France's Defense Procurement Agency Saved By Rafale Sale

The past year brought mixed results for French defense procurement agency DGA. Its chief, Laurent Collet-Billon, expects to announce a rise in exports for 2014 to €8 billion ($9 billion), a level not seen since 2009.

But the “fascinating year ahead” of the agency brings uncertainty.

Among DGA's top priorities is to set up so-called “special purpose entities” that will build defense equipment and then lease it back to the French military.

Collet-Billon confirmed the agency is “working on it,” with plans to stand up the new entities by July 1. Capitalized by the French state, these entities will either produce certain types of equipment or focus on individual but large-scale projects.

“A company for one A400M that costs about €100 million could make sense,” Collet-Billon told reporters in February during an annual news conference in Paris. “The product will then be leased to the armed forces.”

Collet-Billon said DGA will set limits on each lease and agree on a mechanism for exiting the agreements.

“As a state-to-state negotiation, it should work,” he said, adding that the French government will own 100% of the leasing companies, at least initially, and that the return on investment is expected to be around 1%.

DGA is counting on these special purpose companies to help the defense ministry fill a €2.2 billion hole in its 2015 defense budget, which was set at €31.4 billion. The recent and somewhat sudden sale of 24 Rafale aircraft and a FREMM frigate to Egypt eases pressure on the MoD, though it remains to be seen whether the money will be used to sustain military programs or – more likely – help pay for President Francois Hollande's costly, and arguably ego-boosting military operations in Africa and Iraq.