Cross-Border Defense Joint Ventures: Separating Myth from Reality
Joint ventures in the defense sector are the hot topic these days driven by surging military budgets, raising demand for technology transfer to allies and the mirage of easy money available to U.S. defense companies through the EU Security Action for Europe (SAFE) program seemingly accessible through joint ventures.
Governments around the world increasingly seek industrial partnerships with U.S. defense contractors to strengthen domestic manufacturing, expand technology capabilities, and build resilient defense supply chains. During these discussions, one request from the government frequently arises: the creation of a "joint venture" between a U.S. defense company and a local defense company.
In our experience advising governments, defense contractors, investors, and financial institutions on cross-border defense transactions, we have found that "joint venture" is one of the most misunderstood concepts in international defense business. Business executives often use the term to describe any long-term industrial partnership. From a legal perspective, however, an equity joint venture represents a very specific corporate structure involving shared ownership, governance, risk, and control.
This distinction matters. Misunderstanding what each party means by a "joint venture" can delay negotiations, create unrealistic expectations, and divert attention from transaction structures that better accomplish the parties' commercial and strategic objectives.
The misconception is not that U.S. defense contractors are reluctant to partner internationally. Quite the opposite. Major U.S. defense companies maintain thousands of international relationships involving local manufacturing, technology licensing, engineering support, maintenance and sustainment, research and development, supplier development, and industrial participation. The misconception is that these relationships are ordinarily implemented through equity joint ventures. In practice, they rarely are.
What Lawyers Mean by a Joint Venture
From a corporate law perspective, an equity joint venture generally involves the creation of a jointly owned legal entity through which two or more parties share ownership, governance, capital investment, profits, losses, and strategic decision-making. Such arrangements typically require detailed agreements addressing governance, board composition, intellectual property ownership, financing obligations, dispute resolution, exit rights, and deadlock mechanisms.
Many transactions described commercially as "joint ventures" are instead contractual collaborations. These may include teaming agreements, subcontracting arrangements, licensed manufacturing, technology licensing, co-production agreements, maintenance and sustainment partnerships, research collaborations, offset arrangements, or long-term strategic alliances. Although these relationships may be commercially significant and extend for many years, they do not create a jointly owned enterprise.
Recognizing this distinction early often prevents months of unnecessary negotiations over a structure that neither party ultimately intends to establish.
Why Contractual Collaboration Is Usually Preferred
True equity joint ventures involving major U.S. defense contractors certainly exist, but they remain the exception rather than the rule. Well-known examples include Raytheon Rheinmetall Land Systems LLC, COMLOG GmbH, and the recently announced Lockheed Martin–Rheinmetall missile manufacturing venture.
For most cross-border defense transactions, however, contractual collaboration provides greater flexibility while achieving most, if not all, of the same commercial objectives. Issues such as, intellectual property protection, governance complexity, export controls, foreign ownership considerations, sanctions, cybersecurity, national security review processes, and the need for commercial flexibility all make contractual arrangements the preferred structure in many cases.
- Corporate governance and control. Shared ownership can create significant governance issues, including board deadlocks, veto rights, minority protections, and information rights that are difficult to reconcile with a U.S. defense contractor’s need to control strategy, compliance, export-controlled data, classified performance, and customer relationships.
- FCPA and anti-corruption exposure. In many markets, a local equity partner may interact with government officials, state-owned enterprises, offset authorities, customs officials, or procurement agencies on behalf of the venture, increasing Foreign Corrupt Practices Act, books-and-records, internal controls, third-party due diligence, gifts, hospitality, and political-contribution risk for the U.S. defense contractor.
- Deemed foreign control and information access. Even where the foreign partner does not hold majority equity, governance rights, consent rights, management roles, technical committees, audit rights, or access to systems and personnel can be treated as influence over sensitive operations (FOCI), triggering mitigation requirements or making the structure commercially impractical. A jointly owned entity may complicate or prevent facility clearance eligibility if foreign ownership, governance rights, debt, board appointments, or contractual controls give a foreign interest the ability to influence management, operations, classified performance, or access to sensitive information.
- Export controls, technology transfer, and cybersecurity. Equity ventures often require integrated engineering teams, shared facilities, common IT systems, and technical data flows, which can create difficult ITAR, EAR, controlled unclassified information, cybersecurity, and unauthorized technology-transfer issues.
- Exit, enforcement, and reputational risk. Defense programs are long-lived, politically sensitive, and customer-specific; if the relationship deteriorates, unwinding an equity venture will likely be slower and more disruptive than terminating or restructuring a contractual arrangement.
A Practical Observation
One of the most valuable contributions counsel can make at the outset of negotiations is asking a simple question: "What commercial objective are the parties actually trying to achieve?"
In many cases, the answer is not ownership of a new company. Instead, the objective is local manufacturing, technology transfer, workforce development, engineering capability, supplier participation, maintenance and sustainment capacity, or broader industrial participation. Most if not all of these objectives can be achieved through contractual collaboration. Once those objectives are clearly identified, the appropriate legal structure often becomes apparent.
Key Takeaways
Cross-border industrial cooperation will remain an essential component of allied defense procurement and capability development. The principal legal question is not whether parties should collaborate internationally, but rather which legal structure best advances their commercial, regulatory, and strategic objectives.
Based on our experience advising clients across the defense sector, successful transactions begin by distinguishing between an equity joint venture and contractual collaboration. That distinction allows governments and industry to focus on practical solutions that achieve industrial participation while managing legal, commercial, and national security risks.
About the Authors
Pawel Chudzicki is the leader of the Aerospace & Defense Practice at Miller Canfield and founder of Washington, D.C. based Miller Canfield Global Strategies. His practice focuses on cross-border corporate transactions, aerospace and defense, Foreign Military Sales (FMS), Direct Commercial Sales, and strategic investments with particular focus on Poland and Qatar.
Kevin Dent is a Senior Consultant at Miller Canfield Global Strategies. His practice focuses on international business transactions, offset/industrial participation, national security, and regulatory compliance. Previously he was a Senior International Counsel at Raytheon and prior to that a partner and a major international law firm for over two decades.
Disclaimer
This Client Alert is provided for informational purposes only and does not constitute legal advice. The appropriate structure for any cross-border defense transaction depends on its specific facts, applicable procurement requirements, export control regulations, national security considerations, corporate governance objectives, and the laws of the relevant jurisdictions.
