As national borders in the European defence industry become ever more indistinct, France's champions are setting their sights on international targets and finding that cross-border collaboration is the way forward.
In a summary of the 2006 activities of France's DGA procurement agency, defence procurement chief François Lureau highlighted the recent jump in defence export orders, which registered a 34% rise from €4.1 billion ($5.4 billion) in 2005 to €5.5 billion for 2006.
France's key defence champions and major suppliers to the domestic market (see graph) have recognised this need to become fully engaged in more than one market in an effort to exploit all available capabilities and ensure a strong position with potential customers.
MBDA, ranking number six on the list of suppliers to the DGA in 2006 (see graph), has been busy over the past few years, shoring up its position as a true European business. The strategy seems to be paying off with booming export sales. Thales has headed down this route too, claiming both France and the UK as domestic markets.
MBDA achieved some major milestones in 2006. The missile manufacturer has successfully integrated its French and UK operations and plans to improve operations at its Italian division this year. The company added Germany to its portfolio of domestic markets in 2005 when it took over EADS missile subsidiary LFK, and one of the key achievements of 2006 was to turn it around from a struggling business to one of the most dynamic arms within MBDA.
The company acknowledges that its Italian interests are weaker than the rest and will require structural change. This is due to take place in 2007, says chief executive Marwan Lahoud. A restructuring programme is being discussed with employees and plans are being made for job cuts at two of its sites, although no closures are planned. MBDA eventually intends to integrate its Italian operations with those in France and the UK.
Lahoud says a review is under way to determine whether the German part of the business needs to be brought more closely in line with the French and UK operations and it is probable it will follow suit. "The integrated model is the one that allows the company to resist the cyclical nature of the business," says Lahoud.
An ultimate decision will, however, depend on what progress - if any - is made with the further consolidation of the German missile business. The company also retains an interest in acquiring German technology group Diehl. Although not in active talks, Lahoud says this is a possibility and that, in the meantime, the two players will retain their links through collaborating on programmes.
Dassault, meanwhile, is looking beyond the Rafale to the future of its defence business, and cross-border collaboration on the Neuron unmanned combat air vehicle programme is proving important here.
For Dassault chief executive Charles Edelstenne, an important part of the Neuron programme is not simply the collaboration between major European players but also the presence of a leader. "It is different from the co-operations made in the past," he says. "We use the domains of excellence of each company." He believes that international collaborations, where all partners are equal, lead to delays and higher costs.
The pan-European strategy seems to be paying off for MBDA, which is predicting stable sales and an operating margin of 7.4% for 2006, and which is further set to remain between 7% and 8% for 2007 "despite some heavy investments". Its orderbook of €13.5 billion is more than four times its 2006 turnover of €3.3 billion - which itself was €100 million higher than 2005. The company won €2.65 billion of new orders in 2006 compared with €2.1 billion the previous year.
Although Lahoud describes 2006 as a year of success in France, it is clear from MBDA's results that there has been a fundamental shift towards export markets. MBDA is reaping the benefits of concentrating its efforts here with exports rising from €400 million to €950 million while its domestic orderbook remained flat at €1.7 billion.
Prospects in the Indian market remain important. Lahoud says this market represents a "huge, gigantic" potential target. "We are working hard with the Indian missile industry. I don't see any breakthrough in 2007, but that does not mean we are not working hard to get things done in India," he says.
DGA's Lureau also highlights the importance of new markets that have boosted French exporters in 2006 and allowed them to record increases of 70% compared with 2004. The contract for Eurocopter Cougar and Panther helicopter programmes in Bulgaria alone has contributed €271 million to France's coffers, while in Australia France's share of the NH90 contract is €380 million.
However, Lureau warns France's industrial champions that it is not simply a case of selling into new markets, but about forming beneficial and lasting partnerships.
Source: Flight International
