The Greek Defense Industry

Greece yearly allocates a substantial part of its national income to defence and its defence burden is the highest among EU and NATO members. To meet the demand for military hardware it relies almost exclusively on imports, ranking among the largest conventional arms importers in the world. Despite efforts to develop a domestic defence industry, indigenous production only covers a limited proportion of Greece's demand for military equipment. The majority of weapons, including sophisticated and technologically advanced systems, are imported from the major arms producers.

The Defense Industry Directorate (DID) is the advisory body of the Ministry of National Defense for formulating and implementing national policy toward enterprises engaged in defense manufacturing. The DID constitutes the connecting link between the armed forces and the defense industries; its general purpose is to foster an increase in the domestic production of military equipment. The responsibilities of the DID also include management of specific new projects in the defense industry and the modernization and expansion of already existing industries that are either wholly or partially state-owned, as well as the codification and standardization of the armed forces matériel.

Concerning private Greek defense companies, over seventy small to medium-size firms belong to the association of Greek Manufacturers of Defense Equipment, known as SEKPY. These private entities cooperate with the Ministry of Defense and compete for government tenders. They also participate in international tenders, either as primary or subcontractors. These private firms are not restricted by government bureaucracy, as are state-owned companies, and they can conclude their own contracts and agreements.

The development of the Greek defence industry was prompted by the Turkish invasion of Cyprus in 1974. Efforts to develop a defense industry began in Greece in the mid-1970s, although several isolated industries existed long before that date. The objectives of the initial policy were to satisfy national military needs and to increase the participation of domestic manufacturers, reducing Greece's heavy dependency on foreign military suppliers. Beginning in the 1970s, Greece was able to establish the technological base for producing military vehicles, aircraft components, guns, and ships.

By the early 1980s, a substantial base of regional sales outside Greece had developed. However, significant economic problems have arisen because of the small domestic market, which seriously affects the viability of production lines, and because of management mistakes. The latter difficulty has included delayed response to technological developments and the changing needs of the armed forces and the rather inefficient use of offset agreements (by which Greek plants supply components to foreign military manufacturers in return for aircraft and equipment). Military aid programs, defense and economic cooperation agreements (DECAs) with the United States, and memoranda of understanding with partners in Western Europe have not been used effectively. In the mid-1990s, the defense industry supplied a wide variety of equipment to the Hellenic Armed Forces, and it has had moderate success in exporting military equipment to other countries.

In 1990, the Greek defence industry consisted of six large sized publicly-owned corporations, which were the major defence contractors in this country (the Hellenic Arms Industry S.A., theGreek Powder and Cartridge Company Inc., the Hellenic Shipyards Co. S.A.,the Eleusis Shipyards S.A., the Hellenic Aerospace Industry Ltd. and the Hel-lenic Vehicle Industry S.A.), and thirty eight small to mid-size privately-ownedcorporations (all being members of the Federation of Greek Defence Industrialists -SEKPY), aimed at securing a minimum share of sub-contracting in totaldefence business.

Despite the tremendous worldwide alignment, the Greek Defense Industry has not followed the leading examples, having as a result, the operation of more than 150 companies in the Greek Market. The small size of the internal market, along with the decreasing defense budgets indicates that, the merging of similar companies and the establishment of Centers of Excellence at a national level is the "one-way road" solution. However, such an effort needs innovative leadership but also the government collaboration and support. The Greek Government has recognized this need, and institutionalized the legislation framework. Globalization is already part of the modus operandi of every economic sector and of course the defense industry of Greece has no other choice but to be a strong participant. Since HAI is the Largest Defense Industry in Greece, it can play a leading role towards this process.

By the early 1990s some state-owned defense industries were in a precarious financial position that necessitated privatization to ensure profitable operation. Furthermore, defense planners generally agreed that the only way for the Greek defense industry to survive is through the coproduction of equipment with defense enterprises of other countries. In 1994 the industry, which employed 22,000 persons, had an annual turnover of about US$250 million.

Privatisation in Greece represented a reversal of the entire post-war and post-authoritarian interventionist policy paradigm. The privatisation decision resulted from pressures associated with the EC/EU and globalisation in general. The Simitis governments reactivated a privatisation programme comparable to that of ND in the early 1990s, but distinctly pragmatic in its reasoning, gradualist in its pace, and non-conflictual though unilateralist in its policy implementation. A central feature of the 'Simitis privatisations' was the flotation of successive minority stakes in public enterprises leading to retention of public control even though the government kept only a minority stake in the privatised enterprises.

The cornerstone of the Government's strategy was the 1996 legislation which aims tochange public enterprise management. The aim of this legislation is to introduce a management styleequivalent to that existing in the private sector. To this end, public enterprises are being transformed intosociété anonyme. New managers are being hired through public and competitive tenders. And eachenterprise is preparing strategic and business plans.

The failed attempt to privatize certain companies in the shipbuilding industry was by far the most problematic of all unsuccessful privatization schemes and one that has had the greatest socio-political impact. The Mitsotakis government seemed to have been moving in the right direction with the sale of Eleusis Shipyards to the Peraticos group in 1992. However, New Democracy failed miserably when it came to Hellenic and Neorion repair yard, Greece's largest and third largest facilities, respectively. In both cases, the government and the Hellenic Industrial Development Bank - the latter being the nominal owner of the two shipyards - failed at the last moment to close the deal with the prospective buyers, mainly due to opposition from yard workers. By the time the Conservatives lost power, Neorion had been closed.

The defense sector of Greek industry is dominated by a few major companies. The Greek Vehicle Industry (Elliniki Viomikhania Okhimaton--ELVO) manufactures a wide range of special-purpose vehicles for civilian and military use. ELVO obtained its technical expertise by license from Austria's Steyr Daimler Puch and the Mercedes Benz corporation of Germany. Among other items, ELVO produces or coproduces Leonidas I, Leonidas II, and Pandur APCs, and a 2.75 ton jeep. At the end of 1994 the firm had made about 400 vehicles for domestic use and export, with contracts calling for delivery of about 100 more vehicles to the ground forces in 1995 and 1996. At the end of 1994, the Hellenic Army was considering purchase of a new mechanized infantry combat vehicle from Norway's NFT, the DAF Special Products Company of the Netherlands, or the Santa Barbara corporation of Spain. The new model would be built by ELVO under license, under the name Alexandros. By 2005 ELVO employed about 2300 and produces armored vehicles, assembled 1/4 ton tactical vehicles, including HYMVEE vehicle of AM General and non-military vehicles including buses, and trucks. Its annual sales were $60 million.

The Greek Arms Industry (Elliniki Viotekhnia Oplon -- EVO) was a group of companies established in 1977. The industry had five plants with a total workforce of 1,450 employees in 1995, making it the largest private defense industrial group in Greece. In 1994 Hellenic Arms Industry (EVO) merged with PYRKAL, (Greek Powder & Cartridge Co). By 2005 the entity employed about 1200 and produces weapons systems, medium caliber ammunition, and portable equipment. Annual sales are $20 million. EVO manufactures a wide variety of small arms, light and heavy machine guns, mortars, nitrocellulose, trinitrotoluene (TNT), aircraft bombs, complete rounds of artillery ammunition, drop fuel tanks, pylons, external stores, antiaircraft defense systems, medium-caliber guns, and components for howitzer retrofitting. In the 1980s, EVO's sale of its sophisticated Artemis-30 antiaircraft system to Libya, as part of a larger economic agreement, caused an international controversy. The group's companies also have produced sophisticated electra-optics (night-vision systems) and communications equipment, precision mechanical equipment for the modernization of tanks and APCs, and metallic components for both military and civilian applications.

After beginning in 1908 as a producer of commercial explosives for the domestic market, the Powder and Cartridge Company (Piromakhika kai Kalikes--PIRKAL) had a workforce of 1,500 that produced three types of hand grenades, five types of rifle grenades and smoke hand grenades, flares, and mining boosters. The firm also had manufactured many types of ammunition used in a wide range of military operations. PIRKAL cooperates with leading European and American industries in ammunition manufacture, and since 1985 it had participated in Europe's Stinger missile production program. In 1994 EVO purchased PIRKAL.

Established in 1975, the Greek Aerospace Industry (Elliniki Aeroporiki Viomikhania--EAV) employed 3,250 workers in 1995. It has become one of the region's leading aeronautical companies, supplying more than seventy customers. Among these customers were the Greek armed forces and buyers in more than twenty foreign countries, including the United States, Britain, France, Portugal, and various Arab states. EAV had the capability to maintain, overhaul, modify, and test almost all types of Western aircraft and helicopters, offering particular expertise in Mirage, F-1, and C-130 airplanes and Bell helicopters. EAV serviced more than twenty types of engines and related accessories and components. It also manufactured and put together subassemblies for large commercial aircraft such as the Boeing 757 and military aircraft such as the F-16, small and medium-size static subassemblies for military and commercial engines, and aircraft modification and upgrade kits for military and commercial markets. EAV's custom design of electronic and telecommunication products also sold to military and commercial markets. The firm provided training services in all phases of aircraft engine and electronics support, modification, and manufacturing, as well as management and logistics.

Offset requirements continue to play an extremely important role in the contract award process. Next to price, many decision-makers have said that the offset portion of the bid is what makes or breaks a company's chances. As with all public procurement, understanding the rules of the game, as well as how those rules are administered, is essential. According to law 785/78 and its amendment by Presidential Degree 284/89, all prospective suppliers of defense materials/equipment bidding on contracts valued at over $ 1.4 million must submit an offset package. The total value of the offset package must equal at least 60 percent of the foreign currency portion of the procurement contract. Of that amount, at least 50 percent must be in the form of subcontracting work, or purchase of defense materials from Greek suppliers. Offsets not related to the defense sector are not considered. Moreover, Greece often insists on some form of technology transfer to either public or private Greek firms as part of an offset package. In practice however, for all major published calls for bids, offset obligations must cover over 100 percent of the contract price, and a minimum of 10% must be co-production.

In the past Greece has had a poor record of absorbing offset obligations. This situation seems to be changing, and the current leadership at the Ministry of Defense has been implementing offsets more aggressively as essential to maintaining the viability of Greece's small defense industrial sector.