Big Lockheed Martin against small Croatia: the failure of purchasing aged Israeli F-16 jets

Israeli F-16 and Croatia's Defense Minister Damir Krstičević

The story of the Croatian procurement, more precisely a purchase attempt, of Israeli F-16 fighter jets has all the elements of a foreign-policy thriller, including intrigues, transnational interests, corruption, a plot twist, and the shocking ending when the main character realizes he has fallen into something bigger than him. Still, it is not a memorable blockbuster, only an everyday episode of the long-running sitcom set in the Government of Croatia. Already in April 2018, the BalkansPost reported about a high-level corruption behind the sale and cyber attacks against investigative journalists who published sensitive documents related to it, but the controversial story reached an unexpected twist over the last few weeks.

In retrospect, everything started in December 2016 when Croatia's President Kolinda Grabar-Kitarović and Defense Minister Damir Krstičević announced that the country's Air Force would select a new fighter in order to replace its fleet of 12 outdated Mikoyan MiG-21 fighter jets. Croatia has been a member of NATO since 2009 and rejected the possibility of relying on the Italian and Hungarian Air Forces for its protection (Slovenian model), thus the tender for new aircraft emerged as the only option. In July 2017, the Croatian Ministry of Defence issued a request for proposals for up to 12 aircraft to five countries: Greece, Israel, South Korea, Sweden, and the United States. Three decisive elements were the price, a state-to-state rather than solely state-to-company deal, and wider economic cooperation prospects between the countries.

Muddy business

Eight months later, the Croatian Government unanimously adopted a decision to purchase a squadron of 35-years-old F-16 C/D Barak Block 30 jets from Israel, immediately sparking public controversy over preference for aging aircrafts. The arms deal would have been worth approximately 2.9 billion kunas or $500 million, and it would have been Croatia's biggest arms purchase since becoming a separate country following the breakup of Yugoslavia. Krstičević vigorously defended the decision, calling it "a historic day for the Air Force and an investment into the security of Croatia." Prime Minister Andrej Plenković joined Defense Minister in praising and claimed that "Israeli aircrafts are fitted with NATO-standard equipment and will provide the capability to Croatian Armed Forces for the next 25 years," adding that "the decision represents political will and desire to strengthen the strategic partnership with the United States and Israel." Israeli Prime Minister Benjamin Netanyahu said that "the deal shows the strength of the Israeli defence industry, and strengthens the existing ties between Israel and Croatia," notably in the fields of security, defence, and economy.

In the weeks following the official announcement, numerous questions and doubts about the procurement appeared in Croatian media. First of all, the Croatia's Defence Ministry was convincing participants (namely Americans and Swedes) that new aircrafts are a competitive option, but later their F-16 Block 70/72 and JAS-39 Gripen were dismissed for being too expensive. Unlike in the case of used aircrafts, the approximate prices of new models are known to the global market, which implies they rejected it in advance. In other words, they lied to potential sellers and used their bids as a disguise. Furthermore, six months before making an official purchase decision, when a bid evaluation was far from complete, $50 million was included for the aircrafts in the budget projection for 2018, 2019, and 2020. Intriguingly, such amounts perfectly fitted an Israeli bid. In contrast to the countries like Austria or Switzerland where procurements of aircrafts lasted several years and citizens voted in referendum for approval, the Croatian bidding was extremely fast, without bargaining, and closed to the public.

Numerous other details also suggested bid rigging in procurement, favoring an Israeli offer with the help of a few bribed Croatian individuals. The Israeli outlet Jerusalem Post, referring to sources close to Prime Minister Benjamin Netanyahu, proudly announced that Croatia will purchase Israeli warplanes. Their article appeared in January 2018, two months before the official announcement. In the same time, investigative journalists revealed that Damir Krstičević held various high-level positions in the IT company M SAN and its subsidiary KING ICT, which has long-term cooperation with Israeli companies. After the Croatian Democratic Union (HDZ) won Croatian parliamentary elections in October 2016, Krstičević was assigned to position of Croatian Deputy Prime Minister and Minister of Defence, and his name was deleted from the M SAN/KING ICT websites. In September next year, the Croatian Ministry of Agriculture also issued the invitation to tender for Unmanned Aerial System (BZS), and joint bid by the KING ICT and Israel Aerospace Industries (IAI) confirms their direct connection.

In response to journalists' questions about the connections, Krstičević denied any conflict of interest and stated that KING ICT is not his company. This may be true only on paper, but it is hard to believe that he broke all contacts after 15 years of business engagement, just because of a short political career. His term started two years ago and ends in two years, after the next elections in 2020. At the same time, the first Israeli aircraft was supposed to arrive in Croatia. Some other 'coincidences' also do not support his denial. In September 2017, Planet IX was registered as a subsidiary company of KING ICT, and its services include the maintenance, repair, and overhaul of aircraft, spacecraft and aircraft equipment, as well as the production, transportation and procurement of firearms and pyrotechnic material. A person appointed as a director was Sendi Radić, a member of the KING ICT Management Board and Krstičević's fellow-citizen from a small town of Vrgorac. Moreover, in January of the same year, Nikola Brzica resigned as Krstičević's assistant in the Ministry of Defence and only a month later he was employed in the M SAN company and went on business trips to Israel. Croatian investigative journalists who published all of this sensitive information experienced severe cyber attacks.

Following media articles and two anonymous reports, the Croatian Commission for Conflict of Interest, a body appointed by the Croatian Parliament, reviewed the case but found nothing unusual or illegal. Krstičević repeatedly claimed the procedure was conducted in a transparent manner and passionately rejected all criticisms for the media. In the mid-2018 the public had calmed down and everyone seemed reconciled with the fact that the deal has been irretrievably resolved. "Croatia has prepared a purchase agreement for multi-purpose combat aircraft, now we're waiting for the US government's approval for delivery," Krstičević stated in late November.

A plot twist

Then in early December out of a clear sky came an unexpected plot twist, as relatively unknown American news website Axios reported that the Trump administration is blocking a arms deal between Israel and Croatia. American officials stated Israel was being dishonest and trying to profit off the back of the US, for the sale of 12 US-made F-16 fighter jets refurbished and upgraded by Israel. Allegedly, Secretary of State Mike Pompeo was not against the deal, but Secretary of Defense James Mattis was blocking it. The report was immediately disputed by Israeli and Croatian officials, and neither the Croatian public took it too seriously. Many argued that relations between Israel and the Trump administration are too strong, especially when it comes to military and defense cooperation, also describing NATO-member Croatia as their true ally and strategic partner.

But report turned out to be very precise. US defense companies complained the aircraft had received Israeli upgrades, thus stripping Lockheed Martin of the opportunity to modernize the planes and perform maintenance on them, in other words depriving them of tens of millions of dollars in revenue over the next 25 years. The possibility that all of it goes to the Israeli industry and Krstičević's pity subsidiary Planet IX, was obviously out of the question for a giant like Lockheed. Therefore, the American side conditioned approval of the deal, requesting removal of all Israeli parts and restoring jets to its original factory state. This implies additional costs of conversion and capacity reduction, practically getting weaker fighters for more money, but such solution has been described as unacceptable by Krstičević. Of course, not because of his desire for an advance air feet, but rather because he's aware that his Planet IX would lose long-term business of maintenance. Croatia urged Israel to overcome a disagreement with the United States and to confirm it can carry through on a deal to sell fighter jets, however, after a month of trying the answer was negative. The deal was irretrievably canceled.

Marko Knežević

Marko Knežević is a historian and freelance journalist from Bar, Montenegro. He is a frequent traveller to the Middle East and East Asia.

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