Two years ago, its key programmes were in trouble. Now Europe's defence sector looks healthy but how sustainable is its good fortune?
Signature of the long-awaited Tranche 2 production contract for the Eurofighter Typhoon means Europe's aerospace industry ends the year with a respectable report card. Completion of the €16 billion ($21 billion) Eurofighter deal after months of "hard but fair" negotiations between the four partner governments means all major European military aircraft programmes are now on a sound footing, backed by long-term production contracts.
In addition to Eurofighter, the Airbus Military A400M transport, Dassault Rafale fighter and the Eurocopter Tiger attack and NH Industries NH90 tactical and naval helicopters can all be touted on the international stage as stable, long-term programmes. AgustaWestland's EH101 and Saab/BAE Systems Gripen are also secure for the foreseeable future.
As a result of the European practice of signing contracts covering several years of production, the region's major aerospace manufacturers now have order backlogs that are the envy of the industry. EADS, through its Eurocopter subsidiary and stakes in Airbus Military and Eurofighter, has the largest military orderbook in the business, even though its annual defence sales fall far sort of those of US rivals Boeing and Lockheed Martin.
Events of the past year have also left the European industry in a stronger position than ever to break into the lucrative US defence market. With wins in Australia and the UK under its belt, EADS expects to be able to offer the Airbus A330 in any US Air Force tanker competition and AgustaWestland, with US partners Lockheed Martin and Bell Helicopter, is putting up a stiff fight for the VXX US Presidential helicopter and follow-on US Air Force Personnel Recovery Vehicle contracts.
In the USA, the year-by-year procurement process insisted on by Congress deprives the industry of the production stability Europe enjoys. As a result, the USA's year-end report card might say "could do better". Two key programmes, the Lockheed Martin/Boeing F/A-22 stealth fighter and the Bell Boeing V-22 tiltrotor transport have made good progress this year, but their futures will not be secure until they clear crucial operational-testing hurdles over the coming year.
And 2005 is a Quadrennial Defence Review (QDR) year for the Department of Defense. In the run up to the 2006 budget, all programmes are under the microscope but with programmes such as F/A-22 and V-22 gaining momentum, and the Boeing F/A-18E/F fighter and Boeing C-17 and Lockheed Martin C-130J transports already covered by hard-won multi-year procurement programmes, the Pentagon's wiggle room is restricted. The easiest programme to monkey with is the Lockheed Martin F-35 Joint Strike Fighter, still early in development and many months from first flight. But JSF is an international programme, and a big change in US procurement numbers would complicate Lockheed's task as it negotiates production and sustainment deals with overseas partners over the coming year. Destabilising JSF would also play into the hands of Rafale and Typhoon salesmen.
But are sheer numbers what matters these days? While orderbooks like EADS's look impressive, military aircraft manufacturers are becoming less worried about keeping their machine shops and assembly lines busy and more concerned about maintaining and developing their system integration skills as new programmes get fewer. This is illustrated by Saab's willingness to accept a smaller third production batch of Gripens from the Swedish air force in return for funding to build up the fighter's network-enabled capability.
A long-term production contract is welcome, and looks good on the balance sheet, but the truth is it may be easier to hire and train skilled mechanics than attract and retain talented engineers. Building the same aircraft for 20 years may make economic sense but not technical or operational sense because, as the world is now finding, the threat can change almost as fast as the technology advances.
While Europe's industry can look at its year-end order backlog and congratulate itself on a job well done for shareholders, the truth is the region's defence research and development spending falls far short of the USA's. There are no new military aircraft programmes on the horizon. What they have is what they will get, for 10 years or more. Unless it can work with customers to continuously evolve the aircraft already on order, advancing system integration skills though capability upgrade spirals, Europe's industry will atrophy, like an apple that looks appetising on the outside but is rotting at its core.
Source: Flight International
