Nobody is immune to the global financial crisis, including the Russian military. And Russian government cutbacks have disastrous repercussions for the entire European Union's defense market.
In 2009 the Russian Federation plans to slash its defense budget by no less than 15 percent, the head of its Parliament's Defense Committee told the Interfax news agency. The committee expects to cut the budget further in the future. For the moment, expenditure on new weapons will not be affected.
Those cuts look bound to affect Russia's considerable defense equipment trade with EU nations. The reduction of the Russian defense budget will inevitably trickle down to its production line of weaponry. And since the vast Rosoboronexport production monopoly is state-owned, Russian weapons output can only diminish.
That will create opportunities for European companies, but it will also mean that the lack of competition from huge combinations attaining economies of scale, like the Russian defense-industrial sector, will drive up the costs of defense goods in the European marketplace. Weapons costs across Europe are already growing at a staggering double-digit percentage per year.
The Russian defense budget is now scheduled to drop from about $40 billion to $34 billion per year. Russia is facing a budget deficit at around a tenth of its gross domestic product this year. Economic growth, which has been healthy thanks to record revenues for oil and gas exports over most of the past decade, could even turn into decline.
Russia repeats offer for joint missile defense
Russia is keeping open its offer to Western European nations to develop joint missile defense systems. The offer was floated as an alternative to the Bush administration's plans to build an anti-missile defense shield in Eastern Europe.
Russian Foreign Minister Sergei Lavrov told German news magazine Der Spiegel in comments published last week that the proposal is still on the table.
The Russian government has fiercely opposed the U.S. plan to build a base to deploy 10 Ground-based Mid-course interceptors in Poland and an advanced radar tracking array to guide them to their targets in the neighboring Czech Republic. The Bush administration said the interceptors were necessary to defend the United States and Western Europe from the future threat of attack by Iranian nuclear-armed intercontinental ballistic missiles. But the Russians claimed that the GBIs could also be used to knock out any Russian survivable second-strike capability after any surprise U.S. pre-emptive nuclear attack.
Malta orders patrol crafts
Australian firm Austal has secured its first European defense contract by winning an order for four inshore patrol crafts, training and spares support from the Armed Forces of the Mediterranean island nation of Malta.
The vessels will serve for surveillance and border protection in Malta's coastal waters, according to an Austal statement. They will be built in Austal's Australian facilities and should be delivered by the end of 2009.
Austal previously won contracts to design and build a Littoral Combat Ship for the U.S. Navy and a Joint High Speed Vessel for the Department of Defense. It also has contracts to build vessels from a police force in Australia and the coast guard of Trinidad and Tobago. The young company previously built vessels for the Royal Australian Navy and Australian Customs.
EADS drops short-wing drone
The European Aeronautics, Defense and Space Co. has decided to drop the short-winged version from the potential catalog in its Advanced UAV development, Defense News reported last week.
Instead, EADS will focus on producing a slower but more reliable unmanned aerial vehicle in its development of the Advanced UAV in a $75 million deal for France, Germany and Spain.
The decision was a result of a 15-month study, Defense News said.
EADS hopes that the Advanced UAV will be able to compete with Dassault Aviation, Thales and Indra's Heron TP drones, which are all competing for several urgent commissions from European countries fighting in Afghanistan.
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