NATO is currently running the bidding process for a continuation of the Strategic Airlift Interim Solution (SALIS), beginning in 2017. European countries organise military air transport via a private company with this project. Since SALIS was launched ten years ago, Ruslan SALIS GmbH has provided transportation services with Antonov-124 aircraft. The GmbH is a 50/50 joint venture of the Russian company Volga-Dnepr and the Ukrainian State company Antonov. That is now finished – in the current bidding process, these thus far partners have entered as competitors against each other. Until 9 March of this year, interested parties could submit their SALIS bids to the NATO Support and Procurement Agency (NSPA); between late April and early May, the decision will be made as to who will carry out the business in the future.
Essential for air transport
Although the exact contract amounts for SALIS are not known, interest in the contract is likely to be high. SALIS is more than a nice-to-have in military air transport. Launched in 2006, SALIS was initially meant to bridge the lack of capacity until the A400M was up and running. However, this transitional solution became a de facto essential pillar of air transport in the alliance. Whether it is used for medicines or tank howitzers — little air transport to European armies occurs without SALIS. The German Bundeswehr indicates that 70 percent of their total transport is carried out by civilian contractors, of which half is through SALIS. In 2015, that amounted to more than 4,000 tons of cargo and 65 flights. Use of SALIS is also planned for the transport of material and units of the NATO Response Force and the Very High Readiness Joint Task Force, according to the German Federal Ministry of Defence.
Causes of the breakdown in cooperation
Why Volga-Dnepr and Antonov can no longer make common cause is not entirely clear. The current partnership began with a 2006 contract, which was initially extended, and they then won the last tender in 2012. There are however indications of why the break occurred.
Firstly, the Ukraine-Russia conflict played a role. Antonov has now been incorporated into the state armaments group UKROboronPROM. In the defence sector Ukraine has adopted sanctions against Russia, which also apply to Antonov. Their aircraft are still conceived primarily for military needs and the Russian market. As a result of the sanctions, Russia had to adjust the licensed production of the Antonov-140; the environment was not conducive to business between Ukrainians and a Russian company and vice versa.
What is likely to have been strained the cooperation: According to an industry insider, the joint venture of Ukrainians with the Russians is a so-called societas leonina. That is, formally both partners hold equal shares in the company; however the managing director is always a representative of Volga-Dnepr and decides what is defined as cost/profit in the GmbH. Thus, the Russians were in the comfortable position of receiving the lion’s share of the profits, while the Ukrainians received just enough to keep them in line.
Decision of the SALIS partners
It is likely that for the 2017 SALIS reissue that Volga-Dnepr or Antonov will be awarded the contract. Both are the world’s largest commercial providers of Antonov-124 machines (Volga-Dnepr: 10 / Antonov: 7). European forces will continue to need exactly these large-capacity transporters. A spokesman for the German Federal Ministry of Defence discussed the interests of the German Armed Forces in the context of the SALIS re-tendering:
The German Armed Forces needs to change the secure way of strategic air transport of oversized and heavy cargo. For this purpose, two types of aircraft are appropriate. These are the ANTONOV AN-124 and the American C5M GALAXY, which is operated only militarily. A national and multinational search was conducted for possible solutions to fill this capability gap. A commissioned study by the European Defence Agency (EDA) also came to the conclusion that there is no alternative to the entire AN-124 for secure commercial availability.
It will be exciting to see how the decision plays out and how the individual SALIS partner nations will position themselves. Although the NSPA in Kapellen/Luxembourg is implementing the bidding process, ultimately the 14 SALIS partner countries will decide with their shares of votes, corresponding to the size of their transport quotas. Germany stands here in the first place and is the lead nation.
It is conceivable that opposition in NATO on the proper containment strategy towards Russia will have an effect on SALIS. For the policy of Germany, the main representative of the strategy “pressure plus assistance”, it would be fitting to involve a Russian company. By contrast, the SALIS-nation of Poland with their “hard balancing” course against Russia, will be more interested in a Ukrainian or non-Russian company for the contract. It will also be interesting to see how the previous GmbH is phased out.
The Russian Germany network
As it stands, Volga-Dnepr tendered its bid for SALIS 2017 through Ruslan SALIS GmbH. This company under German law is involved with the bidding process, as shared with the author by Ivan Strelnikov, Commercial Director of the GmbH. The answer to the question as to whether the offer came about with compliance of Antonov and whether it reflects the interests of the Ukrainian partner in the GmbH, was not answered. If two companies have a fifty-fifty joint venture, can one use it then for their own offer? According to a specialist lawyer for procurement law, whose firm also manages German Armed Forces projects, that is possible because the “internal relationship” of the company for participation in the bidding process does not matter.
That Volga-Dnepr made its SALIS offer for NATO through the German company shows that the Russians in the company have the final say. The commercial registry excerpt of Ruslan SALIS GmbH states, “If only one managing director is appointed, he shall represent the company alone.” Since the beginning of SALIS 2004, that person has been the Volga-Dnepr man, Valery Aleksandrovich Gabriel. His deputy has also always come from the Russian company, until recently. But now the Russians are converting the GmbH for the period after the Ukrainians depart. According to the Leipziger Volkszeitung, the German Dierk Näther is now Vice Managing Director of Ruslan SALIS. Näther was Director of the Leipzig airport until 2015. Thus the Russians are building their network in the SALIS lead nation, Germany. The legal representative of Volga-Dnepr for SALIS is Elmar Rauch, former Undersecretary at the German Mission to NATO in Brussels. Rauch retired from the service voluntarily in 2001, and was hired by Volga-Dnepr. In industry circles, Rauch is regarded as the designer of the recent SALIS joint ventures. Moreover, Volga-Dnepr lobbied its interests with the German-Russian Economic Alliance, whose council includes a representative of the Leipzig airport.
The Ukrainian-Polish alliance
The Germany network of the Russians is seen by the Ukrainians as a threat. According to Ukrainian sources, the upcoming SALIS service provider no longer needs to provide six AN-124s as per requirement the NSPA catalogue, but seven or eight. The Ukrainians suspect the lobbying by Volga-Dnepr is behind this. While the Russian competitor can muster ten AN-124s, Antonov with its seven machines of this type would already be at the limit. To compensate for this shortcoming, Antonov has designed its SALIS bid as follows: through an agreement with Maximus Airlines from the United Arab Emirates, the Ukrainians will procure two additional AN-124s. To get the job, the Ukrainians are offering NATO the only AN-225, the largest cargo aircraft in the world, for use by SALIS at the price of an AN-124. While the Russians are putting their stock in Germany, the Ukrainians are relying on Poland. Currently, both sides are negotiating the formation of a consortium between Antonov and companies in the Polish aviation industry. The goal: to make the Antonov aviator independent of Russian components. In addition, the Ukrainian aircraft builders want to diversify their portfolio for the 21st century. Between Antonov and the Polish defence company WB Electronics there is a memorandum for the construction of drones for the Ukrainian Armed Forces.
Update, 21.07.2016: The “Two-Treaty-Solution” should end the fight for NATO’s SALIS
SALIS is essential for NATO’s logistic. Twelve European NATO member states as well as Finland and Sweden are chartering airlift cargo from a private company. Till the end of 2016 the contractor is the Ruslan SALIS GmbH, a joint venture between the Russian company Volga Dnepr and Antonov from the Ukraine with their fleets of Antonov An-124 planes. Because of the Ukrainian conflict, the partners turned into adversaries for the upcoming SALIS contract in 2017. Recently, NSPA which organized SALIS for the partner nations rejected the SALIS offers of both companies.
Antonov’s offer was too expensive as well as “technically non compliant”. The bulk of spares for Antonov’s An-124 fleet are still from Russia. The deficit of the Volga Dnepr proposal: Overflight rights in the Ukraine and Georgia are not certain so there is no full operational capability especially for transports to NATO’s south-eastern flank. Now the NSPA wants to split the Strategic Airlift Interim Solution services between both rivals which mean two separate SALIS contracts. Prior of that, an attempt of the SALIS member nations failed to revive the joint venture between Antonov and Volga Dnepr. This state of affairs appears from information of Germanys Ministry of Defense which obtained the author. Both companies have now time till the end of August to present their offers for the “Two-Treaty-Solution”.
Germany’s Ministry of Defense already prepares for a complete failure of SALIS. A task force named “Prospect Airlift”, inspects emergency solutions, should the negotiation collapse. One considered potential: Germany could join the Strategic Airlift Capability (SAC), within NATO, the second network for strategic airlift. SAC runs with C-17 planes from Boeing . For the Bundeswehr planners, joining the SAC is not a reliable option. The C-17 is out of production and its transport capability is lower than those of the An-124. For the German Armed Forces the end of SALIS would be a mess. The Bundeswehr’s next generation transport plane, the A400M from Airbus, is an imposition. The plane is afflicted with a range of technical deficits. The intake of new A400M is running late permanently. To balance the lack of airlift resources, the Bundeswehr wants to lift its amount of currently 800 SALIS flight hours per year.
Update, 19.11.2016: Conclusion of contract in December
With NATO, the continuation of SALIS in 2017 seems to be cut and dried. The SALIS-Luftcargo will be divided on the Ukrainian enterprise Antonov and the Russian offerer Volga Dnepr (in the bidding process with the subsidiary Ruslan SALIS GmbH). In addition, a spokesperson of the German ministry of defence stated that “[on] the occasion of the last meeting of the SALIS partner’s nations on the 20th October, 2016, the in the mean time evaluated offers of the Antonov Company and the Ruslan SALIS GmbH were accepted by the partner’s nations.”
The conclusion of contract should take place in December. Both contracts are up with a term of two years, with the option to extend it up to five years. The Bundeswehr wants to divide its SALIS flying hours according to the fleet size of the two companies: 60 per cent for the Russians (10 An-124), 40 per cent for the Ukrainians (7 An-124).