Local defence company Terem may assume control of the repair and modernisation of Bulgaria's helicopter fleets, bumping Israel-based Elbit Systems off the job.

The Defence Ministry is considering the change as one of the options to bring the project back on track after postponements caused by Elbit Systems.

On December 29, Minister of Defence Vesselin Bliznakov told journalists that there were serious problems with the contract with the Israeli company, Bulgarian news agency BTA reported.

The 53 million euro, three-year contract for the upgrade of the 12 Mi-24 helicopters and six Mi-17 helicopters, signed in December 2005, obliged Elbit to present a prototype of the modernised helicopter by October 2006. The company failed to meet the deadline, though the company has already spent one million euro on the project, according to unofficial information quoted in Bulgarian-language media reports.

The lack of a trade permit for dual-use goods, which is needed to ship the helicopter engines for modernisation abroad, has slowed the process, sources said. Other observers said the permit was withheld at Moscow's insistence. Russia has objected to the award of the modernisation contract to a Western company.

Elbit Systems refused to comment to Bulgarian-language newspaper Dnevnik.

Before making his announcement, Bliznakov met with Elbit chief executive Josef Ackerman to discuss the missed deadline for the hand-over of the first prototype. It was expected that the two sides would push the hand-over deadline to January 2007.

"We noted serious difficulties in meeting the time schedules set in the contract," Bliznakov said. "A very serious expert analysis will be made to see how far it is possible to keep the schedule and whether any particular clauses or the contract as a whole should be reconsidered".

After the meeting with Ackerman and other senior managers of Elbit Systems, Bliznakov said further talks were supposed to be hold in the first two weeks of 2007.

Military sources reported the two parties have agreed to resolve all contentious issues within a couple of weeks and avoid litigation.

Bliznakov and Ackerman agreed that the deal was scuppered by circumstances of international dimensions beyond their control. Because of financial constraints, the expensive projects for new multi role fighters and corvettes have been shelved for the time being. However, the contract for repairs of the MiG-29 fighters is being carried out according to schedule.

The Elbit contract will most probably go to the local defence firm Terem, Dnevnik reported. The Terem contract is expected to be about 40 million euro, 17 million euro less than the price agreed with Elbit Systems.

Elbit, a snapshot
The Israeli contractor Elbit System Limited is a member of the Bulgarian Industrial Association. The company primarly manufactures machinery, including weapons and ammunition and repairs military technologies. Established in 1966 and based in Haifa, Israel, Elbit has more than 5000 employees. It is one of Israel's largest defence electronics manufacturers and integrators.

Elbit manufactures and assembles most of its systems at a production facility in Karmiel and Rehovot, Israel, Fort Worth, Texas, and in Merrimack, New Hampshire. These facilities contain warehouses, electronic manufacturing areas, test equipment and final assembly and test stations. Elbit also uses electronic card assembly, electro-optic components, solid state components integration, environmental testing and final testing, including space simulation and thermal chambers.

The company holds over 260 patents and applications for about 120 different inventions in Israel, the US and other countries. Elbit also holds about 35 trademarks for specific products. A significant part of Elbit's intellectual property assets is connected to software-based technologies.

Elbit Systems is traded on the Tel Aviv Stock Exchange as well as on NASDAQ.