LONDON — When Lockheed Martin said last year it planned to use a European-built satellite as part of its offset offering in a $7 billion agreement with South Korea to buy F-35A fighters, the company was short on detail as to exactly what was involved in this unusual arrangement.
That veil of secrecy lifted a little March 17, Tuesday, when a seemingly innocuous press release posted on the website of Blenheim Capital announced the British offset experts had set up a subsidiary company in Luxembourg to "purchase, launch and provide satellite communications capacity, initially to the Asia-Pacific region."
Neither Lockheed Martin nor Blenheim would comment on whether there was a link between the statement last year and the offset companies announcement last this week.
But a European executive with knowledge of the satellite communications industry said Blenheim is part of a deal involving the supply of one military and two civil satellites under as part of the offset arrangement between Lockheed Martin and South Korea.
Lockheed Martin agreed to a deal with South Korea to sell for the sale of 40 F-35 combat jets last year. Some 50 percent of the value of the near $7 billion agreement is covered by offset arrangements.
The offset package also involves the US fast-jet builder in providing technical support and design assistance to help South Korea develop its own indigenous fighter program known as the KF-X.
There are nNo official details of how any satellite arrangement might work have been released, but the executive — who asked not to be named — said he believed that one route might involve discharging the offset through the provision of low-cost equity funding to support the satellite production and launch.
Blenheim said in its release that the business "will be seeded with a $150 million investment," but declined comment on the source of those funds.
According to the publication Countertrade and Offset, the funds are being provided by Lockheed Martin.
The publication also said only the military satellite is destined for South Korea with the two civil satellites going elsewhere.
Blenheim declined to comment beyond reiterating what it said in its press release that capacity would be provided initially in the Asia-Pacific region.
In September, Reuters last September reported Lockheed's Martin's F-35 international business development director, Steve Over, as saying the company would buy and launch the satellite by 2017.
The satellites would be built in Europe, even though Lockheed Martin is a spacecraft supplier in its own right.
Blenheim said in a press release on its website that its new Luxembourg subsidiary, known as Blenheim Space, had signed entered into a "supply agreement with a major satellite provider for an initial three satellites and is currently in negotiation with a global telecommunications provider to further develop the business."
"The first satellite is nearing full technical definition with a view to launching in early 2018 with an established launch services provider. It is anticipated that the subsequent two satellites are expected to be fully defined and scheduled in the next six months with launch anticipated in mid-2018," Blenheim said in the release.
The offset provider declined to comment on the name of the satellite supplier. Airbus Defence and Space and Thales are Europe's main satellite builders.
Lockheed Martin declined to comment on why its own satellites are not being used in the deal.
The European executive said the reason for not using Lockheed Martin-built satellites may be related to International Traffic in Arms Regulations ITAR restrictions, but it could just as likely be something straight forwardsuch as a lack of suitable export finance in the US.
Grant Rogan, the CEO of Blenheim Capital, said the company's space venture is "entering a market that is undergoing rapid change and evolution with smaller commercial players now able to work alongside major corporations and governments to enable cost-effective solutions to our growing need for fast and secure communications around the world."
Offsets typically require overseas defense equipment suppliers to directly or indirectly invest cash and technology in the economic and social development of the nation buying the arms.
The requirement for offsets differ from country to country, but usually run between 50 to and 100 percent of the contract price, although sometimes they can be more than the value of the equipment or service contract itself.
Lockheed Martin had offset obligations totaling just over $13 billion by the end of last year, according to its latest annual report.
Entirely by coincidence, military communications capacity in Asia received a further boost last earlier this week when the British Ministry of Defence announced it was repositioning one of its Skynet 5 satellites to the Asia-Pacific region for the first time.
A ground station is being built in Australia as part of a multimillion-pound investment to provide the British with secure communications in the region.
Email: achuter@defensenews.com
Andrew Chuter is the United Kingdom correspondent for Defense News.
