CTO Newsletter

Main headlines from this issue

Malaysia awards one of its final countertrade tenders

Malaysia has awarded its first-ever open international tender for military aircraft to Korea Aerospace Industries (KAI), in what we are told will be one of Malaysia’s last-ever defence contracts to include countertrade requirements. From this year onwards, the new ICP policy [3rd edition] will not have countertrade requirements,” explains a senior manager at the Technological Depository Agency (TDA).

UAE and Dassault haggle over Rafale offsets

Dassault Aviation’s €14bn (c. US$15bn) contract to supply 80 Rafales to the UAE is stalling over offset negotiations. The French prime has reportedly made the unusual request to reroute its obligations to India, a move one expert says could work if the UAE receives higher-value local component production or systems assembly.

TKMS rejoins race for Indian submarines

Nearly two years after it had dropped out, Germany's ThyssenKrupp Marine Systems (TKMS) has reentered the race for Project-75 India (P75I), the programme to expand India’s submarine fleet by adding six attack submarines. The company put in a $52bn offer during German Chancellor Olaf Scholz’s visit to India on 25–26 February.

AUKUS: Australia wrestles with tech transfer, pressures UK to “Buy Australian”

AUKUS, the trilateral alliance to manufacture Australia’s first-ever nuclear-powered submarines, has yet to overcome its biggest hurdle: transfer of nuclear propulsion technology. The programme came under intense scrutiny on 13 March, when officials issued the first major updates since AUKUS’s announcement in September 2021.

Australia: Primes home in on guided weapons requirement

Australia’s ambition to create a domestic ecosystem for munitions took centre stage during Avalon 2023, Australia’s biennial international air show. BAE Systems, MBDA, Raytheon, and Lockheed Martin used the occasion to showcase their latest initiatives under the Guided Weapons Ordnance Enterprise (GWEO)

Boeing joins Airbus bid for British helicopters

Airbus has selected Boeing as its partner to supply the United Kingdom with a British-produced H175M, a medium-utility helicopter. Despite partnering with an American manufacturer, Airbus has assured CTO that it will keep the majority of production and assembly in-country.

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Tawazun embraces ICV requirement, but leaves industry uncertain

The UAE’s in-country value (ICV) programme has made its way to the defence sector. One year after Tawazun joined the programme, ICV requirements have emerged in public conversation and offset negotiations. But the dust has not settled. During IDEX 2023, four defence contractors described very different experiences with ICV, with some still confused about how it will interact with the existing offset guidelines.

India still open to Russian suppliers, the more “accommodating” offset partner

Rosoboronexport, Russia’s sole state arms exporter, came out in force at Aero India (13–17 February). The conglomerate had a clear strategy: generous offset packages in exchange for the Indian government’s continued consideration. After all, Russia is almost always more flexible that its western counterparts in supporting indigenisation, says Amit Cowshish, former financial advisor to the Ministry of Defence.

Rolls-Royce offers to co-create engine IP with India

Rolls-Royce is offering to co-produce new engine technology for India’s advanced medium fighter (AMCA), in an offer that sets it apart from its competitors, Safran and General Electric, which have both opted for the more traditional route of transferring existing technology.

Despite Russian strikes, Ukraine and UK in talks for weapons co-development

Executives from BAE Systems travelled to Ukraine this month to discuss the possibility of manufacturing weaponry and military vehicles under licence in the war-torn country. The move puzzles some analysts, who are concerned that Ukraine will be unable to protect is production lines and personnel from Russian strikes.

HAL challenges KAI over Egyptian LCAs

Hindustan Aeronautics Limited has committed to a “complete transfer of technology” and local manufacturing if it is selected to supply Egypt with 20 Tejas light combat aircraft (LCA). “We are willing the build the Tejas ecosystem for them, right from raw materials to the final production,” the company said at Aero India.

Fincantieri in final race for Greek corvettes

Fincantieri, one of the two final contenders in Greece’s €1.6bn contract for four corvettes, has teamed up with Leonardo, MBDA Italia, and Elettronica to sign MoUs with eight Hellenic suppliers. The agreements were signed on 12 February in Elefsis, where Fincantieri’s main partner, Onex Elefsis Shipyards, is based.

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Spain closes industrial cooperation directorate

Spain has shut down the Directorate for Industrial Cooperation (DICOIN), the specialised unit responsible for advising the Ministry of Defence (MINISDEF) on industrial cooperation. Sources close to MINISDEF have advised CTO that the closure forms part of a broader restructuring in industrial policy.

GCAP: Sweden wants in

Sweden is requesting access to the Global Combat Air Programme (GCAP), the intercontinental alliance between Italy, Britain, and Japan to develop a sixth-generation fighter. Within two months of the programme’s announcement, Sweden met with two of the three partners to showcase Swedish industry and ink parallel deals.

Rheinmetall negotiates HIMARS production in Germany

As European nations purchase HIMARS multiple rocket launchers en masse, German giant Rheinmetall is inviting Lockheed Martin to shift production into the EU bloc. The move would not only relieve Lockheed Martin’s backlogs, but may also pave the way for further sales in European states seeking greater self-sufficiency and shorter delivery times.

South Korea loses Norwegian tanks to Germany

Krauss-Maffei Wegmann (KMW) has prevailed over Hyundai Rotem in the bid to supply Norway with 54 Leopard 2A7 main battle tanks for NOK19.7bn (US$1.6bn). Hyundai lost out despite a showy offset package which would have seen Norway build Black Panther MBTs in-country.

Greece requests local content for potential C-390 contract

Brazilian aerospace manufacturer Embraer met with the Hellenic Air Force on 28 January to discuss the possibility of Greece procuring the C-390 Millennium as a replacement for its ageing C-130Hs. The Hellenic Manufacturers of Defence Material Association (SEKPY) is already moving to request local content on the potential contract

Argentina negotiates armoured vehicles with Brazil, Iveco

Brazil has agreed to help Argentina purchase 156 6x6 Guarani armoured personnel carriers (APCs) from Iveco Defence Vehicles, the Italian multinational manufacturer. The Brazilian Army and Iveco have been jointly developing and exporting the vehicles for nearly 15 years and have agreed to relocate component production to Argentina under a potential export contract.

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Indonesia’s offset policy disappoints despite host of new projects

Indonesia’s ability to absorb offset programmes is coming under scrutiny. This month, two independent academic papers and an industry webinar gathered insights from the Ministry of Defence, local think tanks, and defence trade associations to lament the country’s technological readiness and “misleading” offset initiatives.

South Korea secures first partner for MC-X aircraft

Korean Aerospace Industries (KAI) stands to secure its first foreign buyer for the MC-X transport aircraft: the United Arab Emirates. “It’s unconvincing that UAE could offer technology on a heavy lift military aircraft,” an anonymous industry expert close to Emirati authorities told CTO. The UAE can, however, “offer petrodollars to support development costs of such an aircraft.”

Saab loses Indian partner for Gripen offer

Swedish aerospace prime Saab has abandoned its partnership with Indian business giant Adani Group to manufacture the Gripen E aircraft for the Indian Air Force (IAF). Mats Palmberg, head of Saab India, says that Saab is still looking for local partners but this time is seeking 74 percent ownership of a joint venture.

Despite setbacks, Egypt and India renew industry ties

India and Egypt are urging their defence industries to team together for defence R&D and export initiatives. “A main area in which an Egypt-India partnership propels both economies is defence production,” says Egyptian expert Mohammed Soliman, Director of the Strategic Technologies and Cyber Security Program at the Middle East Institute in Washington D.C.

Japan and US ramp up industry cooperation – as Japan starts looking elsewhere

As Japan prepares to change its defence procurement policies, Minister of Defence Yasukazu Hamada and his US counterpart, Lloyd Austin, have signed two new joint defence R&D and supply agreements. The deals were finalised on the margins of the US-Japan Security Consultative Committee (“2+2”) in Washington D.C. this month.

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Taiwan updates offset guidelines – but hides tech evaluation criteria

The Industrial Cooperation Program Office (ICPO) has published three new guideline documents on offset valuation and monitoring procedures. Some industry partners only learned of the documents’ existence through website monitors or word of mouth.

Japan tightens links with UK, Italy

Japanese Prime Minister Fumio Kishida has met with his Italian and British counterparts Giorgia Meloni and Rishi Sunak, respectively, for the first time since the launch of the Global Combat Air Programme (GCAP). Both meetings saw breakthroughs in Japan’s defence and industry ties with European nations.

Rheinmetall to buy back Hungarian explosives

Rheinmetall has secured a triple-digit million-euro contract to build a new explosives plant in Várpalota, Hungary. The ammunition will be used in Lynx IFVs, PzH 2000 howitzers and Leopard 2 battle tanks, according to Hungarian Defence Minister Kristóf Szalay-Bobrovniczky.

Slovakia wins component production for CV90s

Slovakia has confirmed the scope of its contribution to BAE Systems Hägglunds’s CV90s under a US$1.37bn deal for 152 vehicles. The country is teaming up with the Czech Republic to produce common components, spare parts, and logistical support.

Canada selects F-35; Lockheed promises "economic benefits"

Canada has announced plans to buy 88 F-35As for CA$19bn (US$14bn), the largest investment in the Canadian fleet in 30 years. Defence Minister Anita Anand sidestepped concerns about affordability and financial sustainment by emphasising the aircraft’s economic benefits for Canadian industry.

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Argentina announces new offset conditions for military equipment

Argentina is taking extra steps to secure industrial and commercial benefits in defence procurements. The Ministry of Defence (MINDEF) has not only announced new offset requirements but also a “supplier development” programme designed to kickstart collaboration between SMEs and OEMs.

Letter from the publisher

As the year grows to a close, our publisher Mr Rodrik Cave shares some thoughts on the industry’s growth and CTO’s next steps.

Grant Rogan: Court ruling on offset deal “opens the door to corruption”

Grant Rogan, chief executive of the offset service provider Blenheim Capital Partners, is speaking out against the US Court of Appeal’s recent legal ruling in favour of Lockheed Martin and Airbus Defence and Space. Rogan believes the judgement will enable foreign governments and US officials to engage in “corrupt acts” with impunity. Both Lockheed and Airbus declined to comment on this interpretation of the ruling.

Expert panel urges India to expand options for obligors

A recent webinar gathered seven industry professionals across government, industry, and academia to debate Indian offset policy. Despite agreeing on the main challenges – unclear policies, poor communication, and bureaucratic pedantry – the attendees were unsure about the best next steps.

Bulgaria requests MRO and tech transfer for F-16s

Bulgaria is officially requesting offset benefits from Lockheed Martin for the purchase of a new F-16 jet squadron. During a meeting with Lockheed Martin representatives on 13 December, Bulgarian President Rumen Radev asked the US manufacturer to guarantee industrial cooperation and establish in-country MRO capabilities.

Elbit to produce UAVs with Romanian partners

Romania’s Ministry of National Defence has selected Elbit Systems for the delivery of seven Watchkeeper X tactical unmanned aircraft systems (UAS). Elbit will be required to partner with “domestic economic operators” under a five-year framework agreement worth up to US$410m (€310m).

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South African procurement bill to codify local content and offset requirements

The Department of Trade, Industry and Commerce (DTIC) is bracing for amendments to local content and production requirements. The Public Procurement Bill, which will be presented to Parliament in 2023, will codify preferential policies and offset programmes in public procurement, and new regulations will be drafted to that effect, a senior official told CTO. The news follows a period of turmoil for South Africa’s procurement laws.

A new fighter for Japan, Britain, and Italy

Japan, Britain, and Italy have launched the Global Combat Air Programme (GCAP), a highly anticipated collaboration to develop a next-generation fighter aircraft by 2035. CTO speaks to industry professionals close to the programme about technology transfer, workshare distribution, and export opportunities.

Japan to produce Patria 8x8 under licensed production

Japan has selected Finnish defence prime Patria to supply the Japanese Ground Self-Defense Force (JGSDF) with a new 8x8 armoured vehicle under the Wheeled Armoured Personnel Carrier (WAPC) programme. The deal will produce the vehicles in Japan under licensed production with “a solid contribution to the local economy and technology development.”

Oshkosh enters competition for Malaysian armed vehicles

Malaysia’s pool of bidders for the modernisation of its wheeled armoured vehicles has just welcomed a new entrant. US manufacturer Oshkosh Defense has signed a teaming agreement with Malaysian defence company Sovereign Strategic to produce Oshkosh’s Joint Light Tactical Vehicle (JLTV). If selected, Sovereign Strategic would act as prime contractor and receive unspecified technology from Oshkosh.

KF-21 leaves Indonesia in the dust

South Korea is allocating an additional KRW190bn (US$146m) in funding for a long-range air-launched cruise missile (ALCM) to be fitted on the KF-21 Boromae. The news comes as Indonesia’s contributions fall further behind and Korean programme leaders start pushing on export potential.

Slovakia closes deal for CV90, turns to Czech Republic for co-production

Slovakia signed a US$1.37bn deal for 152 CV90s from BAE Systems Hägglunds on 12 December under a government-to-government agreement. BAE Systems has pledged to work closely with Slovak industry to manufacture the vehicles, but Slovakia also intends to partner with the Czech Republic to guarantee a steady supply of spare parts, maintenance services, and upgrades.

Main headlines from this issue

Lockheed and Airbus fend off Blenheim’s legal campaign

Blenheim Capital Holdings has lost its appeal in a two-year case against Lockheed Martin and Airbus Defense & Space over a botched offset deal, a decision with major legal implications for offset providers operating in the US. The US Court of Appeals for the Fourth Circuit dismissed Blenheim’s appeal on the grounds that offset transactions are “exclusive to sovereigns” and therefore do not fall within US subject-matter jurisdiction. Blenheim filed a second appeal for a rehearing last week, arguing that the court has “erroneously” misunderstood the nature of offset transactions.

Brave new world: emerging trends in offset

As offset moves away from one-off transactions towards long-term alliances, offset providers must start thinking bigger-picture, according to Michael Formosa, managing partner at Renaissance Strategic Advisors. During last month's GICA conference, Formosa explained how geopolitical trends are shaping cooperation, and what this means for offset providers.

Peru tackles high turnovers and repeated delays

Peru’s management of offsets has been undermined by turnovers and changing end-user priorities, according to Colonel Armando Pomar Galdos, director of Peru’s offsets division DICISOF. Galdos explains how Peru plans to overcome these challenges.

France and Germany inch towards breakthrough on FCAS

An 18-month disagreement between Dassault and Airbus over workshare and technology transfer in the US$100bn Future Combat Air System (FCAS) is on the brink of a breakthrough, according to the programme’s leaders. CTO breaks down recent events.

KAI secures Egyptian partner for potential T-50 sale

Egypt’s Arab Organization for Industrialization (AOI) has signed a cooperation agreement with Korea Aerospace Industries (KAI) to manufacture training aircraft in Egypt. The cooperation agreement aims to meet the needs of the Egyptian Air Force (EAF) as well as third-party African and Arab countries.

Deep dive: UK selects Navantia for support ships

The British Ministry of Defence has selected Navantia UK’s offset-heavy Team Resolute to deliver three Fleet Solid Support (FSS) ships to the Royal Fleet Auxiliary (RFA) under a £1.6bn (US$1.9bn) programme. CTO investigates the deal, and outlines Britain's approach to local shipbuilding long-term.

Main headlines from this issue

GICA autumn conference reviews

GICA held its autumn conference in Toronto, Canada, on 6–8 November. More than 210 delegates from 23 countries were in attendance. The conference placed a novel and well-received emphasis on recruitment and retention in the offset industry. Offset managers of varying experiences gathered on stage to discuss how they discovered offset and their career aspirations.

Canada hails support for indigenous communities

One theme ran through nearly all of GICA’s Canadian offset presentations: indigenous communities and small enterprises. No fewer than eight speakers across four presentations mentioned or emphasised indigenous businesses and the potential for offset to support their development. CTO reports on recent legislation, success stories, and mechanisms for cooperation.

Oman unveils new regulations

After ten years of upheaval and changes in management, Oman has released new offset guidelines. The regulations were approved in September but announced for the first time at the GICA conference. It includes new administrative procedures, in-country value (ICV) requirements, and new multipliers, according to Abdullah Al Abri, director-general for contracts and projects at the Ministry of Finance.

Offsets become linchpin of Korean exports

For most of its history, Korea’s defence industry has been on the receiving end of offsets. Yet over the past decade, the country has switched seats, says Hwa Yu, CEO of Delta One LLC. Hwa Yu and senior Delta One advisor James Grzella explain how Korea is developing and optimising its own offset strategies abroad.

Ukraine and Czech republic launch defence cluster

Ukraine is doubling down on industrial cooperation as Russia’s invasion comes under strain. On 9 November, Ukroboronprom and Czech Republic’s International Agency for Defence Cooperation (AMOS) signed an agreement to establish a joint defence cluster focused on ammunition production, MRO service hubs, and joint research. The two firms insist that production would take place in “existing [plants] and newly created ones in safe places.”

French firms sweep through Indo Defence Expo

French industrial giants Thales and Naval Group are consolidating their collaboration with Indonesia. Recent deals with PT Pal and PT Len support not only defence self-reliance but energy exports, too.

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Drones for jets? Russia and Iran discuss barter and energy swaps

Iran is exporting a record number of drones to Russia. Yet it remains unclear how Russia purchased the matériel. Multiple news agencies and US officials have indicated that Iran and Russia opted to barter drones for jets, in what would be Iran’s biggest acquisition of fighter aircraft in over 30 years. CTO breaks down what we know, and what it means for Russo-Iranian cooperation.

Taiwan and US consider weapons co-production

The United States and Taiwan are in talks to jointly manufacture weapons for the island nation, in what would be their first-ever instance of co-production. The initiative could encourage Taiwan to increase defence spending and help redress a six-month backlog of sales, according to analysts.

Embraer rallies Korean partners for transport aircraft

Embraer has partnered with three Korean firms to pitch its C-390 Millennium to the Republic of Korea Air Force (ROKAF). The Brazilian manufacturer is forming a domestic consortium for the Large Transport Aircraft (LTA) II Program, but faces competition from Lockheed Martin and Airbus. All three suppliers received “wish lists” for indirect offset projects last year.

UK and India launch working group; Rolls Royce pitches ‘Made in India’ engine

The UK is doubling down on efforts to co-produce an indigenous jet engine in India. In comments to reporters at DefExpo, UK High Commissioner Alex Ellis insisted that Rolls-Royce is ready to support the indigenous design and manufacture of a 110-kilonewton engine for the Advanced Medium Combat Aircraft (AMCA). The comments come as Britain and India launch an inaugural forum to support defence industry cooperation.

Google launches cloud region in Israel

Google has activated Israel’s first local cloud region, a major milestone in its contract to provide cloud services to the Israeli government and military. Boaz Maoz, country manager for Google Cloud Israel, says the project will contribute $7.6bn to Israel’s GDP between 2022 and 2030 and create 21,200 high-tech jobs by 2030.

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United Kingdom releases guidance for new industrial participation policy

The Ministry of Defence has completed a draft proposal for its new Industrial Participation Policy (IPP). The proposal provides guidance on local content targets, clarifies thresholds, and explains the tendering process. It was circulated internally among British defence contractors on 3 October for comments and feedback.

Norway: Technology transfer gives way to “technology cooperation”

Norway’s new regulations on industrial cooperation are scheduled for release in autumn 2023, according to Åge Skøelv, senior advisor to the Norwegian Ministry of Defence. They will cement Norway’s transition away from technology transfer towards “technology cooperation.”

Germany conducts study into costs of offset

Germany’s Ministry of Defence is markedly opposed to offset, but is open to discussing new ways of improving supply chain resilience, according to Carl Sibrand Förster, a senior official in the Department of Defence Industry Policy, Exports, and Investments. His team is collaborating with the Ministry of Economy to conduct a study into the costs of offsets and discuss options for Germany.

SIPRI report: Licensed production critical to “self-reliance” in Indo-Pacific

Countries in the Indo-Pacific are relying on licensed production to improve self-reliance in the defence industry, according to a report by the Stockholm International Peace Research Institute (SIPRI) published this month. Other than Australia, lower-income countries are typically the ones to push for licensed production. CTO breaks down the report’s findings.

Poland and UK take next step on missile and frigate collaboration

The United Kingdom and Poland have signed three agreements to cooperate on the provision and development of defence equipment. The deals bring Poland one step closer to securing new frigates for the Miecznik (Swordfish) requirement and missiles for the Narew short-range air defence system.

UK to build surveillance ships in local shipyard

The United Kingdom has unveiled plans to procure two multi-role ocean surveillance ships (MROSS) to protect underwater infrastructure. The first vessel may be purchased off the shelf from abroad, but the second will be constructed in a British shipyard, according to Defence Secretary Ben Wallace.

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South Africa: New investigation into Arms Deal meets "deliberate" delays

South Africa has reopened investigations into BAE Systems and Thyssenkrupp for alleged “commissions” to senior officials under the 1999 Arms Deal, according to documents in CTO’s possession. The investigations were reopened in early 2020 but kept unknown to the public until now, when insider documents were provided to CTO and South African daily Mail & Guardian. Recent developments suggest that the NPA is not protected from political interference.

US Court of Appeals debates “commercial” nature of offsets

Blenheim Capital Holdings’ lawsuit against Lockheed Martin and Airbus has taken a step forward. On 16 September, Blenheim sought to convince the Fourth Circuit that, contrary to an earlier judgement by the Eastern District Court of Virginia, offset agreements with foreign governments are within US subject matter jurisdiction.

South America revives aircraft requirements, but offsets are in question

Colombia and Argentina have revived talks to replace their ageing fighter aircraft fleets. Both countries face strong public pressure to divert spending away from military modernisation and towards social development spending, and the original tenders attracted strong offset proposals. However, budgetary constraints and export controls may stall the deals before they even begin.

Malaysia requests offset from Chinese infrastructure bidders

Malaysia is requesting offset for its major infrastructure projects, particularly when working with Chinese suppliers. Minister of Transport Dr Wee Ka Siong hosted a virtual roundtable dialogue with Chinese CEOs on 17 September to discuss trade cooperation “win-win development.”

Vietnam removes automobile localisation requirements

Vietnam is amending the way it evaluates the localisation of automobiles. The Ministry of Science and Technology (MOST) has issued a circular to repeal the legislation, which will take effect on 1 October.

Engineer shortage undermines Turkish cooperation

Turkey’s shortage of engineers and trained personnel is undermining the country’s ability to cooperate with foreign suppliers on power packs, according to Ismail Demir, head of Turkey’s Defence Industry Agency (SSB). CTO summarises Demir's plans for cooperation on the Altay battle tank, the Turkish Fighter X (TF-X), and Gökbey utility helicopter.