The driving force behind the Swedish-Hungarian investment cooperation is a lease contract and economic agreement between the governments, for 14 Gripen fighter jets by the Hungarian Air Force, slated for 2006. The basis of the deal is to balance long-term economic benefits for Hungary, in support for the Gripen fighter contract.

The Grippen fighter jet deal has sparked bilateral trade between Sweden and Hungary

The road leading to the conclusion of the contract, however, has been quite arduous.
Gripen International, jointly owned by Sweden and Britain, originally opened an office in Budapest in 1994, hoping that the Hungarian government would announce a tender for the acquisition of air-fighter jets.
A number of aircraft manufacturers originally entered the competition for the offset deal, including US-based firms General Electric Company and Lockheed Martin, McDonell Douglas Aerospace, as well as Italy’s Alenia Difesa. Gripen’s gamble paid off when the first pre-offset contract was signed between the Hungarian and Swedish governments in September 1995. Although this original deal innately carried some risks, it also gave a taste of future economic advantages that could be gained.
But the tender fell through when the Hungarian government backed off from the costly option of purchasing new fighters.
The government eventually did come back to Gripen in 2001, when it decided to lease second-hand jets. In contrast to expectations, the government chose the Swedish tender primarily because of the long-term economic advantages it offered over an American bid for used F-16 aircraft.
“Should Hungary accept Gripen’s offer, it will be a catalyst for massive economic and industrial growth, providing new jobs, allowing for the expansion of exports and the replacement of obsolete technology with the latest technical advances,” promised Torbjorn Edberg, regional manager at SAAB BAE Gripen, when the bid was submitted.
With support from the Swedish and British governments, and experience and financial assistance from Swedish companies Volvo and Ericsson, Gripen offered Hungary a deal that entailed wide-scale industrial incentives that far exceeded the boundaries of traditional offset agreements.
Seven years after opening its office in Hungary, Gripen finally succeeded. With the conclusion of the agreement, Hungary’s Ministry of Economics registered some USD 876 million in offset-projects, which led to an exceptional increase in Swedish investments and exports in 2000 and 2001.
Among the projects was an investment in Jászberény by Electrolux, which established a vacuum cleaner and a deep freezer manufacturing plant, a research and development center, a refrigerator manufacturing plant and a new logistics center.

Torbjörn Nordström of Gripen International

Other Swedish companies soon joined the invasion. Mobile phone giant Ericsson opened a new regional office, a software development center and established a cooperation agreement with the Budapest University of Technology. Pharmaceutical firm AstraZeneca established a new head office in Budaörs, offering students in the region access to its clinical research center. Volvo also opened a new head office and service center in Budapest. And finally, automotive firm Scania founded its new office and service department in Biatorbágy.
The actual Gripen agreement and lease contract were signed in December 2001 by Hungary’s then Minister for Economic Affairs, György Matolcsy, who along with former Prime Minister Viktor Orbán, convinced the National Security Committee to opt for Sweden over the US. Under the terms of the contract, Sweden agreed to offset 110 percent of the HUF 108 billion lease value. Another 32 percent of the contract’s value will also be re-channeled into investments, while the remaining portion will be realized through Hungarian exports and supplies.
The Gripen contract also said that the revenues of the sale of the pre-offset should be invested in a risk capital fund established in Hungary, to facilitate the development of companies registered in Hungary.
Hence, the Gripen investment fund was established in June 2002 as the first step in fulfilling the agreement. Negotiations had begun with Gripen’s Capital Fund, who were active in the Hungarian market in consortium investments. Offset seminars were organized in 24 towns and regions across Hungary and the local chambers of commerce established a company database with the cooperation of ITDH (Hungary’s investment and trade development office) and the Economic Ministry.

Swedish companies like Volvo offered investment and expertise in the Gripen offset deal

In the summer of 2002, Torbjörn Nordström, the Offset Director at Gripen International responsible for the implementation of the program, was optimistic about the cooperation, but at the same time tried to cool off exaggerated expectations. He said that matching the Hungarian and foreign partners and setting projects was a time consuming task that could easily take one or two years before the investments could be launched.
One year later, he said Gripen International was delighted the industrial cooperation program with Hungary was making headway faster than expected, despite the fact that the offset deal had been significantly modified.
The Medgyessy government, which came to power in 2002, was unhappy with the fighters ordered by the previous government and wanted the newer release of Gripens that can re-fuel in the air and come equipped high-precision laser-guided bombs.
Repayments have been rescheduled and the fighters can now be purchased only after the 10-year lease term expires. The lease of the more modern fighters was also more expensive and increased the deal from the original HUF 108 billion to 174 billion. In return, Gripen undertook to offset 110 percent of the contract value. According to the contract, amended in February 2003, the amount of the deal will rise from HUF 118 billion to HUF 191. Investment in enterprises now comes to as much as HUF 55 billion. The Ministry of Economic Affairs claims that in light of international experiences, the amended contract is likely to create 13 to 15 thousand new jobs.
Of these, 600 new jobs will soon be open in Nyíregyháza, a region hit by high unemployment, where Electrolux is investing EUR 65 million in a second Hungarian factory.

The Hungarian deal was a big boost for Gripen. Hungary was the first NATO member to order the fighters in a region where the neighbouring countries were also planning to invest in similar aircraft. Prospects in Central and Eastern Europe first looked bright: after Hungary, the Czech Republic also went with Gripen with a 150 percent offset deal in December 2001. Poland also received a very favourable offer from the Swedes: Euro 8 billion in industrial cooperation in return for the purchase of 48 fighters, with a promise to create more then 50 thousand new jobs through partners like Volvo, Electrolux, General Electric, MG Rover and Raytheon. Austria was also a potential buyer since the Austrian air force had been using Saab Draken aircraft, and Gripen had already opened an office in Vienna in 1993, in order to prepare for a change in brand.
Nonetheless, the Czechs backed off from the purchase because of floods that caused major damage to the country; Poland opted for American F16s; and Austria went with the trans-European consortium’s Eurofighters. Gripen’s aircraft fly in the Swedish Air Force. Of the 204 planes that are on order from different parts of the world, 130 have already been delivered - and in addition to Hungary, South Africa has also ordered 28 fighters from Gripen.

Because of the higher value of the new contract, the term of the deal was also extended: the contract will last some 14 years as opposed to the original nine. In terms of performance, Gripen is already in a good position, having fulfilled 20 percent of its obligations to date, primarily because of Elextrolux’s investment in Jászberény, Notalo’s – known as Gripen’s supplier – development in Mosomagyaróvár, and Ericsson’s Budapest investments. According to Sándor Szabó, the offset manager of the Economic Ministry, HUF 42 billion worth of investments has been acknowledged as part of the program. At the end of last year, HUF 25 billion worth of investments were accepted, and the figure is likely to be increased by a further HUF 17 billion, mainly in the form of export expansion in August.

Hungarian PM Péter Medgyessy pushed for fighters with advanced fueling systems

At the same time, the Gripen-program is not only about economic cooperation. As part of the lease contract, Sweden will provide comprehensive training to pilots and service personnel. In addition to this, the Swedes will deliver inland service instruments, simulators and spares.
Last April, Yvonne Rosmark, the program manager of Gripen International in Hungary, signed the deed for a Hungarian foundation that is designed to help prepare aviation experts. Gripen has contributed HUF 1 billion to the operation of this foundation.