CTO Newsletter

Main headlines from this issue

Switzerland reflects on F-35 purchase, moves to amend offset policy

Switzerland will streamline its offset policy by the end of the year, says Simon Hufschmid, head of international law and compliance at the Swiss Federal Armament Office. Speaking to GICA attendees on 17 May, Hufschmid outlined the lessons learned from Switzerland’s F-35 procurement and how the government plans to adapt.

India invites obligors to work with DRDO

Amid a crackdown on penalties and mounting pressure to indigenise production, how do foreign suppliers discharge offset obligations in India? In his presentation at the GICA spring conference, Ankur Gupta, strategy director for international and industrial partnerships for Airbus Defence and Space, proposed an unusual solution.

India and offset penalties: “There are no winners”

OEMs can expect to see an “exponential increase” in penalties in the next five years, says Rajiv Chib, founder of Insighteon Consulting. In his presentation at the GICA spring conference, Chib described the predictions, observations, and recommendations drawn from a recent wargame on India’s offset policy.

Former DoD advisor: US export regulations stifle industrial cooperation

The United States’ export regulations are repressing defence industry cooperation, argues a former member of the Senate Armed Services Committee. Bill Greenwalt, former Deputy Defence Undersecretary for Industrial Policy, suggests that American regulations are stifling innovation and undermining AUKUS.

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Saudi Arabia on corruption in offsets: “There is no mercy”

The Norwegian government is drafting a new version of the National Defence Industrial Strategy. The new policy will be released by the end of the year, according to Åge Skøelv, senior advisor to the Norwegian Ministry of Defence (MoD).

Reciprocal credits permitted for Bahraini and Tawazun projects

Bahrain and the UAE are teaming up to provide suppliers with more opportunities to discharge offset obligations. Foreign suppliers with offset obligations in Bahrain will be able to discharge those obligations in the UAE, and vice versa.

Portugal drifts towards offset

Portugal expects some type of informal industrial participation from its foreign suppliers. Speaking at the GICA spring conference, José Neves, President of the Aerospace, Space, and Defence Cluster, described how the war in Ukraine has reshaped Portugal’s industrial strategy.

Norway to revise industrial participation strategy

The Norwegian government is drafting a new version of the National Defence Industrial Strategy. The new policy will be released by the end of the year, according to Åge Skøelv, senior advisor to the Norwegian Ministry of Defence (MoD).

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DKF Spring Conference: Denmark on victory lap European Commission reviews offset compliance on ad hoc basis

Nearly 150 delegates attended the DKF’s Spring Conference in Copenhagen on 9 May, marking the association’s first in-person event since 2019. The conference provided a targeted overview of Denmark’s offset policy, with a special emphasis on small and medium-sized enterprises.

US approves grant to European allies to buy American weapons, negotiates reciprocal trade

The US State Department has approved a $391m grant to 15 in Central and Eastern Europe and the Balkans to buy American military hardware. At the same time, the US government has started negotiating reciprocal trade arrangements with European allies.

US approves grant to European allies to buy American weapons, negotiates reciprocal trade

The US State Department has approved a $391m grant to 15 in Central and Eastern Europe and the Balkans to buy American military hardware. At the same time, the US government has started negotiating reciprocal trade arrangements with European allies.

India and Russia negotiate countertrade payment mechanism

The Reserve Bank of India and Central Bank of the Russian Federation are working together to create a new mechanism to sustain bilateral trade and banking operations, according to economists at the Export-Import Bank of India.

Indonesia launches holding company, calls for more offsets

President Joko Widodo has launched a new state-run defence industry holding company, Defend ID. The holding is designed to boost Indonesia’s indigenous capabilities and improve the country’s ability to absorb technology transfer. But Defend ID may face challenges with engineering capacity and political infighting.

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Caught between us and Russia, India doubles down on industrial collaboration

India is diversifying its arms imports away from Russia and boosting industry collaboration with Western allies. The Fourth Annual US-India 2+2 Ministerial Dialogue, hosted in Washington on 11 April, emphasised defence industry partnerships and ignited new deals. But shifting to new suppliers may require India to compromise on offsets, industry experts suggest.

US–Korea reciprocal defence trade “cannot be delayed any longer”

Korean experts are urging the incoming Yoon Suk-yeol administration to sign a reciprocal defence procurement (RDP) with the United States. Despite concerns about the resilience of Korea’s defence industrial base, experts believe an RDP is necessary to facilitate joint production and promote Korea in global supply chains.

Experts call for United States to monitor foreign offsets

Industry experts from Georgetown University and Transparency International are calling for the US government to improve transparency around offsets linked to US arms sales. The comments were made during a Forum on the Arms Trade webinar on corruption in the arms industry on 14 April.

Israel publishes offset statistics for 2021

The Industrial Cooperation Authority (ICA) has released an overview of the agency’s offset deals during 2021. The agency signed $926m worth of offset agreements through 183 new agreements.

Spike in defence spending puts Europe at a crossroads

Europe’s decision to boost defence spending has presented governments with two choices: buying weapon systems off the shelf from third parties or doubling down on European collaborative programmes. At the same time, the continent’s new military demands and sanctions against Russia are straining supply chains already squeezed by the COVID-19 pandemic.

Belgian and American firms to build first MRO facility in Morocco

Belgium supplier Sabena Aerospace, Moroccan supplier SABCA Maroc, and American prime Lockheed Martin have signed a strategic partnership with the Kingdom of Morocco to implement the Moroccan joint venture Maintenance Aero Maroc (MAM).

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Malaysia releases offset audit report – recommends new criteria for assessing economic benefits

A general audit by the government of Malaysia has found that the Ministry of Defence (MINDEF) must streamline its implementation of the Industrial Collaboration Programme (ICP). The audit identifies ongoing challenges with contract delays, poor monitoring, and inefficient choice of offset recipients.

Indian parliament calls for greater transparency in defence offsets

In the past five years, 21 of India’s 47 offset agreements have remained unfulfilled, Defence Minister Ajay Bhatt told the Rajya Sabha on 22 March. Bhatt’s comments came after a parliamentary standing committee urged the Indian Ministry of Defence (MoD) to be more cautious and transparent in enforcing offset requirements.

Labour MPs challenge UK government on local production

During three Defence Committee debates this month, British members of parliament grilled Defence Procurement Minister Jeremy Quin over the absence of British industry in major government contracts. Labour MPs faulted the government for prioritising export opportunities over local employment.

Australian industry gears up for munitions collaboration under AUKUS

Australian defence companies are positioning themselves as partners for the guided weapons aspect of AUKUS, the trilateral security pact between Australia, the United Kingdom, and the United States.

Amid US sanctions, China remains open to Russian industry

Despite the US sanctions on Russian defence companies, China is likely to double down on defence industry cooperation, says Robert Atkinson, President of the Information Technology and Innovation Foundation (ITIF).

Egypt: local courts seize jurisdiction over technology transfer disputes

The Egyptian Court of Cassation has ruled that any disputes arising from technology transfer agreements cannot be resolved in foreign-seated arbitration proceedings. Suppliers are advised to ensure that their arbitration agreements comply with Article 87, says Mohammad Rwashdeh, special counsel at the law firm K&L Gates.

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As war in Ukraine persists, Czech Republic races to amend procurement policy

Russia’s military campaign in Ukraine has prompted the Czech Republic to review its industrial participation guidelines, a senior military official informed CTO. The amendments will guide the country’s defence procurement priorities and industry development until 2030.

War in Ukraine reboots Turkish industry cooperation with western partners

Turkey’s balancing act between Moscow and Washington has tilted westward. Following Russia’s military campaign in Ukraine, Turkey has closed the door on Russian defence companies and turned to industry partners in Europe and the United States, marking a substantial change in the country’s defence industrial strategy.

Localisation is king at Saudi Arabia’s World Defence Show

The inaugural World Defence Show saw the signing of 22 industrial partnerships with domestic and international defence companies, the General Authority for Military Industries (GAMI) announced on 7 March. The partnerships totalled SR8bn ($2.13bn) worth of deals, covering direct purchase of military systems, building of production lines, knowledge transfer, and localisation.

US approves major amendment to Buy American Act, includes phased requirements and alternate content tests

The Federal Acquisition Regulation (FAR) has adopted a new rule to boost domestic manufacturing in federal procurements. The rule increases domestic content requirements and imposes price preferences for US components. But the amendment differs significantly from the original proposal.

China to assist Saudi Arabia in building homemade drones

China and Saudi Arabia have agreed to manufacture unmanned aircraft payload systems in the Kingdom with technology transfer.

Germany does about-face, to buy F-35 jets and Eurofighters

Germany has announced its intention to purchase 35 F-35 jets and 15 Eurofighter Typhoons. The country has reaffirmed its commitment to joint European projects, but the Future Combat Air System (FCAS) has stalled in recent months.

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Poland amends procurement law, paves way for more offsets under Article 346

Poland has issued a legal amendment to the Public Procurement Law (PPL) that is expected to encourage more defence procurements under Article 346 TFEU of the EU Defence Directive 2009/81. Decision No. 74 forms part of a larger effort to streamline Poland’s procurement process and boost local production in the country.

India scrambles over Russian defence deals as US releases sweeping sanctions

India’s defence establishment is walking a fine line between securing critical military equipment from Moscow and maintaining ties with Washington. New export controls are expected to delay India’s joint defence projects with Russia.

South Korea invites foreign suppliers to Incheon city, the new MRO hub

South Korea’s north-western city of Incheon has launched a programme to boost local industry and job creation through the aviation industry. The city will focus on MRO services with a special focus on SMEs and market entrants.

UAE and Turkey establish defence industry cooperation committee

The UAE and Turkey have agreed to establish an official platform for defence industry cooperation. The new committee will enable joint development programmes, share R&D innovations, and promote investment opportunities in both countries.

Australia: Senate report warns supply chains are “vulnerable,” must prioritise local industry

A Senate inquiry has released its report on Australia’s manufacturing capabilities and sovereign industrial base. The report warns that Australia’s defence industry is vulnerable to supply chain squeezes, and recommends federal procurement programmes to “preference” bidders who maximise the use of local suppliers, manufacturers, and service providers.

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Taiwan quietly releases new offset policy

The Industrial Cooperation Programme Office (ICPO) has released four documents outlining Taiwan’s new industrial cooperation guidelines. The policy has already received major pushback from industry members.

Saudi Arabia launches human capital strategy to promote local production

The General Authority for Military Industries (GAMI) has launched a capability development strategy for Saudi Arabia’s defence sector. The Military Industries Human Capital Strategy (MIHC) takes the Kingdom one step closer to its goal of 50 percent defence localisation by 2030.

UAE: ICV programme is “latest round of hoops”

Defence attachés in the UAE are on tenterhooks to learn how Tawazun’s cooperation with the country’s in-country value (ICV) programme will change defence procurement programmes. Foreign contractors will have to continue favouring Abu Dhabi suppliers when devising offset projects, says a Gulf security expert.

Leaked report reveals Hunter-class frigate in disarray

BAE Systems is facing backlash over a leaked naval engineering report from the Australian Department of Defence (DoD) indicating that the Hunter-class frigate programme is riddled with design flaws and prioritises foreign supply chains over Australian suppliers.

Indonesia buys Rafale aircraft and Scorpèse-class submarines with joint production and technology transfer

France and Indonesia have signed a slew of deal for Dassault Aviation’s Rafale aircraft, Naval Group’s Scorpèse-class submarines, Thales Group’s telecommunication technology, and Nexter Munitions’ high calibre munitions. The deals will promote joint production and technology transfer.

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Blenheim, Lockheed, Airbus, and DAPA clash in federal court

Blenheim Capital Partners, Lockheed Martin and Airbus Defence and Space are pursuing their legal battle at the federal level. The federal court’s ruling, says Blenheim, will have major implications for private companies executing offset agreements with foreign governments.

Lockheed submits bid for Greek corvettes, faces competition over local content

Lockheed Martin, partnered with the US Navy, has submitted a proposal to supply four or five corvettes to the Hellenic Navy. The company is banking on local content to clinch the Greek contract.

UK to launch new industrial participation policy by April

The British Ministry of Defence (MoD) has committed to publishing a revised industrial participation policy by the end of the first quarter of 2022. The deadline comes as surprise to some defence industry members.

Germany sells submarines to Israel - to fund 20 percent and buy back Israeli products

Israel has awarded a €3bn (c. $3.4bn) contract to Thyssenkrupp Marine Systems (TKMS) for three diesel-electric submarines. Alongside the purchase, the Industrial Cooperation Authority (ICA) signed an industrial strategic cooperation agreement with Thyssenkrupp to invest in Israeli industries and enable reciprocal purchase of Israeli products. Thyssenkrupp will invest €850m ($955m) over 20 years.

South Korea and UAE sign missile contract and joint technology deal

South Korea and the UAE have signed a memorandum of understanding (MoU) to collaborate on defence technologies, including joint development of weapons systems. The deal comes after the two countries signed a $3.5bn MoU for surface-to-air missiles.

Main headlines from this issue

DAPA announces offset reforms – Bonus points for commercial tech

South Korea's Defence Acquisition Program Administration (DAPA) is launching reforms to help local industry expand in domestic and international defence markets. The reforms were announced on January 7 but came into force on December 31.

Peru updates offset process – To evaluate social and economic benefits separately

Peru’s Ministry of Defence (MINDEF) has released new offset regulations. Two new General Directives clarify the process for devising and evaluating offset proposals.

Zondo Commission finds SAAT in violation of offset, government pledges to toughen policy

A report from South Africa’s Zondo Commission reveals that South African Airways Technical (SAAT), a subsidiary of South African Airways (SAA), shirked its offset obligations in a tender for component services. The Department of Trade, Industry & Competition (DTIC) has resolved to reinforce its regulations.

Ukraine resists EU pressure, increases local content requirements

Ukrainian President Volodymyr Zelensky has approved a new law on the localisation of industrial production. The country reached a compromise with the European Union after consultations in October 2021.

India’s former MoD acquisitions expert: Offset is a “dying category”

India’s offset policy is inefficient and hampering procurements, says Amit Cowshish, a consultant and former Indian Financial Advisor (Acquisition) at the Ministry of Defence. Moving forwards, India’s offsets programme may fall by the wayside.

Russia-India cooperation yields fruit in Central and Southeast Asia

The Philippines’ Ministry of Defence has confirmed a $375m deal for the BrahMos supersonic cruise missile, jointly developed by India and Russia. The sale comes soon after India and Russia exchanged a non-paper on bilateral industry engagement and joint defence projects in Central Asia.

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India levies penalties on MBDA for offset delays, negotiates engine co-production with “big French company”

The Indian Defence Ministry has imposed a fine of nearly €1m ($1.1m) on MBDA for delays in fulfilling offset obligations under the Rafale aircraft deal. The fine comes after India and France agreed to jointly manufacture aero engines under the Strategic Partnership Model.

Australia consolidates local content requirements

Speaking at the December GICA conference, two Australian representatives outlined the country’s “new and enhanced” Australian Industrial Capability Programme (AIC). The new measures are designed to hold contractors accountable for their obligations and provide an “overall economic benefit” that goes beyond the defence sector.

Event diary 2022

2022 promises many in-person events.

Tawazun joins UAE’s national in-country value programme

The Tawazun Economic Council has signed a MoU with the UAE’s Ministry of Industry and Advanced Technology. The agreement is intended to adjust the procurement policies of public and private-sector entities to benefit national industry.

South Korea steps back from new globalisation strategy

South Korea appears to have shelved plans for a new cross-ministerial strategy to boost its defence industry. The report will now only be shared internally and is restricted from external parties.

Poland to pay Airbus $20m for cancelled helicopter contract

The Polish State Treasury has reached a settlement with Airbus Defence and Space over an unsigned contract for purchase of 50 multi-role H225M Caracal Helicopters. Negotiations were halted after the Polish government deemed Airbus’s offset proposal unsatisfactory, an insider told CTO.

Main headlines from this issue

Turkey announces changes to offset policy

Turkey is planning to launch a new “industrialisation process.” The update will change procurement priorities, multipliers, and export promotion. The government is also preparing to introduce new purchase guarantees, designed to boost the country’s defence SMEs.

US calls for sustainable offsets as Buy American Act faces strict amendments

Offsets should be leveraged to promote common global interests, says a Department of Defense (DoD) representative. The comments, made during the December GICA virtual conference, come as the Federal Acquisition Regulation Council (FAR) considers strict amendments to the Buy American Act.

Brazil: Air Force launches “offset database” and updates multipliers

During December’s GICA virtual conference, Brazil acknowledged the challenges of engaging with Brazilian procurement programmes. To help foreign suppliers navigate the country’s industrial base, the Air Force is launching a new software programme.

France and UAE sign Rafale deal – but offset is missing

France and the United Arab Emirates (UAE) have signed a €17bn ($19bn) contract for several arms procurements. But the deal includes no provision to carry out industrial offset investments in the UAE.

India and Russia start negotiations for jet fighters and air defence missiles systems

India and Russia have renewed a 10-year pact for defence cooperation, and concluded a deal for the manufacture of more than 600,000 Russian assault rifles for the Indian Army. The countries are now negotiating the licensed production of twin-jet fighters and air defence missiles systems in India.