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  • When Offsets Aren't Offsets
    Posted by Bill Sweetman 12:37 PM on Sep 10, 2010

    Canadian defense industry leaders are fretting about whether they will get as much out of the country's Joint Strike Fighter program as they would have done under an offset deal, reports the Ottawa Citizen. They are also looking askance at reports from Israel that the country has been guaranteed $4 billion in JSF work in return for signing a smaller contract than Canada, for 25 rather than 65 aircraft.

    Israeli government officials have repeatedly described the $4 billion as "offsets" but Jon Schreiber, head of the international directorate in the JSF program office, categorically denied at a conference in Washington DC on Wednesday that Israel would receive any offsets. Rather, he said, Israeli work represented "strategic sourcing" based on a "target price".

    To some extent this is a question of terminology. For one thing, the US does not award "offsets" against deliveries of equipment to Israel that are paid for by US military aid funds.

    However, a Lockheed Martin spokesman says that "strategic sourcing" business can be lost if the company fails to meet its target price, or to deliver on schedule, or fails to meet quality standards, and if the business is lost it may not be replaced. Offsets are typically set in dollar terms, and if a supplier loses a contract that value may be reallocated to another deal in the customer country.

    However, although Lockheed Martin says that strategic sourcing includes "competitive" and "best value" pricing, the supplier apparently does not have to compete for it. Under the deals offered to Canada and other partners, buying JSF simply provides the opportunity to bid.

    Some partners - notably Norway, where the high value of the kronor makes it very difficult to compete - have negotiated strategic sourcing agreements in addition to bidding for work. But the Israeli deal is different in that it is the first major allocation of strategic sourcing to a country that has not been a fully-contributing JSF partner - and for Canada, which has only won $330 million so far, that may rankle.

    Achieving the $4 billion value will also depend on JSF reaching its target sales levels. It may also include the value of Elbit's share of the Vision Systems International helmet-mounted display system, which the company won at the start of the JSF program.

    Tags: ar99, tacair, JSF, israel, canada, afa10

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