CTO Newsletter

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.

Main headlines from this issue

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.

Main headlines from this issue

Blenheim fights on against Lockheed, Airbus, Korea, and DAPA

Blenheim Capital Partners has launched an offensive against the Republic of Korea and its Defence Acquisition Program Administration (DAPA). The South Korean government’s US-based counsel, however, is refusing to recognise the complaint because of a legal technicality.

Switzerland releases details on F-35 fighter jet procurement

Armasuisse released the information on November 26, five months after Switzerland declared its intention to procure F-35A Lightning II jets from Lockheed Martin and the Patriot system from Raytheon. The report provides a budget for the procurement and outlines suppliers’ offset obligations.

Norway: New procurement programme for battle tanks requires 100% offsets

Norway expects the supplier country's defence market to open to Norwegian weapons systems, and for strategic cooperation between Norwegian contractors and the supplier’s defence industry. The tender will see competition between Germany’s Krauss-Maffei Wegmann (KMW) and South Korea’s Hyundai Rotem.

Brazil and UAE move towards defence industry cooperation

Brazil’s Ministry of Defence and Emirati company International Golden Group (IGG) have signed an MoU for the development, production, and sale of defence articles. The memorandum is one of many new commercial deals between Brazil and the UAE.

Israel and Morocco sign defence co-operation agreement

The agreement formalises defence relations between the two formerly hostile countries and establishes a foundation for future cooperation.

Main headlines from this issue

South Korea lists 20 offset programmes, outlines new strategy

South Korea's Defence Acquisition Program Administration (DAPA) has published a list of projects expected be subject to offset between 2021 and 2023. Simultaneously, the Korea Research Institute for Defence Technology Planning and Advancement (KRIT) released a new K-Defence Globalisation Strategy.

‘Buy American Act’ amendments will permit waivers, industry remains wary

American defence companies are concerned that new amendments to the Buy American Act could derail future deals.

Russian industry looks to offsets to take South American markets

Members of the Russian state-owned holding conglomerate Rostec are leveraging offset programmes to secure South American procurement programmes.

Australia: Senate hearing on AUKUS exposes uncertain timeline, capability gap, and unclear local content

One month after Australia, the United States and Britain declared the AUKUS pact, the partners are untangling knots in the proposal. Head officials from Australia’s Department of Defence (DoD) and Royal Australian Navy (RAN) were challenged on the subject during a Senate estimates hearing on October 27.

India and Israel to form collaboration task force

India and Israel’s Joint Working Group (JWG) on Bilateral Defence Cooperation has agreed to form a task force. The task force will formulate a comprehensive, ten-year roadmap towards new areas of defence cooperation.

Main headlines from this issue

Malaysia demands countertrade in first-ever open international tender for military aircraft

Malaysia’s tender for light combat aircraft requires 50 percent of payments to be made through countertrade in palm oil. Moving forwards, the country is expected to enforce its countertrade requirement in all international open tenders.

Australian Labor Party pledges new “Buy Australian” plan

Anthony Albanese has laid out a 10-point plan to boost local industry through procurement if his party returns to power. The government would break tenders into multiple packages to allow smaller companies to bid, and to maximise small business participation in procurement.

Indonesia struggles to fulfil KF-21 cost-sharing agreement, negotiations still underway

Indonesia has made no payments towards the development KF-21 fighter jet in more than five months, reports South Korea’s Defence Acquisition Program Administration (DAPA). Speaking at a parliamentary audit session on October 12…

Turkey and Nigeria sign memorandum on defence industry cooperation and technology transfer

The governments of Nigeria and Turkey have signed a memorandum on cooperation and technology transfer in defence procurements. The MoU was one of seven deals signed during President Recep Erdogan’s diplomatic visit to the Gulf of Guinea from October 17 to 20.

Saab expands operations in Finland as Helsinki prepares final decision on HX fighters

Saab is expanding its R&D operations in Finland, especially in the fields of data-link communication and VR/XR technology. Saab’s latest activities come as Helsinki prepares its final decision on the HX fighter jet programme.

Main headlines from this issue

Court dismisses Blenheim lawsuit against Lockheed Martin, Airbus, South Korea, and DAPA Blenheim files for appeal

The Eastern District Court of Virginia has dismissed Blenheim Capital Partner’s civil lawsuit against Lockheed Martin, Airbus Defence and Space, and South Korea’s Defence Acquisition Program Administration (DAPA). The court dismissed Blenheim’s complaint on the grounds that it lacked subject matter jurisdiction to hear the case. Grant Rogan, CEO of Blenheim Capital Partners, has filed an appeal with the Fourth Circuit.

FAR extends deadline for comments to Buy American Act amendments

The Federal Acquisition Regulation Council (FAR) has extended the deadline for submitting comments on the proposed changes to the Buy American Act (BAA) from September 28 to October 28, 2021. The extension comes after requests from the Council of Defence and Space Industry Associations and the Professional Service Council, representing over 400 government contractors.

Czech Republic: “There is no pattern” in industrial participation requirements

The Czech Republic has announced two major defence procurements. Each purchase carries a unique amount of industrial participation. The larger procurement is for a SPYDER air defence system produced by Israel’s Rafael…

Upcoming offset conferences

Including ECCO, GIGA and DKF.

Ukraine calls for more technology transfer in shipbuilding industry

Ukraine’s state-owned defence company, Ukroboronprom and the national shipbuilding association Ukrsudprom have presented a draft strategy for the development of the country’s shipbuilding industry between 2022 and 2030. The draft strategy focuses on increasing technology transfers and decreasing reliance on foreign production.

Main headlines from this issue

Tawazun threatens to call in offset penalties, prepares for renegotiations

The UAE’s offsets agency Tawazun has sent letters to a number of defence primes threatening to call in offset penalties. The agency accuses the companies of failing to meet extended deadlines for fulfilling offset obligations, says a defence industry source. Tawazun would not identify the firms.

UK appoints new directorate for industrial participation, further muddies responsibility

The UK government has transferred its industrial participation portfolio to the newly-created Directorate of Industrial Strategy and Exports (DISE). DISE, however, will not work alone on the UK’s industrial participation portfolio.

South Korea moves closer to “Made in Korea” policy

South Korea appears to be moving closer to an industrial policy that requires suppliers to use local contractors whenever possible. It is reportedly developing a new programme that will prioritise local sourcing in industrial co-operation projects linked to defence contracts. The policy will run alongside South Korea’s offset policy.

Australia scraps $70bn deal with Naval Group, plans to build nuclear subs with British and American technology

Australia, Britain, and the United States have announced a historic defence agreement that will see Canberra build nuclear-powered submarines with British and American technology. The pact, AUKUS, freezes out Naval Group’s $70bn deal for 12 Attack-class submarines, Australia’s largest-ever defence contract.

India signs $2.7bn contract with Airbus Defence for transport aircraft

India has signed a Rs200bn ($2.7bn) contract with Airbus Spain to procure 56 C-295 transport aircraft. Most of the aircraft will be manufactured locally. It marks the first time military aircraft will be made in India by a private company.

Main headlines from this issue

EC Surrenders; Infringement procedures against Denmark withdrawn; New Danish guidelines introduce tech transfer valuation

The European Commission has given way to Denmark and closed its case concerning an alleged breach of Defence Directive 2009/81. Denmark has renewed its guidelines, introducing a new method for the valuation of technology transfers, and increasing the scope for industrial cooperation projects by foreign partners to Danish primes.

Lindsey Shanson’s farewell message

The decision was not easy, but I have decided that at 75, and having owned and edited CTO since 2000, it is time for a handover.  I have passed the business to an expanding British media concern, but I will continue with the company as Consulting Editor...

Washington still sets the rules in Europe-U.S. defence collaboration – ‘Juste retour’ is ‘just a myth’

The transatlantic defence market is not a level playing field. That is the unsurprising opinion in a new policy report from the Armament Industry European Research Group (ARES).  While none of the EU countries nor the UK or Norway disputed the reality of the industrial benefits in terms of workload and jobs, it is undeniable that the F-35 technology transfers were limited, if not totally excluded, say the authors.

Ukraine and U.S. sign memorandum on industrial participation; Ukroboronprom signs $2.5bn in deals with U.S. firms

The U.S. and Ukrainian governments have signed an MoU on industrial participation in arms procurements. The memorandum also emphasises the benefits of industrial participation for digital economy development, defence, and cybersecurity...

Pakistan’s major arms procurements to include technology transfer

The Pakistani government has published a three-year performance report. The report stipulates that technology transfer will be part of all big-ticket arms contracts as part of a larger strategy to create an internationally competitive defence production sector.

Main headlines from this issue

Malaysia re-assesses industrial collaboration policy, remodels penalties

Malaysia’s Technology Depository Agency (TDA), the body responsible for implementing the country’s Industrial Collaboration Programme (ICP), is changing the way it oversees projects. The changes come partly in response to Covid, and partly as a result of the country’s political turmoil.

India threatens obligors even as fulfilment increases

India’s MoD has threatened to ban one U.S. company and put as many as 11 others on a watchlist for failing to fulfil their offset obligations. The country is considering for penalties all offset projects agreed more than three years ago. “OEMs might have deductions taken from their performance bank guarantees in other contracts”.

U.S. Congressmen call for end of drone technology transfers to Turkey

A bipartisan group of U.S. congressmen has written to Secretary of State Antony Blinken to call for an immediate suspension of export permits to Turkey for U.S. drone technology. The 27 lawmakers claim that Turkey’s armed UAV programme has destabilised multiple regions of the globe and threatens U.S. interests, allies, and partners.

Indonesia says every purchase of defence equipment must bring local benefits

Indonesian Defence Minister Prabowo Subianto has reiterated the country’s aspiration for a long-term strategic plan to raise local content levels in the defence sector. Every purchase of defence and security equipment from abroad must consider trade balances and involve local content, offsets, and technology transfer, he declared.

U.S. OIRA clears Trump’s proposed rules regarding domestic content

The Office of Information and Regulatory Affairs (OIRA), an office within the Office of Management and Budget, has cleared a proposed Defence Federal Acquisition Regulation Supplement (DFARS) rule implementing Executive Order 13881. The Order, issued by the previous administration, raises the threshold for domestic content to 55 percent.

Main headlines from this issue

Israel’s Economy Ministry beats Finance Ministry in battle to impose metro offsets

Israel’s Ministry of Economy and Industry has defeated the Finance Ministry in a dispute about imposing offsets on the country’s metro project. A reciprocal procurement policy is ineffective, the Finance Ministry insisted.

Indonesia concedes it does not monitor offset fulfilment

A member of Indonesia’s National Committee for Economy and Industry (KEIN) has confirmed an open secret. The Komite Kebijakan Industri Pertahanan (KKIP), or Defence Industry Policy Committee, lacks personnel to monitor whether foreign suppliers discharge obligations. Instead it relies on the Secretariat at the MoD...

Five NATO allies tempt Greece with rusty frigates

The Times has reported that the UK will give Greece HMS Monmouth and HMS Montrose, two Type 23 Frigates vessels, as part of efforts to “sweeten a deal” to sell the Greek Navy the Type 31 design. The “aged and retiring warships” are to be offered to the Hellenic Navy to help Babcock International win a multibillion-pound deal to build new frigates and upgrade the Hellenic fleet.

Annual BIS offset report: total volume of offsets higher than average despite lowest number of offset contracts and transactions

The 25th Annual Report to Congress on the impact of offsets in the defence trade shows that the total volume of offsets involving U.S. defence companies during 2019 was above the historic average. The number of offset contracts and transactions, however, was the lowest ever collected.

Lockheed Martin reveals sanctions impact on Turkish obligations - force majeure notices applied to Utility Helicopter Programme

Lockheed Martin’s quarterly report has shown the effect of U.S. sanctions on Turkish suppliers: they continue to produce components for the F-35 programme, some of which are single-sourced... Lockheed also has a number of contracts with Turkish industry for the Turkish Utility Helicopter Programme. “We...provided force majeure notices under certain contracts related to TUHP.”

Main headlines from this issue

Poland: Abrams tanks procurement ignites firestorm with unions

Trade unions in Poland have expressed anger following an announcement by the Polish defence minister that the country will buy 250 M1A2 Abrams tanks from the U.S. The announcement did not mention an industrial participation package. The unions warned that the deal could result in the loss of thousands of Polish jobs.

NAPMO’S evasion of offset ban “returns investment to contributing nations”

Member nations contributing to NATO’s Airborne Early Warning and Control Programme Management Organisation (NAPMO) are receiving compensation through direct and indirect transactions. The indirect transactions can be defence-related or commercial. NAPMO contributors insist on industrial returns in recognition of their contributions to the programme.

Thyssenkrupp agrees offset plan with Israel, avoids blacklist

ThyssenKrupp Marine Systems (TKMS) has agreed a new offset schedule with Israel’s Industrial Co-operation Authority (ICA). The plan will see TKMS spend more than €300m in Israel over the next five years.

India’s atmanirbharta policy is “expensive and unachievable”- targets reached by “clever accounting”

India’s “atmanirbharta” policy, an attempt to increase self-reliance in defence production by demanding local content in procurements, has come under withering attack. Writing in India’s Financial Express, Amit Cowshish, a former Financial Advisor (Acquisition), at the MoD, described the policy’s goal as “nebulous” and criticised the expense and waste of trying and failing to achieve it.

Australia conducts review of its global supply chain programme

Australia is conducting an independent review of its Global Supply Chain Programme. The review started work last month and is led Lisa Paul, a former government official. The GSCP aims to increase the number of Australian companies and academic institutions in the supply chains of multinational defence contractors.