Did the U.S. Army Arrange a 'Sweetheart' Deal to Sell Russian Helicopters to Iraq?

The Defense Department quietly gave a U.S. company a contract to provide 22 new Russian-made Mi-17 troop transport helicopters to the Iraqi military in a deal worth an eyebrow-raising $325 million, DANGER ROOM has learned.

Iraq's effort to re-equip its military has been marred with corruption, including a notorious plan to buy used Mi-17s from Poland in a deal that involved accusations of shoddy equipment and was eventually scrapped. This new Mi-17 contract, which involves Iraqi money routed through the Pentagon's foreign military sales process, was designed to avoid problems that occurred in the previous sale. But in an unusual move, the U.S. Army sole sourced the contract to ARINC, a Carlyle Group-owned company.

The deal, which was consummated earlier this year, may represent the highest price ever paid for the Russian-produced helicopters, which are sold by a number of brokers, as well as directly from the manufacturers in Russia.

For ARINC, the contract offers the potential to boost the company's estimated annual $900 million revenues by one-third. That's not bad, considering the company is essentially just serving as a broker for equipment manufactured in Russia.

How much do Mi-17s cost? That's hard to say because they cost whatever someone is willing pay for them. One company is offering on the Internet to sell new production Mi-17s for $5 million each, and India just a couple months ago bought 80 Mi-17 helicopters converted for military use for $662 million, which comes out to a unit price of a little over $8 million (and less, if the contract included sustainment costs and spares). According to the contract terms confirmed by the Pentagon, the Iraqis are paying a unit price of nearly $15 million, which would appear to be well above the norm.

Steve Zaloga, an analyst at the Teal Group notes that military modifications can drive up the costs. “The Mi-17 can be a plain vanilla transport helicopter,” he said, but it can also be modified for signals intelligence, communications, or any number of other uses. Without knowing the details of the contract, it’s hard to judge the price, he noted.

The ultimate question, however, is why the contract was sole sourced. There are at least six American companies that have the experience or contacts needed to broker this type of sale between Russia and Iraq (somewhat frighteningly, that list would include Defense Solutions, the company that employs former Congressman Curt Weldon, and has been the subject of numerous posts here on DANGER ROOM). If we include foreign firms in this equation, the number of potential brokers is even higher.

A Pentagon spokesperson confirmed the amount of the contract and the number of helicopters involved, but was unable to provide further information. Linda Hartwig, an ARINC spokesperson, declined to answer any questions regarding the contract, saying the company “was not authorized” to speak about the sale with the media. A spokesperson for the Army's Program Executive Office for Simulation, Training and Instrumentation, which negotiated and awarded the contract to ARINC, at first agreed to answer questions and then later declined.

The Defense Security Cooperation Agency, which oversees foreign military sales, notified Congress of the Iraqi Mi-17 requirement and put out a standard press release back in 2006, but it appears the U.S. Army, which was handling the contract, never released a solicitation, as would be standard practice for competitive sales. Why the Army won't talk about the deal is unclear, except that the price that the Iraqis are paying for the helicopters could raise some uncomfortable questions for everyone involved.

I’m waiting for a response to a Freedom of Information Act request I filed with the Army to obtain details of the deal. I’m expecting to see, if anything, a lot of blacked out information, but will nonetheless update this story as appropriate. On Monday, I’ll discuss how ARINC and the U.S. Army managed to get around sanctions placed on Rosoboronexport, the Russian weapons export agency, in order make this deal happen.

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