Poland to buy 48 Lockheed jet fighters

Contracts for $3.5 billion and offset package hailed as `deal of the century'


PARIS - Wrapping up the largest arms deal by a former Soviet-bloc country since the end of the Cold War, Poland signed contracts yesterday to pay $3.5 billion for 48 American-made Lockheed Martin jet fighters.

The deal was also striking because it included what appears to be the largest so-called offset deal ever, an arrangement that has become a necessary part of the international arms trade.

In return for buying the fighters, Poland prevailed on Bethesda, Md.-based Lockheed Martin Corp. to organize a $6.3 billion package of investments in Poland by Lockheed and other American companies. The package includes an agreement to build the jet engines for the Lockheed F-16s in factories in Poland, and accords by General Motors Corp. to expand a car plant there and by Motorola Inc. to install an emergency telecommunications system for the Polish government.

"It's the deal of the century," said Christopher R. Hill, the American ambassador in Poland, echoing Polish officials. "Really, what Lockheed did is to develop a Team USA concept," Hill said by telephone from Warsaw.

The transaction, which was under discussion since an initial accord was signed in December, is a key element in Poland's efforts to modernize its armed forces and replace its aging Russian-built MiG fighters to meet the standards of NATO, which Poland joined in 1999.

But the deal has provoked bitter criticism, not only from Poland's European allies, but from labor groups in the United States, which object to offset deals because of the jobs they cost American workers. On Wednesday, Poland joined nine other Eastern European countries in signing treaties in Athens to join the European Union.

Other European governments, most notably France, have chastised the Poles for sidestepping the European arms industry and awarding the contract to the United States.

A bitter falling out

Lockheed was chosen to make the jets over Dassault Aviation of France, which offered the Mirage 2000, and a combination of Saab of Sweden and Britain's BAE System, which proposed their Gripen fighter. The falling out with the French was particularly bitter, because both countries came down on opposite sides in the debate over the war in Iraq.

Essentially, the contracts signed yesterday involve three separate deals - a sales agreement for the 48 jet fighters; the package of offset investments in Poland over the next 10 years, and a low-interest U.S. government loan to finance the cost of the jet fighters, with payments on the principal not due until after 2010. The offset package agreed to includes commitments by Pratt & Whitney, a unit of United Technologies, which makes parts for the F-16 in Poland, to expand its capacity in order to build the engines for the new planes there. The fighter planes will be built in Fort Worth, Texas.

GM commitment

In a commitment unrelated to the aircraft, General Motors agreed to fresh investment at its factory in Gliwice, in southern Poland, for an updated version of its Opel Astra automobile.

Poland's economy, thanks to shock therapy after the collapse of communism in 1989, has long posted the strongest and most sustained growth among the formerly Communist countries of Eastern Europe, borne aloft by an immense wave of direct foreign investment.

Between 1989 and 2002, Poland attracted more than $65 billion of investment, by far the largest amount drawn by any formerly Communist state.

More than 13 percent, or $8.7 billion, came from the United States, making American businesses the largest investors in post-Communist Poland after the French, with 20 percent.

Polish officials said yesterday's deal would virtually double the American share.

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