Poland to Resign from the F-35 Offset to Save USD 1 Billion [EXCLUSIVE]

The MoD recommends that Poland shall resign from concluding the offset agreement related to the F-35. The final opinion on the matter is to be released after a vote, during the upcoming meeting of the Offset Committee expected in January. Stance adopted by the MoD remains unchanged though. “This will be a new global system of spare parts supply and keeping this aircraft in operations”, explains Major General, Pilot Jacek Pszczoła, the Air Force Inspector and plenipotentiary for acquisition of the new generation fighter aircraft.

“We have presented our recommendation, that is suggesting we should resign from concluding the offset agreement. We want to focus on industry-industry memorandums that shall be signed in the future, similarly as it happened in case of the agreements signed with regards to the Belgian aircraft”, the representatives of Ministry of Defence, told us. “Preliminary talks on that matter have already begun, but at the moment we cannot release any further details for now. Potential conclusion of agreements as such will not be correlated with procurement of the F-35, however, it would happen sooner than later.”

Resigning from the offset is to make it possible to save up more than one billion dollars, however it may also take away the opportunity for the Polish industry to acquire high tech, despite the high level of the fighter-associated expenditure (at least 4 billion dollars).

When asked about the above circumstances, the MoD representatives told us the following: “Proposals that we have received have not been adequately meeting the Polish requirements, furthermore they did not satisfy Poland considering the cost-effect ratio. We should remember the fact that offset does not come without a pricetag. We knew that not being a participant of the F-35 programme it would be much tougher for us to gain capabilities of any sort - be it manufacturing or maintenance - with regards to that aircraft. That chance went away back in 2008 when Poland was offered a chance to join the programme as an observer. However, the proposal in question has been rejected. Should it be otherwise, the position to negotiate would be much stronger today.”

Representatives of the MoD also stress the fact that the recommendation has not been adopted on one side by the Ministry, it has rather been adopted after consultation with the Polish industry, research institutes and the academia.

“It was more or less at the time when the plenipotentiary for the acquisition of the Multi-Role Combat Aircraft was appointed, in March 2019, when the preliminary analysis has begun” – col. Jacek Najs recalls – “We have been working on defining a catalogue of capabilities required from the point of view of the requirements defined by the military within the scope of operating the F-35. The preparatory work, issuing opinions with regards to the potential areas of cooperation or offset took place between May and July, with involvement of the Polish Military, the PGZ Group, military-focused institutes and the academia. And this is how the preliminary scope of commitments has been defined. In the meantime the Americans proposed a scope of maintenance and repair activities. However, as we have noted, their proposals were limited to the level that would be guaranteed anyway, within the framework of the delivery agreement. These were the facilities at the airbase level. Obviously, we came to a conclusion that this does not match our requirements and that we need to look for something else.

Then, we tried to have a look at the offset matter from a broader perspective, perceiving it as a broadly-understood air defence system, reaching beyond the areas related to the jet. At the same time, we could not have left the area directly tied to the F-35 as the offset is not a tool of compensation and, in line with the law, it needs to be directly associated with the subject of acquisition.”

“Having a look at the specifics of the F-35 programme, one needs to say that it is a closed programme. Nine members of the programme have already divided the supplies and manufacturing market. We have a factory in Camari, Italy, where the F-35 is assembled now, with D-level maintenance also expected to be available in the future, up to the factory level. Meanwhile, advanced works on the engine are taking place in the Netherlands. Entering this area would be challenging to say the least. It would not be as cost-effective as expected”, col. Najs said.

The Poles were also considering obtaining capabilities regarding the F-35 logistic support system. However, this is also where modern character of the undertaking has turned out to be an obstacle. “Logistics support system for the F-35 is of specific nature. It very much differs from what we have been experiencing so far. GSS and ALIS systems at the base of the logistics supply chain that have been adopted by the US and by the remaining members of the programme are globally unified - breaking the facade now and establishing maintenance and repair capabilities in Poland, outside the system, would be impossible”, Najs claims.

“This will be a new global system of spare parts supply and keeping this aircraft in operations”, explains Major General, Pilot Jacek Pszczoła, the Air Force Inspector and plenipotentiary for acquisition of the new generation fighter aircraft. “Up until now, when one component broke down in case of the F-16 we were sending it to the US and it was coming back to us, repaired, after some time. And now, with ALIS system in place, monitoring the F-35 system functioning as a whole, it is possible to track any malfunctions in an ongoing manner with the information being sent to the manufacturer in the US. Any malfunctions shall be rectified thus guaranteeing the declared operational availability of the jets. The systems will check which of the warehouses would be best to source the spare. This may be a warehouse in another country - Belgium or the Netherlands. The part will be delivered to us as required. Similarly, our parts would also be sent to other users which would require changes of the Polish legislation. The agreement also guarantees maintenance of the aircraft. The Americans are also obliging themselves to maintain the declared levels of operational availability of those aircraft. This global system for spares is a true novelty”.

The situation in which status info pertaining to parts of the Polish jets is sent to the US and the US-based system decides what parts are needed for the Polish aircraft seems to be worrying though. One needs to ask a question: does it not place Poland in a role of an entity that only operates the aircraft, with all servicing and maintenance being left in the hands of the ally? What degree of decisionmaking will still be available to Poland when it comes to those jets, and what would be the level of independence?

Between August and October talks were in progress with the manufacturers of the main elements of the F-35 - Lockheed Martin and Pratt & Whitney above all. “The procedure assumed that initial talks would take in a form of an offset dialogue also involving the Polish defense industry and research facilities. This has been a modern, innovative method as we could have got acquainted with the potential scope offered by the Americans and compare it with our needs, get acquainted with the quotes and the logistics support system”, Col. Najs said. “We were comparing those proposals with involvement of the Polish industry and with particular attention paid to the ability of the industry to absorb new know-how, as the cost is enormous. Paying a lot for the offset agreement is easy. Here it is all about developing an ability to introduce the new expertise, once the technology is adopted. Here is where further investment on our side would also be required”, Najs added.

The dialogue came to an end during the first week of December. As a result the MoD decided to recommend that Poland shall resign from concluding the offset agreement. The MoD representatives list three main causes here: innovative nature of the F-35 technology (that could not be acquired by Poland, for a myriad of reasons), existing supply chain that is fixed and lack of ability to join the F-35 programme, as Poland has not been involved in this initiative earlier on. No details have been disclosed - as this stems from the confidentiality clause applied by the US enterprises.

What can Poland do now?

Initially Lockheed Martin wanted to invest money in the PZL Mielec facility. Nonetheless, using a solution as such is impossible, within the framework of the Polish law. The Americans were also to propose enhancement of maintenance capabilities available domestically, pertaining to enhancement of maintenance-related know-how with regards to C-130 and F-16.

“The scope proposed by the US did not fit well within the areas defined by us, serving the purpose of protecting the basic national security interest. We could look for alternative solutions, but we also took into account the EU, its restrictive approach to offset and its application. Offset, and its scope, must overlap the framework of the master agreement. One cannot acquire abilities pertaining to production or maintenance of warships - like it was suggested by some here in Poland - when signing an agreement concerning aircraft. When it comes to the amount - more than 1 billion dollars - required to cover the offset, this is too little. We wanted, above all, to gain manufacturing capabilities - initially with regards to the F-35, and then, at further stages of the dialogue, with regards to the F-16 and C-130. The proposal we have received concerned, primarily, the maintenance capacity regarding the F-16 and the C-130.

We have come to a conclusion that non-offset industrial cooperation would be a better solution here. These memorandums seem to be a better solution due to a greater flexibility of the relationship in the business domain and a greater scope of possible agreements, conclusion date and the timeline. Meanwhile, we have some areas where the billion saved could be put into use. The Technical Modernization Plan envisages huge necessities.”, Col. Najs said.

It is also too early, as we Defence24.pl has found out, to hope for benefits stemming from the fact that Turkey would no longer be a part of the F-35 program. The Americans are aware that should they keep some competencies away from the Turks, they could be sued. They do not want to burden others with those ramifications, as placing another state within the supply chain could result in a greater fluctuation. Turkey is still manufacturing parts for the aircraft. Theoretically Ankara still has some time to take a step back while the Turkish contracts are to be a subject to work at least until March 2020. However, the Pentagon claims that it has found alternative sources for majority of the “Turkish” parts already. Pushing Turkey out of the programme completely is the move that could result in transfer of some manufacturing know-how to Poland. However, this could not be associated with the offset agreement that would accompany the procurement deal that Poland would sign - this document is to be concluded in early 2020.

Responding to our question whether acquisition of the F-35 should be dependent on prior or parallel establishment of airbase defence capabilities, General Pszczoła placed an emphasis on the huge range of needs needs emerging in the Polish military: “Today we have three fully capable squadrons, plus two MiG-29 squadrons and a single Su-22 squadron. MiG-s are very good in QRA duty while Su-22 is good for training, JTAC training in particular. However, both platforms are not well suited for effective operations during a contemporary conflict. We have those aircraft and human resources however, gathered at three bases. It would be easy to have them disbanded, but recovering this potential could take years or even decades. I am not saying that this is the most important argument for keeping those aircraft alive, but this is how life is. Thus the US still operates the A-10, not to mention the B-52”, Pszczoła said.

“Situation that we could have witnessed this year, with regards to the MiG-29, was a factor that accelerated the Harpia programme and made us go towards a 5th generation aircraft. This is the first time since the end of the War when we stand a chance of becoming a part of a club elite, globally. I agree that it would be best to upgrade everything, but our resources are limited, and something needs to be picked as opposed to some other thing, there is no golden mean here. I am responsible for the air force as an element of the air defence system. We have Wisła, Harpia is coming and medium and short range air defence systems are planned to be developed. We are, as a whole organism, placed within the NATO system”, Pszczoła stressed.

Future F-35 deals associated with the jet and the Polish industry are to be in line with the requirements of the Polish military also being beneficial for the Polish industry. At the same time the MoD does not want to impose limitations on the businesses, so that they can still carry out their activities in an overt manner. In reality, all options have been placed on the table. One can risk stating that they may emerge regardless of whether Warsaw acquires the F-35A or not.

Jędrzej Graf, Maciej Szopa, cooperation: Jakub Palowski

The Offset Committee is a consulting/advisory body working alongside the Polish Ministry of Defence, in line with the new Offset Act law, adopted in 2014. The committee involves representatives of the President, PM, Minister responsible for budget, Minister responsible for economy, Minister responsible for higher education and science, Minister responsible for internal affairs, Minister responsible for foreign affairs, President at the Public Procurement Office, President of the Polish Prosecutor General Office and heads of the Internal Security Agency, National Security Bureau and Military Counterintelligence. In case of a procedure aimed at procurement, when it is carried out in line with a procedure of negotiating the agreement with a single foreign supplier (as in case of the F-35), the offset agreement procedure is defined by the head of the MoD following an opinion of the Offset Committee.