Danish F-35 Promises Leave Local Companies Wary

18 June 2016

While the Danish government has vowed to work closely with the country’s defense industry to gain the maximum spin-off contract value from the F-35A Lightning II buy, there is concern within industry circles that the long-term dividend will not amount to a "stimulus package" but instead may benefit only a select few across Denmark’s defense sector.

The Danish government, during talks with defense-industry chiefs in 2013, promised that the fighter acquisition project (FAB) would generate hundreds of contracts and thousands of jobs within the defense, information-technology and engineering sectors.

The Danish government’s fundamental rules for industrial participation by bidders in the fighter program were framed by former defense minister Nicolai Wammen following round-table meetings with industry leaders in August 2013.

Wammen later informed all bidders that the final down-selection decision on the type of aircraft would be heavily weighted on "guarantees on contracts, long-term investment and long-term number of jobs created in Denmark."

Denmark has no substantive supply-side industrial agreement with F-35 maker Lockheed Martin covering collaboration with Danish firms. Nevertheless, the government hopes the eventual value in spin-off contracts could exceed the acquisition project’s total capital investment cost of $8.5 billion.

In contrast to Lockheed, Boeing’s F-18 Super Hornet bid and Airbus’ Eurofighter Typhoon offer provided firm guarantees of industrial partnerships and sub-contract work to companies in Denmark’s defense sector.

A number of defense-industry chiefs want the Danish government to commit Lockheed to provide solid contract guarantees covering long-term cooperation, capital investment and job creation in Denmark.

"It’s imperative the government seeks industrial-cooperation guarantees in the F-35A acquisition,” said Jan Falck Schmidt, CEO of Falck Schmidt Defence Systems. “Many defense companies in Denmark believe there may be no benefit for them. They fear that the contract spin-off will go to a few of Lockheed’s preferred partner companies in Denmark."

Given the prospect of guaranteed industrial participation and contracts, many Danish defense companies would have preferred if the government had chosen either Boeing’s F-18 Super Hornet or Airbus’ Eurofighter Typhoon in the down-selection, Schmidt said.

"We have no such guarantees from Lockheed Martin since there is no industrial partnership agreement in place," said Schmidt.

Defense sector concerns were aired in an open letter to Rasmus Jarlov, the chairman of the Parliamentary Defense Committee (PDC), on May 25.

The letter, signed by Schmidt and the CEOs of nine other defense firms, warned that because cooperation with Lockheed Martin is limited to the production of the F-35A, many firms would find it difficult to successfully tender for contracts.

The letter warned that future deals for maintenance of the aircraft could be lost to Denmark if Lockheed carried out this work in Italy and Turkey.

"This means opportunities for high-tech jobs in Denmark could be exported, with state financial support. It’s likely Danish industry may miss out on opportunities to participate in future maintenance and upgrades of the aircraft," the letter said.

Such apprehension is not universal within Denmark’s defense sector.

The F-35A’s down-selection is backed by a number of leading Danish organizations, including the Danish Metalworkers Union (DMU).

"While Danish firms must compete for contracts, the F-35A investment means Danish firms have a unique opportunity to build a bigger and stronger defense sector. Using this program, the defense industry can win contracts and create many more industrial jobs in Denmark," said Claus Jensen, president of the DMU.

The objective for Denmark, said Jensen, is to supply parts and services to the F-35A’s global production program with a possible reach of 3,000 aircraft.

"In Denmark, Terma’s involvement in the JSF has resulted in 300 jobs in Grenaa,” said Jensen, using shorthand for Joint Strike Fighter, another name for the F-35. “It will hire another 200 people to deliver to existing, not new, contracts. We have a reasonably big defense industry. With F-35A, we can grow the industry’s size considerably."

Terma supplies sub-assemblies, components and parts for the F35 Lightning II empennage. It has been a supplier to the F-35 project since 2004. Denmark entered the JSF program in 2002.

The company will deliver elements of the horizontal tails for all three F-35 variants, as well as vertical tail components for the F-35A – the conventional take-off and landing variant. Terma holds other JSF-related work contracts with Northrop Grumman, General Dynamics and Marvin Engineering.

Terma will pursue broader collaboration with Lockheed Martin, said its CEO Jens Maaløe.

"As a company, we have evolved in parallel to the F-35 program. It will be exciting to see what this new phase in our collaboration will bring. We want to explore new areas of collaboration and bring best value to the F-35 program," Maaløe said.

For its part, Lockheed said Denmark’s selection of the F-35A positioned the country’s defense sector to "capture long-term work throughout the life of the program".

"The projected industrial opportunities with the F-35 will bring long-term economic benefits to Denmark for decades to come," Lockheed said in a statement.

Within the current cost framework, Denmark will spend $3 billion on the purchase of 27 F-35A aircraft. Lifecycle costs, projected to span 30-40 years, will add a further $5.5 billion.

"The fighter acquisition program is a very significant investment for Denmark,” said Peter Christensen, Denmark’s defense minister. “We hope the project can offer many contract opportunities for defense companies over its lifetime and grow the size of the defense industry,"

“National Economy” and “Industrial Participation” were two of the four key areas evaluated by the Danish Ministry of Defense’s Fighter Replacement Program Office (FRPO) when appraising candidate aircraft. The other two areas were “Military Requirements” and “Strategic Aspects.”

The industrial evaluation focused on how candidates could support major national-security interests through formation of industrial relationships with Denmark’s defense and aerospace industries.

The MoD’s executive summary statement, released following the Danish government’s decision to select the F-35A in May, calculated that the present combined value of Lockheed Martin’s industrial-cooperation proposals for the F35A surpassed those of rival candidates Airbus and Boeing.

"The assessed combined value of the industrial cooperation proposals for the Eurofighter is DKK 18.7 billion (US $2.82 billion) and consists of 30 initiatives. The corresponding value for the Joint Strike Fighter is DKK 26.5 billion (US $4 billion) and consists of 26 initiatives. For the Super Hornet, the comparable value is DKK 15 billion (US $2.26 billion) and consists of 68 initiatives," said the statement.

The MoD acknowledged "a particular element of uncertainty" regarding the potential for industrial spin-off contracts in relation to the F-35A.

"The Joint Strike Fighter is not subject to an industrial cooperation requirement. The realization of the industrial cooperation initiatives that Lockheed Martin has proposed is, therefore, conditioned upon the ability of the Danish defense industry to win contracts in accordance with the ‘best-value’ principle," the statement said.


Source : defensenews.com