October 31, 2012 / 2:55 AM / 7 years ago

General Dynamics flags possible risk on Portugal arms contract

WASHINGTON, Oct 30 (Reuters) - General Dynamics Corp said on Tuesday it had filed a demand for arbitration against Portugal’s defence minister after he said he planned to terminate the company’s seven-year contract to build 260 Pandur armoured vehicles for the Portuguese government.

General Dynamics said in a statement that the Portuguese defence minister had said on Oct. 16 that he intended to terminate the contract due to an alleged breach by the U.S. company. It gave no further details on the allegation.

The weapons and aircraft maker said it had been in discussions with Portugal about restructuring the contract, but had not been officially notified of any termination plans or breach of contract, and did not believe it had violated the contract.

“To protect our rights under the contract, we have filed a demand for arbitration,” the company said in a 10-Q filing with the Securities and Exchange Commission.

In the filing, the company said it could not predict whether the contract would ultimately be restructured or terminated, what the outcome of the arbitration proceeding would be, or what effect it would have on its operating results or cash flows.

The company said its European Land Systems unit and Portuguese partner, Fabrequipa, had built and delivered 166 vehicles to the Portuguese armed forces, and were waiting to deliver 27 more vehicles that had been ready since 2011.

No details were immediately available about the overall value of the Pandur deal.

General Dynamics said the program supported over 200 direct jobs in Barreiro, Portugal, and many more workers at Portuguese companies producing parts and components.

In the news release, General Dynamics said its team was “prepared and committed to manufacture the remaining vehicles required under the contract, subject to confirmation from the Ministry of National Defence that it is willing and able to accept and pay for the vehicles.”

The company issued a news release earlier this week in Europe in which it first disclosed the arbitration request.

Alfonso Ramonet, President of General Dynamics European Land Systems, said he was hopeful a solution could be found with the Portuguese government, noting that the company had made good on its pledge to build the vehicles, and transfer valuable technology and know-how to local industry.

“We have consistently and repeatedly communicated to the Ministry of National Defence that General Dynamics European Land Systems is willing and able to work on a mutually-acceptable solution, taking into consideration the current economic situation in Portugal and the needs of the Portuguese Armed Forces,” said Ramonet said in a statement.

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