to the private sector and 47% of ELBO is now owned by the Mitilineos group.
He also says the defence industry's integration into the emerging European defence equipment markets is vital.
"Increased competitiveness, concentration on high-value added activities and increased spending on research, development and joint European programmes, will pave the way for the Greek industry to consolidate and grow in a more competitive market environment," Travlos says.
Key to improving the industries, according to Travlos, has been restructuring and privatisation.
"The full privatisation of the two shipyards in 2000, the partial privatisation of ELBO in 2000 and the merger of Pyrkal with EBO [in the ammunition and light-arms sector], which is ongoing, have gradually transformed the domestic defence industry, in the space of five years, speeding up financial restructuring and the modernisation of equipment," he says.
"A strategic re-orientation of the armaments programme with compulsory co-production clauses in international contracts and the direct assignment of contracts to domestic industries has resulted in a tenfold increase in industry's involvement in Greek defence procurement contracts. Industry's market share within a decade rose from 2% in the early 1990s to 20% in 2003.
"The introduction of compulsory co-production limits in major procurement projects has greatly benefited a growing number of industrial corporations not confined to the defence sector but also extending to metal products, cables and electronics."
Travlos points to an agreement between EAV and NH 90 manufacturer NH Industries, in which the Greek company will produce composite parts for the multirole helicopter as an example of a successful offset deal.
Travlos says that funding from the MND has refocused towards two areas: high-technology sectors and development programmes for systems specified by the armed forces, such as small submarines and fast boats, long-range ammunition and the new 5.56mm assault rifle.
Greek defence industries participate in all major contracts of the armed forces, in some as prime contractors.
Skaramangas Shipyards is at the forefront of the Greek prime contractors. It is prime for three submarines designed by HDW of Germany, which also purchased a substantial interest in the ship. HDW is building the first boats, while Hellenic Shipyards will build the remainder to the HDW design.
Elefsis Industrial Enterprises won the contract to construct five (three, plus an option of two) Super Vita 62m fast attack missile craft for the Hellenic Navy. The ships are being built at the Elefsis yard near Athens. VT of the UK provides the design, construction support, ship equipment and logistic-support services to Elefsis. The option for the additional two Super Vitas was exercised in July.
Elefsis delivered an Etna-class small replenishment oiler HS Prometheus (A 374) to the Hellenic Navy on 8 July that had been constructed under licence from Italy's Fincantieri.
Elefsis Industrial Enterprises, in co-operation with VT, is working on the navy's new corvette programme. The Government Council for Defence and Foreign Policy signed for the procurement of one ship, while an option remains for a second.
The most important Hellenic Army procurement programme under way concerns 150 new infantry fighting vehicles (IFVs), and an option for 130, with ELBO as prime contractor. ELBO is expected to announce the three candidate types to the army shortly. ELBO is offering its own design, the Kentaurus, against a heavier version of the Austrian-Spanish ASCOD. It is expected that a third alternative, the Swedish CV 90, will also be evaluated.
Greek defence industries are participating in several important programmes connected with more than 20 contracts signed by the General Secretariat for Economic Planning and Defence Investment (see 'Main Programmes', page 24).
The commitment by the Greek government to buy 90 Eurofighter Typhoon fighter aircraft in March 2000 should have been a windfall for the country's aerospace industry in the short term with deliveries planned to begin in 2005 (Jane's Defence Weekly 15 March 2000).
A budget crisis, a leap in welfare expenditure and the need to divert money to infrastructure works in preparation for the 2004 Olympics in Athens has forced the programme on to the backburner. EAV's extensive involvement in the HAF's F-16 Block 52 upgrade is a demonstration of capability, but areas of in-country work or offsets have not been finalised.
EAV's leading role in the upgrade of the HAF's F-4E Phantom aircraft to Peace Icarus 2000 is another sign of capability.
Government plans to sell 49% of EAV were abandoned in late 2000 when offers from the Eurofighter partners and a French consortium were rejected and a new bidding process announced. This has not yet started.
The major companies
Pyrkal
The Greek Powder and Cartridge Company, better known as Pyrkal, is the Hellenic Armed Forces' exclusive supplier of locally made, NATO-standard ammunition. The ammunition types manufactured at Pyrkal's factories range from 5.56mm-155mm. The company produces tank rounds, anti-tank missiles, mortar bombs, recoil-less rifle rounds, fuzes as well as propellant charges and primers.
Pyrkal's 2001 turnover of EUR73 million was a record for the company. Also, within the past three years Pyrkal has intensified its efforts to establish co-operation with various leading defence industries. Foreign partners now include Israel's IMI, Armenian LT and Sweden's Bofors.
Pyrkal has been participating in the European Stinger surface-to-air missile post-production programme and, since 1996, has been a member of the European team co-developing the IRIS-T missile.
Hellenic Arms Industry (EBO)
EBO is a state-owned group. Products include small arms, mortars, cannon, ammunition of medium- and large-calibres, propelling powders and charges, reinforced plastics, military garments and body armour.
Hellenic Aerospace Industry (EAV)
EAV is the largest state-owned aerospace and defence company in Greece. Key areas include:
- military aircraft repair, overhaul, modifications and modernisations;
- development, design, manufacturing and after-sales support of electronic, electro-optics and telecommunications products;
- aircraft structures manufacturing;
- Technical training in a wide spectrum of aerospace and defence industry; and
- Precision measuring and calibration of production equipment.
Hellenic Vehicle Industry (ELBO)
In 2000, 47% of the shares and the management of ELBO were transferred to the private company METKA. ELBO is the prime contractor for the Hellenic Armed Forces' IFV programme.
METKA
METKA, a subsidiary of the Mitilineos group, is the largest manufacturer of steel structures and integrated electromechanical equipment/machinery, and one of the leading Greek companies in undertaking and executing large-scale projects
In the defence field, METKA has contracts to manufacture trailers and launcher mechanics for the Patriot surface-air-missile programme, Leopard 2HEL tank hulls and turrets, cannon assemblies, pressure hulls and components for latest-generation Type 214 submarines.
Elefsis Industrial Enterprises
Elefsis Shipyard is the prime contractor for the new corvette programme of the Hellenic Navy. The yard's major contract in the 1980s was the construction of five Jason-class landing ships and, more recently, the construction of HS Prometheus and five Super Vita FACs.
Hellenic Shipyards
Hellenic Shipyards facilities include two drydocks with a capacity to accommodate 500,000dwt and 250,000dwt ships, three floating docks with capacities for 72,000, 60,000 and 37,000dwt and one slipway for building vessels up to 40,000dwt.
Since its establishment, the shipyard has repaired more than 8,500 vessels. Today the construction of four Pyrpolitis-class large patrol craft and the construction of three Type 214 submarines is under way.
SONAK
SONAK Systems and Software is a leader in the Greek defence market for developing technological products and integrated solutions in both the electronic systems and application-software areas. SONAK, which has obtained security clearance for classified projects, has successfully undertaken development of major military projects and is today the main supplier of information technology applications for the MND.
SONAK has delivered or is currently involved in the implementation of more than 30 individual high-technology defence programmes with reported sales of more than $15 million.
VALPAK
VALPAK SA manufactures third-generation multi-spectrum camouflage nets. VALPAK offers maintenance and product support service throughout the system's lifetime for camouflage net systems, infra-red tarpaulins, nuclear, biological and chemical-protection suits, integrated helmets, protective intervention shields and miscellaneous products for military and law-enforcement use.
Thalis Sensors
Thalis Sensors is the market leader in Greece for the design, development and manufacturing of electro-optics systems, thermal, laser and infra-red assemblies. Thalis recently diversified its activities in the promising field of micro-electro mechanical systems and aerospace sensors.
E-Offsets
E-Offsets brings industry participants in contact with the world's single largest resource for global offset solutions, focused information and education. E-Offsets is active in more than 20 countries, which represent more than 85% of the world's offsets activities.
Germanos/Sunlight
The Germanos group of companies enlisted an industrial batteries manufacturing plant by acquiring the Sunlight Industry in 1991. Apart from the Greek market, Sunlight's products are promoted in Europe, the US, Africa and the Middle East, following a strategic expansion plan. The company is one of the few which can supply batteries to Soviet-era submarines, as evidenced by recent sales to Egypt and the Ukraine.
DEMIL
DEMIL is a pioneer company in Greece, specialising in destruction and recycling/disposal of old or obsolete munitions, and other material such as catalysts, airbags and batteries.
Main programmes
- The purchase of 12 LMATTS C-27J tactical transport aircraft, with an option for an additional three. As part of that deal the Hellenic Aerospace Industry (EAV) will become the sole-source provider of specific aircraft parts. That part of the work will total about $113 million;
- The procurement of 170 new Krauss-Maffei Wegmann Leopard 2HEL tanks. Greek industry will contribute 40% of the manufacturing work. The main Greek companies involved include: ELBO (final assembly), EBO ( ammunition), INTRACOM (communications), METKA (turret and body assembly), SONAK (software), VALPAK (camouflage netting), Hellas Tracks (tracks) and Thalis Sensors (periscopes/sights);
- The procurement of 60 ASPIS II integrated protection suites for the new F-16 Block 52 Plus of the Hellenic Air Force. The contract includes the procurement of 29 AN/ALQ-187 jammers with Digital Radio Frequency Memory (DRFM) for older F-16 Block 30/50 aircraft, and the upgrade of 32 existing IDIAS jammers into the AN/ALQ-187 version with DRFM for the older aircraft. The total value of the contract is $242 million. Within the offsets framework, the Hellenic Aerospace Industry will undertake subcontracting work worth $24.5 million, with a licence for 15-year commercial exploitation on the Greek market.