Denmark's defense industries stand primed to reap a significant contracts dividend from the country's $11.5 billion F-35 Lightning II acquisition and life-cycle maintenance program.
Some defense companies, including Terma Corporation, expect to substantially lift their annual revenue positions on the back of existing and future orders flowing from contract deals with Lockheed Martin.
Danish defense firms are also set to benefit from subcontracting orders from Lockheed connected to the broader F-35 Joint Strike Fighter production program. To meet anticipated orders, Terma is scaling up capital investments to double production capacity and jobs at its primary aero-structures plants by 2020.
The level of confidence exhibited by Terma is largely based on meetings with management in Lockheed in July and September, during which the US corporation confirmed opportunities for Terma to pursue additional component production beyond existing contracted agreements for the F-35 Lightning II.
"We have initiated a comprehensive investment program at our Danish facilities to secure and increase what is a solid and reliable technology base for future involvement in the program," said Terma's CEO Jens Maaløe.
In May, the Danish government announced plans to purchase 27 F-35As as the country's next-generation fighter aircraft. The F-35A will replace the Danish Air Forces (DAF) current fleet of ageing F-16s. The DAF's new F-35A fleet is expected to be fully operational in 2027.
Denmark's defense industry sector is forecast to achieve a turnover of above $450 million in 2016. Exports, which account for around 80 percent of this turnover, are evenly spread between the US and Europe.
A fundamental objective sought by the Danish government is to use the F-35 acquisition program to drive real and sustainable long-term growth within the indigenous defense and associated engineering sectors.
Denmark is to spend an estimated $3 billion to acquire the 27 F-35A fighters. The aircraft's total life-cycle costs, over 30 years, are calculated at $8.5 billion.
Long-term, Denmark wants to recoup all of this investment by way of spin-off contracts to the homeland defense and security sectors arising directly from the F-35 Joint Strike Fighter program.
"It's crucial that Danish defense companies have access and are able to bid on contracts across the entire Lockheed Martin group. This government will maintain political pressure to ensure that Danish firms have such access to all areas," said Troels Lund Poulsen, Denmark's minister for business and growth.
Poulsen, together with defense minister Peter Christensen, headed up a high-level industry delegation to Washington in mid-September
In Washington, around 50 top executives from leading Danish defense companies discussed production capacity, potential order types and contract opportunities with officials from Lockheed and its subcontracting groups Northrop Grumann, BAE Systems and Pratt & Whitney.
Lockheed Martin is not bound, under the terms of the F-35 supply agreement with Denmark, to contractually achieve an offset target in respect of the deal value. Poulsen conceded that this "reality" remains an area of concern for Danish defense firms.
"We will pursue a process to hold regular meetings with Lockheed Martin. We will continue to press the company on contracts, as there will be a huge focus on this aspect of the agreement in Denmark," Poulsen said.
A number of defense industry leaders, including Falck Schmidt Defence Systems' CEO Jan Falck-Schmidt, are urging the MoD to extract more concrete commitments from Lockheed Martin regarding subcontracts for Danish defense sector firms tied to the F-35 joint strike fighter program.
"It's imperative that Lockheed Martin adhere to existing Danish rules governing industrial cooperation, and the involvement of a broader range of industries. The fighter acquisition project should be used build a stronger defense sector, create thousands of high-tech jobs, and benefit the country's economy and finances," said Falck-Schmidt.
Despite the lack of a contractually-based offset arrangement, Danish defense companies are adopting a positive view on likely contract flows from Lockheed and the wider F-35 Joint Strike Fighter program. Denmark has been a partner in the F-35 program since 1999.
This confidence is supported by the Danish National Defense Industrial Strategy, adopted in 2014. This strategy requires all foreign suppliers of defense equipment to meet certain obligations for industrial cooperation with domestic companies. The Ministry of Defense (MoD) can demand cooperation where the contract value of individual material acquisitions exceeds $7.5 million.
Terma plans to double its aero-structures capacity at its plants in Grenaa. The aim is to upgrade the facilities to cater to a larger anticipated flow of subcontracts from the F-35 acquisition program. The number of workers at Grenaa is to increase from 300 to 500 by 2020.
Denmark's biggest defense sector group, Terma improved its capital investments project financing position in October when it negotiated a $31 million loan with the European Investment Bank. A large part of the loan will be used to bolster research, development, and innovation related investments.
