Gripen Offsets Set – But Drooping Sales Leave Workers Gripin’
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Almost 4 years into the 14 year long JAS-39 Gripen economic offset program in Hungary, Gripen International confirm that another EUR 52 million of offset obligation has been approved, making the total value SEK 3.35 billion (EUR 360 million). Hungary expects to begin incorporating the highly-regarded fourth-generation fighter jet into its inventory shortly.
Meanwhile, Swedish aviation and defense group Saab announced on June 8, 2005 that it will lay off 350 workers in four business units, owing to a reduction of work for its JAS 39 Gripen fighter plane. The 350 lay-offs will concern workers at Saab Aerostructures, Saab Aerosystems, Saab Aircraft and Saab Support. Saab has already laid off 1,000 people in 2003 and 2004; and including this latest move, notice has now been given to 760 people in 2005. The company warned that it expected to lay off a further 1,000 – 1,500 people in 2005 and 2006.
“Production for export continues but still below today’s capacity,” Saab said in a statement. The development and production of the fighter jet has been one of Sweden’s largest industry projects, consuming up to one-third of the Swedish defense budget in some recent years. The last plane is now due to be delivered in Sweden in 2007. In April 2005, meanwhile, the group delivered the first six JAS-39 Gripen fighters to the Czech Air Force of a total of 14. South Africa has ordered 28 Gripens, and Hungary is leasing 14 planes.
The Gripen is an excellent aircraft by all accounts, with very attractive flyaway cost, performance, and lifetime costs. Saab’s international marketing deal with BAE also gave the Swedish aircraft wide representation. Unfortunately, the Gripen has lost out or been absent from consideration in important export competitions in Austria (Eurofighter), Denmark (F-35 JSF), the Netherlands (F-35 JSF), Norway (Eurofighter or F-35 JSF), Finland (F-18), Poland (F-16), Switzerland (F-18), Singapore (Rafale or F-15 Strike Eagle), and India (likely Mirage 2000V-5 or MiG-29, F-16 Block 70 under inquiry, JAS-39 still on shortlist but chances fading close to nil). Brazil and Slovakia are still seen as possibilities, however.
A number of factors could be cited for this failure: purchasing slowdowns across the industry, the inertia of existing relationships and equipment standardization, Sweden’s lack of geopolitical weight in contrast to countries like the USA, France or Russia; and (in Singapore’s case) its status as a single engine lightweight fighter with limited range in comparison to its competitors. Still the bottom line is that the Gripen was dependent on exports for profitability as a result of the unprofitable contract it signed with the Swedish government. The government’s ability to assist with foreign export orders has proven to be very limited, and envisaged export orders have been more in line with skeptics’ predictions so far rather than corporate hopes.
With regard to the offsets, they have been important items on the agenda ever since the early 1990s, when Saab AB (later Gripen International) began promoting Gripen to the Government of Hungary. When the first contract between Hungary and Sweden was signed in 2001, covering the lease of 14 Gripen aircraft, an associated Offset Agreement was concluded under which Gripen International assumed the commitment to undertake certain economic activities to offset the aircraft lease. Through the offset program Gripen International is dedicated to stimulating employment and economical growth, generating investments, export growth and building sustainable business in Hungary. Gripen International is able to do this in part because of its association with the auto industry via its parent firm.
Additional Readings & Sources
- See DID’s follow-on FOCUS Article for the JAS-39 Program: “The JAS-39 Gripen: Sweden’s 4th Generation Wild Card”
- Gripen International: Paris Air Show 2005 site (event runs June 13-19, 2005)
- Agence France-Presse (June 8/05): Saab Lays Off 350 Workers
- Gripen International News Release (June 1/05): Fifth Hungarian Gripen offset claim approved
- DID (May 27/05) – Meteor Missile Will Make Changes to Accommodate F-35 (and DID’s analysis of why)
