CTO Newsletter

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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.

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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.

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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.

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Annual report to congress: Offsets see historic low as COVID-19 takes its toll

US suppliers’ offset activities have reached historic lows. In 2020, the figures declined across almost all metrics, including the number of new agreements, the value of the agreements, and the number of US firms and foreign countries involved. We break down the 26th annual report to Congress on the impact of offsets in the defence trade.

Australia: Offset demands may have “perverse effect” on productivity

Australia’s attempts to promote local industry are hindering military preparedness and undermining industrial productivity, says Rob Bourke, a former economic advisor to the Department of Defence. Domestic builds can be “can be an extraordinarily expensive way to create far fewer jobs than initial impressions.” Bourke’s 12-page report for the Australian Strategic Policy Institute draws on government data and historical trends to compare the costs and benefits of offset obligations.

Polish-British frigates to include technology transfer

Poland’s military modernisation is moving ahead at pace. The country has signed two offset contracts with Babcock linked to the procurement of three multi-role frigates under the Miecznik (Swordfish) requirement.

Thailand to receive Israeli rocket launcher technology

The Thai Defence Technology Institute (DTI) and the Royal Thai Navy’s Naval Research and Development Office (NRDO) are partnering with Israel’s Elbit Systems to develop a localised version of Elbit’s multi-calibre PULS rocket launcher.

Offsets cause mixed feelings among Korean analysts

A report published by the Korean daily Financial News comes to two conflicting conclusions about the costs and benefits of offset policies. The commentary was published on 5 August and features insights from academia, industry, and government-affiliated trade centres.

Bell offers Korea technology transfer despite communication mishap

Bell Textron has submitted a formal offer to the Defence Acquisition Program Administration (DAPA) for the domestic production of AH-1Z Viper attack helicopters. This is reportedly Bell’s third attempt at offering technology after DAPA ignored two proposals sent via email last year, apparently because the messages were not formally addressed to the right individuals.

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Malaysian offset venture accused of bribery and contract inflation

Contraves Advanced Devices (CAD) has come under scrutiny for alleged bribery and misappropriation of funds. Details of CAD's participation in Malaysia’s RM9bn ($2bn) littoral combat ship programme emerged in a declassified 250-page parliamentary report and leaked documents published this month. The country’s anti-corruption authority has gathered sufficient evidence to charge several executives.

China offsets spark concern about industrial competitiveness

China is leveraging its domestic market and production base to acquire advanced technologies and develop “coercive leverage” in critical sectors, argue Nathan Picarsic and Emily de la Bruyère, senior fellows at the Foundation for Defense of Democracies. China has received mounting attention following two major offset deals this year.

Korea updates localisation guidelines, releases priority offset list

Korea has updated its evaluation criteria for local production in offset proposals. The Defense Acquisition Program Administration (DAPA), the agency responsible for Korea’s offset programme, will grant additional points to OEMs that earn cooperation certifications with local firms.

Hungary and Turkey to cooperate on defence and energy

Hungary wants to produce unmanned aerial vehicles (UAVs) and solar panels in-country with help from Turkey. Minister for Technology and Industry László Palkovics announced his plans after meeting with his Turkish counterpart Mustafa Varank in Ankara.

Russia leans on industrial cooperation with Asian partners

Russia is leveraging industrial cooperation to offset the impact of America’s economic sanctions. Within just three weeks, Russian ministers met with their counterparts in India, China, and Iran to promote defence cooperation and technology exchanges.

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Korea clarifies policy on civil offsets

Korea’s Ministry of Trade, Industry and Energy (MOTIE) has confirmed that the Request for Proposal (RFP) for government procurements does not require mandatory export commitments. However, there is a higher chance of approval of the agreement if the foreign company proposes an item that can lead to exports.

Foreign firms complete only 82 percent of Indian offsets

Foreign suppliers have long struggled to navigate India’s bureaucratic hurdles and perform their offset obligations. Indian Minister of Defence Ajay Bhatt was challenged on the subject during a hearing at Lok Sabha, the Parliament of India, on 5 August.

UK consortium finalises bid for support ship contract

In its search for three new Fleet Solid Support Ships (FSS), the British government is facing a decision between an all-British vessel and an offset-heavy foreign proposal. Team UK, composed of Babcock and BAE Systems, has submitted a bid to supply the ships using only UK-based industry. It faces competition from Team Resolute, composed of Spanish prime Navantia, UK shipbuilder Harland and Wolff (H&W), and British design consultancy BMT.

Details emerge of Poland’s IBCS offset contracts

Despite protracted negotiations and licensing struggles, Northrop Grumman’s cooperation with Polish industry on Integrated Battle Command System (IBCS) modules is now fully underway. Northrop’s technology transfer efforts focus predominantly on systems engineering and software development, especially for system-of-systems engineering and network-centric architectures.

Baykar to build drone facility in Ukraine

Turkish drone manufacturer Baykar is taking steps to build a factory on Ukrainian soil, according to Vasyl Bodnar, Ukraine’s ambassador to Turkey. Baykar has already created a company in Ukraine, bought a plot of land at an undisclosed location, and started developing the facility.

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Eom Dong-hwan appointed minister of DAPA, calls for transparency and accountability

President Yoon Suk-yeol has appointed a new minister to lead the Defense Acquisition Program Administration (DAPA), the agency responsible for South Korea’s military purchases and direct offsets. During his inauguration ceremony, new Minister Eom Dong-hwan highlighted the importance of transparency and due process in Korea’s defence acquisitions. Within days of taking office, Eom hosted his first group meeting about localisation and SME engagement, and signed an export strategy deal with the Korea Atomic Energy Research Institute (KAERI).

Korea signs multi-billion dollar deals with Poland, readies extra defence industry attaché

Poland is looking to buy 980 K2 tanks from Hyundai Rotem, 48 FA-50 light attack aircraft from Korean Aerospace Industries (KAI), and 672 K9 self-propelled howitzers from Hanwha Defense. Amid Poland’s surging defence demands, Seoul is preparing to send another military attaché for defence industry cooperation and localisation.

US launches open general export licenses, prepares for industry cooperation under AUKUS

The United States is taking steps to streamline industrial cooperation with historical allies. Speaking at a joint AIA-ADS event on the sidelines of the Farnborough Air Show on 21 July, representatives from the Directorate of Defense Trade Controls (DDTC) announced a pilot programme for open general export licenses (OGELs) for Canadian, British, and Australian suppliers.

Peru and Argentina to share satellite technology

Peru’s Minister of Transport and Communications, Juan Barranzuela, is in talks with Argentine authorities to jointly design and implement satellite connectivity projects. During a meeting with Daniel Filmus, Argentina’s Minister of Science, Technology and Innovation, Barranzuela emphasised transfer of technology as a condition of cooperation.

Saudi Arabia sets sights on aerospace ventures

Saudi Arabia came out in force at the Farnborough Air Show on 18–22 July. The General Authority for Military Industries (GAMI) hosted the “Invest Saudi” pavilion together with SAMI, the kingdom’s leading defence conglomerate, and World Defense Show (WDS) administrators. Both GAMI and SAMI finalised several offset agreements and hinted at upcoming opportunities for Saudi SMEs.

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Malaysia to impose local content on all drone contracts, signs cooperation agreement with Turkey

Malaysia is planning to make it compulsory for foreign drone suppliers with public procurement contracts to build factories in-country, Prime Minister Ismail Sabri Yaakob has announced. The Prime Minister shared the news after his four-day state visit to Ankara, during which Malaysia and Turkey agreed to cooperate on aviation and unmanned technology.

Sweden pitches industrial cooperation as Czech Republic mulls fighter aircraft

Sweden is laying the groundwork for industrial cooperation as part of its offer to supply Gripen fighter jets to the Czech Republic. Swedish diplomats have offered to extend the existing lease of 14 Gripen C/D jets almost free of charge and increase cooperation on new platforms, including the Gripen E/F series.

BAE Systems pledges higher local content, Slovakia selects CV90

The Slovak government has signed off on its decision to procure 152 Hägglunds CV90 combat vehicles from BAE Systems and the Swedish Defence Materiel Administration (FMV) through a €1.7bn ($1.7bn) government-to-government agreement with Sweden. The British firm beat out Rheinmetall, GDELS, and Santa Bárbara Sistemas’ offers to supply the IFVs.

Safran and HAL to co-produce helicopter engines

Safran Group and Hindustan Aeronautics Limited (HAL) have signed an MoU to jointly manufacture a new engine for the Indian Multi-Role Helicopter (IMRH). The new joint venture aims to meet future Indian requirements, including the IMRH’s naval variant, the Deck Based Multi Role Helicopter (DBMRH).

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Poland negotiates offset “outside formal procedures”

Poland has embarked on a spending spree for big-ticket platforms, with nearly all deals imposing high localisation requirements. However, offset negotiations are taking place outside of the procedures outlined by the Ministry of Defence’s decision No. 367, the standard route for establishing offset.

Lockheed and Germany negotiate offset for f-35 jets

Germany and Lockheed Martin are discussing industrial participation in connection to the prospective procurement of 35 F-35 fighter jets. “[W]e want to deliver a capability, not just a piece of metal,” says J.R. McDonald, vice president of F-35 business development.

India and France close to concluding talks for indigenous jet engine

India and Safran are making progress in negotiations to co-develop an indigenous combat engine for India’s Advanced Medium Combat Aircraft (AMCA). “Everything [is] almost there, and it is just about to happen,” Air Vice Marshal Hilal Ahmed Rather, the Indian air attaché in Paris, told CTO. The deal would leverage the offset credits accrued from India’s 2016 deal with Dassault to purchase 36 Rafale jets.

Congressman pushes to pass “Buy American” requirements into law

A key member of the House Armed Services Committee (HASC) is pushing to codify recent “Buy American” amendments into law. Donald Norcross, chairman of the Tactical Air and Land Forces subcommittee, is lobbying to increase domestic content thresholds in the annual defence bill for 2023, in accordance with President Joe Biden’s “Make in America” executive order of January 2021.

Volatus looks to offset to take South American markets

Drone services provider Volatus Aerospace Corporation is leveraging offset to secure sales in South America. The Canadian company has formed a joint venture with Peru’s EOLO Drones to target government and commercial customers across South America, the companies announced on 8 June.