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Friday, December 15, 2017

Political crisis in Denmark from the Piranha 5 purchase

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Piranha5

Denmark’s latest acquisition is turning into a nightmare for Danish officials. Has Denmark been fooled?

The Piranha 5 from General Dynamics European Land Systems (GDELS), was supposed to be a dream come true as the cheapest and best choice for the nation’s defense. Major military purchases are never an easy decision, but in Denmark, the replacement for the M113 armored personnel carriers is turning into a disaster. The Denmark Ministry of Defence announced its choice on April 30th of the Piranha 5 vehicle from the tender launched last year. The decision seemed to be based on the general consensus at the time the choice was made, but shortly after, details of the transactions were published and have since then attracted a lot of attention to Denmark’s final choice.

General Dynamics European Land Systems-Mowag (GDELS) is the European branch of American General Dynamics, since its recent purchase of the Swiss Mowag. The offer made by GDELS to the Danish Ministry of Defense (MoD) was made in Swiss Francs, a currency with an exchange rate in to Danish Krone (DKK) that has increased almost 17% since the offer… and continues to rise today. The result is pretty hard to take for the Danes – what was supposed to be the “cheapest and the best choice” according to former Minister of Foreign Affairs Holger K. Nielsen (1) is likely to become the most expensive choice. Now that this reality has sunken in, the real capabilities of Piranha 5 are also being doubted.

The Piranha 5 hasn’t been chosen based on its experience on the battlefield, which is nonexistent. The fact that the vehicle wasn’t “combat-proven” didn’t seem to worry Danish authorities, which seemed to be pleased with the tests that preceded the Danish Defence Acquisition and Logistics Organization’s choice. But if the vehicle itself seemed convincing based on its abilities, a lot of uncertain costs remained, such as operating costs, maintenance and repairs costs, as well as the equipment’s true abilities during a long-term battle. Combine that with the fact that the Danes might have to pay up to 20% more than expected, due to the exchange rate, the final bill could exceed by hundreds of millions of DKK, if not over a billion. Because the Piranha 5 hasn’t been sold in the past (except for two pieces to the Monaco Army) and because the Swiss Franc exchange rate could still rise until Denmark’s final payment, there is no way of knowing what the Danes could end up paying to GDELS.

In Denmark, it has already become a major political conflict, with the Liberals calling it a demonstration of the Government’s amateurism. “It is to be expected as a minimum that the offers which are made assure the Defence that the offer and the price will remain in force, independently of whether the exchange rate rises of not,” (1) said Defense Spkoesman Troels Lund Poulsen. Nicolai Wammen, Ministry of Defense from the Social Democrats Party, is expected to address the crisis as many feel misinformed on the choice made by the Ministry of Defense (MoD). Spokeswoman of the Defence from Danish People’s Party Marie Krarup feels that GDELS‘s business practices are unfair and is ready to step back from the decision, saying “It doesn’t sound like fair business practices (…) it sounds like a true blunder.”

As Krarup raised attention to GDELS’ business practices, it revealed that the company has experienced several problems in with its major orders last year. The number one reason was that GDELS was unable (or unwilling) to bring some of the manufacturing and assembly line to the buyer countries. Being able to receive some return on investment by having an assembly line localized for these types of purchases has become essential, however GDELS has deceived previous partners of complying with this.

In 2008, the major contract for the FRES-SV vehicle sold to the United Kingdom caused a large issue, as GDELS was producing the vehicle in Spain and was reluctant to delocalize parts of the chain in the UK (2). This almost resulted in the cancellation of the contract.

Denmark is now facing serious unexpected financial and political issues. And now that the country’s leaders and the Danes are fully aware of what this choice may lead them towards, we shall see what the nation’s Ministry of Defense’s next move will be in order to keep the M113 replacement program a successful one for the country, if that is possible.

(1) Indkøb af panser til Hæren skal måske gå om, Nationalt, Christian Brondum, June 1st 2015, translated from Danish.

(2) https://www.defenseindustrydaily.com/uk-issues-several-fres-transformational-armored-vehicle-contracts-01130/



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