November 27, 2010: In the back halls of the Pentagon, there is a quiet debate going on about the future of U.S. acquisitions of the Russian-made Mi-17 helicopter. The question being debated is not if the U.S should continue to purchase these foreign aircraft, but whether the purchases should be conducted as military to military acquisitions or as civil purchases via private contractors. As these aircraft have become the cornerstone of the U.S. military’s plans to build the Afghan National Army Air Force, the decision is an important one.   The U.S. Army is pushing hard for the direct contract, but some in the Pentagon and at the Department of State are beginning to realize that Russia’s plan encompasses more than sale of a few helicopters.

The Mi-17 medium lift transport helicopter can be purchased as civil or military aircraft. If equipped with military systems, or if purchased directly by a foreign military, the acquisition must go through the Russian State company for arms exports, Rosoboronexport. If the aircraft are not armed, however, they can be purchased by private companies and exported as civil aircraft. As Rosoboronexport has been on the U.S. State Department banned list for the last 6 years for arms transfers to Iran, the U.S. Army and U.S. Navy have used the “civil” method to acquire aircraft via brokers for Iraq and Afghanistan. The U.S. military has acquired 36 new civil helicopters from U.S. brokers.

Three months ago, the U.S. Navy began evaluating proposals in a competition for 21 additional Mi-17 aircraft for Afghanistan. The estimated value of this acquisition is $300-400 million. The navy requirement was tailored to ensure only “civil variant” Mi-17s were being procured. While the navy expected the usual “sour grapes” protests from U.S. helicopter manufacturers, they did not expect the ban on Rosoboronexport to be lifted, or that the U.S. Army would combine efforts with Rosoboronexport in an attempt to cancel the competition. 

The U.S. Army had conducted two previous sole source acquisitions of Mi-17s; twenty one for Iraq and ten for Afghanistan. These programs have experienced more than $40 million in overruns, had the performance requirements reduced, and are respectively two years and one year behind schedule. The Navy, however, conducted an open competition for four new Mi-17 aircraft and delivered them in less than 50 days, at a price 40 percent lower than the Army’s sole source price. The Army did not want to see another navy success, and the opening of the Rosoboronexport channel gave the Army a new plan.

In a series of meetings with officials from the Russian military cooperation office and Rosoboronexport, the U.S. Army asked for, and received, letters stating that the helicopters requested by the Navy were military and thus had to be sole sourced to Rosoboronexport. The Army’s official reason for supporting Rosoboronexport is that this will allow the Army to work directly with the Russians, cutting out expensive middle men and providing direct access to the manufacturers. However, Rosoboronexport is an arms broker, and one of the most expensive, with margins averaging 35 percent. Rosoboronexport has reported offered to supply the new helicopters for $17 million, approximately $7 million more per aircraft than the U.S. Navy paid last year. 

There is also the question of how long Rosoboronexport can stay off the U.S. State Department list of banned organizations. The appetite of the Rosoboronexport management, and the politicians they pay, may be simply too large for them to avoid a transaction that forces the U.S. to retaliate. In the last few years, the Rosoboronexport leadership has created a number of new companies to screen their less savory activities. For example, there is the Moscow headquartered company Defense Systems. The Rosoboronexport General Director is the chairman of Defense Systems’ board and its activities are completely controlled by Rosoboronexport.

One product offered by Defense Systems is the Pechora-2M air defense system (NATO SA-3M). This is a modernized variant of the missile system used to in 1999 to down an F-117 stealth fighter in Yugoslavia. While the company openly sold the Pechora-2M to Egypt, the true purpose of this “consortium” was to hide Rosoboronexport’s direct involvement in the sale of four to six SA-3M systems to Iran. These under the table arms transfers are facilitated by other Rosoboronexport controlled companies in Azerbaijan and Armenia. For instance, when the U.S. protested the sale of the Tor M1 air defense system (NATO SA-15M) to Iran, Rosoboronexport began transferring systems through these countries to make them harder for the U.S. to trace. It is also thought that the advanced Igla-S shoulder launched missile (NATO SA-18M), designed to defeat laser jamming systems, has also been exported by Rosoboronexport to Iran via these channels. This missile may have been used in Iraq and it is feared it has been transferred by Iran to the Palestinian resistance group Hamas. Finally, there have been indications that Rosoboronexport is helping Iran integrate and maintain the Kh-51 cruise missiles Iran illegally purchased from Ukraine in 2001. The implications of Iran possessing fully functional, 3000 kilometer range cruise missiles are disturbing, to say the least.

At some point, these and other transgressions will be officially noticed by the United States and another State Department ban considered. Rosoboronexport’s only hope of remaining off the State Department list is to have contracts in place with the U.S. military that are too important to jeopardize. Seen in this light, the multi-year Mi-17 contracts are ideal political insurance. 

Transferring the acquisition of the Mi-17 from the civil realm to the military/political one is certainly in the Russian’s best interest. Rosoboronexport gains both huge profits and political protection, and the Russian Foreign Office gains leverage on U.S. policy in Afghanistan. But with the price of defense cooperation on Mi-17s being the tacit approval of future Rosoboronexport arms transfer to Iran, the United States may well decide the cost is too much to bear.