Regulating European defence procurements: implications and challenges : A case study of the Swedish A&D industry on the international fighter market and the role of offset agreements

Sammanfattning: Background: When governments procure fighter jets from international suppliers, offsets frequently occur. In 2009, the European Commission issued Defence and Security Directive 2009/81/EC – a first step to incorporate the defence sector into the European single-market model. The regulation has changed the circumstances on the fighter market by limiting the use of offsets. Whether the fighter market, or the defence sector, is able to adjust to these changes remain unanswered.Purpose: The purpose of this study is to investigate and analyse the role of offsets in procurements of fighter jets, to get a better understanding of the present situation at the fighter market where the EU attempts to ban offset agreements.Research method: This study uses a qualitative method. Seven interviews with employees at Saab Aeronautics were carried through. In addition to the interviews, a literature study was conducted on defence markets, offsets and the European context. The gathered material was thereafter analysed with selected theories of institutional and transaction cost economics, as well as previous research in order to fulfil the purpose of the study.Conclusion: The study concludes that offsets can be seen as a by-product of the existing market imperfections and political transactions, and therefore a natural component in procurements of fighter jets. Certain forms of offset can be used by purchasing governments to neutralize existing market imperfections and lower the transaction costs. However, this is only one dimension to offsets since they may appear in several forms with different purposes and risks attached to them. The institutional change on the European fighter market will produce both winners and losers in the years to come. Whether eliminating offsets will lead to a more open and transparent fighter market remains ambiguous