CTO Newsletter

Main headlines from this issue

Slovakia: Defence minister launches new policy – first procurement demands 35 percent IP

The Slovak government has approved the purchase of 17 radar systems produced by Israel Aerospace Industries (IAI). The government-to-government contract, worth €148.2m, is subject to a requirement that 35 percent of the cost is invested in the Slovak defence sector. “That was one of the most important conditions,” an informed source told us.

Boeing asks India to send its obligations into space

Surendra Ahuja, the Managing Director of Boeing Defence India, has asked the Indian government to broaden the avenues for meeting offset obligations, including through space programmes. Ahuja called on the MoD to return to the wider scope for discharging obligations available in Defence Procurement Procedure 2016. “This allows for a holistic development of the Indian A&D sector since there are synergies between defence and commercial aviation,” he said.

France offers India Rafale and Panther assembly lines under “Make in India”

France has offered to move the entire assembly line of the Panther medium utility helicopter and 70 percent of the Rafale fighter plane assembly line to India. According to Hindustan Times, the offer, which also includes technology transfer, came from Emmanuel Bonne, diplomatic advisor to French president Emmanuel Macron.

‘Congressional Research Service’ outlines India’s “forced” localisation practices

The Congressional Research Service, a nonpartisan public policy research institute of Congress, has published a report on U.S.-India Trade Relations. The report focuses on what the U.S. sees as Indian trade barriers. The report notes that the U.S. continues to press India to address its “forced” localisation practices, such as in-country data storage, domestic content, and domestic testing requirements.

Oman prepares to implement flurry of offset projects

Oman’s 2021 State Budget has revealed a list of new projects under the country’s Partnership for Development programme. The programme manages Oman’s offsets. The budget also outlines a number of Public Private Privatisation (PPP) initiatives.

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Greece “must learn from Netherlands and use IP to develop local industry”

Greece is “activating” its defence industry. The country has a unique opportunity to strengthen its defence industrial base and “all the relevant actors, political leadership, industry, universities and research centres must seize the moment.” The country should use industrial participation to help local companies join the global supply chains of defence primes...

Saudi Arabia gives defence companies “investment permits in 15 days, allows 100 percent ownership”

Saudi Arabia’s General Authority for Military Industries (GAMI) now issues operating permits to investors in little more than two weeks. It also says that it no longer requires international defence companies to look for local partners. Mohamed Al-Athel, GAMI’s Deputy Governor for Military Acquisition, conceded that the organisation had met with some scepticism from investors.

Indonesia: Placement politics drives clean sweep at KKIP

The Indonesian Defence Minister, Prabowo Subianto, has appointed Lieutenant General TNI (Ret.) Johannes Suryo Prabowo as Secretary of the Defence Industry Policy Committee (KKIP) Executive Team at the MoD. Suryo joins a number of retired generals and other MoD officials. The appointment has raised eyebrows in Jakarta...

Australia releases more SICP implementation plans

The Australian Department of Defence has released three more Sovereign Industrial Capability Priority (SICP) Implementation Plans. The plans focus on testing and certification; surveillance and intelligence, and signal processing.

EVENT DIARY 2021 – see CTO 1

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Israeli minister calls for Thyssenkrupp blacklisting

Israel’s Minister of Economy, Amir Peretz, has called for the government to blacklist Thyssenkrupp Marine Systems. Peretz claims that the company has failed to discharge offset obligations derived from the sale of three submarines and from Israel’s activation of an option to buy four ships. The submarine purchase is politically sensitive and has been the subject of controversy in Israel, with allegations of high-level corruption.

Australia’s policy: “Harder than traditional offsets

David Peckham, a Thales Industry Engagement Manager, has described the Australian Industry Capability (AIC) and Global Supply Chain (GSC) programs as “possibly even harder than traditional offsets.” For contractors confronted by the procedure for the first time, listening to his comments would have been a harrowing experience...

Initial framework contract places Airbus at the heart of Spanish program

Spanish industry has secured the initial framework contract of the Future Combat Air System’s (FCAS) demonstrator phase. Airbus will take a primary role at the heart of Spain’s participation, working directly with European partners and wider industry in support of Spain’s contribution to the program.

Saudi Aramco expands flagship commercial localisation program

The state oil company Saudi Aramco has announced the expansion of its flagship program to increase local content and boost domestic supply chains. The expansion includes plans for new international partnerships and establishing companies through an Industrial Investment Program linked to the development of Aramco's business.

Lockheed Martin releases rosy report on its Australian industrial cooperation

Lockheed Martin Australia has released a review of the company’s economic impact across the Australian economy. The review, conducted by advisory firm AlphaBeta, part of Accenture, found the company’s impact to be significant. Every AUD$1 of direct output generates an additional AUD$1.70 of indirect economic impact.

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European Commission capitulates, closes case against the Netherlands

The European Commission has closed a case against the Netherlands concerning an alleged breach of Defence Directive 2009/81. The Ministry of Economic Affairs hoisted the Dutch national flag in celebration. The Commission’s case against Denmark remains ongoing...

Australia releases fifth SICP implementation plan

The Australian Department of Defence has released yet another Sovereign Industrial Capability Priority (SICP) Implementation Plan, its fifth. The new SICP focuses on radar capabilities. SICP plans are integral to the country’s Australian Industry Capability (AIC) program.

Nissan to establish assembly facility in Ghana with Japan Motors

Nissan has appointed Japan Motors Trading as its local partner in a new vehicle assembly facility in Accra, Ghana. The appointment complies with the Ghanaian government’s policy to aid the development of a domestic automotive manufacturing industry.

IP proposals submitted for Swiss Air 2030 Fighter Program

Contractors have submitted their final bids for Switzerland’s Air 2030 $6.5bn fighter program. The bids include industrial participation proposals. Four companies are competing: Lockheed Martin is offering the F-35A, Boeing the F/A-18 Super Hornet, Eurofighter the Typhoon, and Saab the Gripen jet. The selected contractor must place orders worth 60 percent of the purchase contract value with local industry.

Germany to build Dutch combat system

Thales and Holland’s Damen Schelde Naval Shipbuilding have signed a contract for the delivery and full integration of Thales’s Mission and Combat System for four MKS 180 class frigates contracted by the German Navy. Damen will design the system but German shipyards will build it under Damen’s project management.

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Greece prepares new legislation for industrial participation

The Greek government is preparing new legislation to regulate defence procurement. The government plans a flexible approach, with industrial participation arrangements playing a significant role. A bill is currently at the consultative stage. The new regulations will include a reference to the Article 346 TFEU exception.

Omani offset policy emerges from limbo

Oman’s offset policy has emerged from limbo following the dissolution of its parent body in August. The policy will now continue as before under the direct control of the Ministry of Finance. The offset authority’s former employees will be transferred to the ministry.

Maria Laine relinquishes GICA chair - difficult choices ahead as covid takes a toll

Nominations have closed for election to the Global Industrial Cooperation Association (GICA) board. Among the departures is Maria Laine, GICA’s Chairwoman, who is stepping down following her promotion as VP of International at Boeing. A number of board members are also stepping down...

ECCO webinar causes confusion for speakers and DKF

Plans for an offset “webinar” by the European Club for Countertrade and Offset (ECCO) are in disarray after multiple speakers told CTO they were not aware of their role. The five-day event was announced by email at short notice and remains scheduled for November 30 through to December 4.

Australia: new SICP implementation plan for aerospace maintenance puts more pressure on global supply chains

The Australian Department of Defence has released a new Sovereign Industrial Capability Priority (SICP) Implementation Plan. The plan aims to boost capability in aerospace maintenance so that SMEs can qualify for participation in global supply chains.

Main headlines from this issue

EU Study: “Credibility of directive 2009/81/EC is at stake” - “Illegal” offsets are commonplace

A study commissioned by the European Parliament into the implementation of the Defence Procurement Directive 2009/81/EC has found that EU member states continue to use offsets in the European Union despite their prohibition. The study suggests that the European Commission is backing away from further prosecution in its dispute with the Netherlands and Denmark, and calls for greater enforcement.

Australian patrol vessel audit: Content targets “largely effective”

An audit by the Australian National Audit Office (NAO) of the SEA 1180 Phase 1 Offshore Patrol Vessel (OPV) program has found that the Australian Industry Capability (AIC) program achieved industry content targets. There is evidence that the OPV program is contributing to the wider naval shipbuilding enterprise, with the effective transfer of shipbuilding expertise.

IPAC members dodge hard questions during GICA webinar on Canada

Representatives of the Industrial Participation Association of Canada (IPAC) responded well to arcane questions on Canada’s highly structured industrial participation regulations. They also evaded candid replies to questions whose answers might have upset Innovation, Science and Economic Development Canada (ISED).

South Africa accuses white companies of B-BBEE misrepresentation

The South African Department of Trade, Industry and Competition has accused white-owned South African companies of “fronting and misrepresentation” in their use of Broad-Based Black Economic Empowerment (B-BBEE) status. Obligors are said to have used non-compliant entities aided by consultants or advisors.

Local partnerships form as foreign contractors compete for U.S. OMFV

Foreign contractors are forming partnerships with U.S.-based companies in preparation for bids for the U.S. Army’s Optionally Manned Fighting Vehicle (OMFV) competition. Rheinmetall has partnered with Textron Systems, and BAE Systems has teamed up with Elbit Systems of America....

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India’s DAP 2020 – “indigenous content” is the new buzzword

India has published the final version of its Defence Acquisition Procedure (DAP) 2020. The new DAP trims the requirement for offsets and discards the Buy and Make procurement category. India will no longer demand offsets for government-to-government defence deals such as FMS and single-vendor contracts. It remains highly complex but gives preference to the domestic manufacture of complete defence products over components.

DOMW clarifies credit banking discontinuance

DAP 2020 makes no mention of credit banking. India’s Defence Offsets Management Wing (DOMW) has released new guidance to explain the discontinuation of the practice.

DAP 2020 damned with faint praise

India’s defence industry has praised the country’s DAP 2020. Analysts have voiced concerns over its aims. The Confederation of Indian Industry gushed that DAP-2020 has established pragmatic avenues for foreign OEMs to manufacture in India on their own and in collaboration with Indian industry. An analyst said is too complex, with 11 procurement categories, and reminded readers that similar glee accompanied the promulgation of DPP 2016.

Swiss fighter scrapes home in referendum

Swiss citizens have approved in a referendum a multi-billion dollar purchase of new fighter jets. The proposal passed with a vote of 50.1 percent, a difference of just 9,000 votes out of about 3 million. Voters in German-speaking regions supported the procurement while those in Italian and French-speaking regions...

Romania releases Defence White Paper – wants joint ventures, doesn’t mention offsets

Romania’s MoD has released a White Paper that prioritises boosting the domestic defence industry. The government will pay special attention to bilateral cooperation projects aimed at encouraging cooperation in the production and modernisation of military equipment through industrial partnerships and cooperation.

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Australia to strengthen AIC enforcement – annual audit

The Australian Department of Defence has announced that it will implement “significant improvements” to the Australian Industrial Capability (AIC) program. The aim is to ensure that contractors meet their industrial cooperation obligations. Obligors will face rigorous contractual enforcement. Audits will start in Q4 2020...

Australia’s CDIC review highlights sovereign capability concerns

Australia’s Centre for Defence Industry Capability (CDIC) has recommended that the government update its role and purpose to reflect an increased focus on the Australian Industry Capability (AIC) program. The review highlighted several problems with the Global Supply Chain program. Many businesses and industry associations reported frustration that the government was not holding primes strictly to account for delivering on their responsibilities.

Argentina sets up defence fund – emphasises import substitution, allocates 80 percent for domestic production

The Argentine Senate has passed a law to establish a National Defence Fund (FONDEF) to finance military re-equipment and boost local production. The fund will be used to increase the country’s sovereignty in defence production across the armed forces. One of the conditions for the fund’s use is that 80 percent will finance the manufacture of military equipment in the country by SMEs.

India’s 74 percent FDI uplift conditionally approved—“may make little impact”

India’s Department for the Promotion of Industry and Trade has approved an increase to the country’s defence foreign direct investment (FDI) cap from 49 percent to 74 percent. The increase was announced in May. The department has conditioned the rise on a “national security” clause.

India’s Auditor General derides Dassault and the offset policy

India’s Comptroller and Auditor General (CAG) has criticised the country’s offset policy and the deal to procure 36 Rafael jets from Dassault Aviation. The report noted that Dassault and weapons-supplier MBDA have not confirmed the transfer of technology to the Defence Research and Development Organisation (DRDO).

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Bahrain launches formal offset policy, copies UAE

Bahrain has established formal offset guidelines for the first time. The guidelines are almost entirely a replica of the policy published by the UAE. Large parts of the document are copy-pasted, with the words “Bahrain” and “BDF” (Bahrain Defence Force) replacing “UAE” and “Tawazun.” The quotas, multipliers, penalties, project categories and performance periods are identical. Bahrain has set a lower threshold...

Pakistan is preparing another offset policy – but will anyone take any notice?

Pakistan’s Ministry of Defence Production is formulating a defence offset policy. According to the ministry’s biennial performance report, a draft of the policy is already in circulation to “all concerned” for input before approval. The meaning of “all concerned” is not clear. A new policy for defence production is also under way.

Poland: PGZ President explains hard stance on offset negotiations with U.S. primes

The President of Polska Grupa Zbrojeniowa (PGZ), Andrzej Kensbok, has rejected accusations that his company is trying “to change the rules of the game” in its negotiations for offsets with U.S. primes. He only wants “detailed arrangements,” he said.

Lockheed’s Polish subsidiary offers IP to Romania’s Romaero

Lockheed Martin’s Polish subsidiary, PZL Mielec, will establish an MRO facility for civil and military Black Hawk helicopters in Romania. PZL Mielec will provide highly skilled jobs, technology-based educational programs, research and development opportunities, and benefits to wider Romanian industry, the company said.

Malaysia: Appointment of new TDA chief still ongoing

Malaysia’s Technology Depository Agency (TDA) expects to complete the process of acquiring a new CEO by October. The search began in June, a senior official told CTO, but was delayed by the COVID-19 pandemic.

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Oman gives its offset agency a short, sharp shock

Oman’s offset policy may, or may not, be gone. Royal Decree 110 of 2020, issued without warning, has “cancelled” the Public Authority for Privatisation and Partnership (PAPP). The decree did away with the PAPP’s Board of Directors and transferred its assets to the Ministry of Finance as of August 18, the day of publication. Oman also reshuffled the cabinet on August 18, appointing Sultan bin Salem bin Saeed Al Habsi Minister of Finance.

Revised Australian procurement rules require assessment of “economic benefits” in procurements

The Australian Department of Finance has released an update to the Commonwealth Procurement Rules introduced in 2017. The rules now require the government to consider broader domestic economic benefits in all government procurements, commercial and defence. Officials will need to gather information on economic benefits as part of the decision-making process and document how the economic benefit has been considered as part of the overall value-for-money evaluation.

Annual BIS offset report - only eight non-EU countries demanded offsets in 2018; EU obligations mount; directs beat indirects

The 24th 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 2018 increased significantly. The number of offset contracts and transactions, however, declined.

Australia releases next SICP implementation plan

The Australian Department of Defence has detailed the Sovereign Industrial Capability Priority Implementation Plan for Land Combat and Protected Vehicles. The plan contains a new set of Critical Industrial Capabilities which must be included in the Australian Industry Capability (AIC) program.

ISED Canada is managing 101 industrial and technological benefit projects

Innovation, Science and Economic Development (ISED) Canada’s 2020 Annual Report states that the country has 101 active Industrial and Technological Benefit projects. Prime contractors have yet to identify CAD$ 5.3bn in the value of obligations.

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India: Draft DAP 2020 released but name change doesn’t make DPP 2020 simpler

India has re-released its Defence Procurement Procedure (DPP) 2020. Now renamed the Defence Acquisition Procedure (DAP) 2020, the draft document is 57 pages shorter than the 746-page draft published in March. The usual complexities remain. The Dept of Defence Production has also released a draft version of its new Defence Production and Export Promotion Policy, adding to the confusion over offset multipliers.

India’s former MoD acquisition expert calls for offsets to end

Amit Cowshish, a consultant and former Indian Financial Advisor (Acquisition) at the MoD, has called for India to discontinue its offset policy. Changes proposed in the draft Defence Acquisition Procedure (DAP) 2020 have significantly reduced the number of procurements to which offsets will apply, he notes.

Spain agrees to political support for Airbus and military aircraft deals in exchange for industrial benefits

The Spanish government has committed to buying additional military aircraft from Airbus and to lend the company political support in exchange for industrial benefits. Airbus, which is 4 percent owned by the Spanish government, had said it will lay off about 900 workers in Spain as part of 15,000 job cuts worldwide, prompting large protests outside its factories.

Israel: ICA receives offset support at Knesset meeting - Ministry of Finance ready to compromise

Israel’s Industrial Cooperation Authority (ICA), together with the Ministry of Economy, to which it reports, has found support for the use of offsets during a meeting of the Knesset’s Economics Committee. The Knesset meeting follows a long-running dispute between the MoE and the Ministry of Finance over the use of offsets, with the former supporting its use, and the latter opposing it.

Indonesian Eurofighter purchase without offsets raises spectre of corruption

The House of Representatives Commission overseeing Indonesia’s defence, foreign affairs, and information agencies has warned that a plan to purchase second-hand Eurofighter Typhoon jets from Austria could violate the law requiring foreign acquisitions to include countertrade, local content, and offset provisions equivalent to 85 percent of the acquisition price.

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Indonesia elevates use of barter payment terms

The Indonesian Ministry of Trade is considering the use of countertrade as a payment mechanism. The payment method will be used in co-operation with the MoD in deals with several “trading partner countries.” The minister said countertrade accelerates the transfer of technology and knowledge, increases production, and expands employment opportunities.

Japanese defence White Paper promotes industrial cooperation

Shinzo Abe’s government has published a defence white paper calling for four “lines of effort” to strengthen the country’s defence industrial base. The four “lines” provide for further participation in the sustainment and maintenance of imported defence equipment, and aim to promote the transfer of defence equipment under a new principle-based framework.

India: Trade Department calls for DPP 2020 changes to offset fulfilment periods / India backtracks, DOMW suspends move to abolish credit banking

A draft industrial policy document prepared by India’s Department for Promotion of Industry and Internal Trade (DPIIT) calls for a hold on changes to the Defence Procurement Procedure 2016 (DPP 2016).

Korea: Satellite launch closes contentious Lockheed offset undertaking

SpaceX, the private rocket company belonging to Elon Musk, has launched South Korea’s first dedicated military communications satellite. The launch brings to a protracted close Lockheed Martin’s satellite commitment to DAPA as part of an offset package into the purchase of 40 F-35 combat aircraft. The satellite has been the focus of a feud between Lockheed and...