ALAN GEORGE / PARIS
EADS strategy chief hits at political delays, backs space restructure, talks of US expansion and hints at mergers
EADS executive vice-president strategic co-ordination Jean-Louis Gergorin is joining the chorus of protest from European aerospace leaders at political delays and disputes over major defence projects. Looking at the dire history of multinational defence procurement - he cites the UK withdrawal from the Horizon frigate programme in 1999 and German indecisiveness over the MBDA Meteor missile and Airbus Military A400M transport aircraft - Gergorin concludes that reform is long overdue.
"We need a European defence procurement agency and a European defence research and development agency," he argues.
A former senior vice-president for corporate strategy at Matra and subsequently Aerospatiale Matra's group managing director, strategic co-ordination, Gregorin was heavily involved in EADS's formation in 2000. He points to relative successes for EADS in its civil programmes, where European political support for Airbus and for the Ariane space programme is "as strong as ever". However, "the issue is defence", he says.
Increasingly, multinational programmes are managed by European procurement agency OCCAR, set up in 1996 by France, Germany, Italy and the UK to handle projects including the Eurocopter Tiger helicopter, A400M and MBDA's SAAM family of surface-to-air missiles. Belgium, Spain and the Netherlands have applied to join OCCAR and Sweden is also showing serious interest.
Gergorin thinks OCCAR may not adequately manage international projects, but that new informal agencies based on OCCAR, using what is known in Brussels jargon as co-opération renforcée (strengthened co-operation), could. "The only participants will be those who wish to participate, and they will do so according to certain criteria," says Gergorin, adding that the criteria should include a minimum guaranteed level of spending on defence projects - which would prevent a repetition of the German budget squeezes which threatened the A400M and Meteor.
EADS is among the most tangible results of European aerospace and defence industry restructuring, but efforts at further consolidation, including a recent project to bring Italy's Finmeccanica together with EADS, have stalled. Does Gergorin feel that European restructuring is essentially complete? "Not necessarily," he replies, adding that there is still scope for "niche sector consolidation" especially in "combat aircraft, space and defence electronics".
He also hints at more top-level mergers, saying: "It's not certain that Europe will always have room for three major prime contractors [BAE Systems, EADS and Thales] and two medium-sized ones [Dassault and Finmeccanica]."
EADS has always been preoccupied with achieving a better balance between its commercial aircraft activities, heavily dominated by Airbus, and its defence and space activities. But the issue became "far more essential after 11 September because of the consequent crisis in commercial aviation". To date, the company has been heavily reliant on Airbus, but Gergorin is confident this will change.
Noting that the imbalance is far more apparent in profits than in revenues, where the split is two-thirds/one-third, he reiterates that "pure defence revenues" should increase from more than the present €6 billion ($6.3 billion) to €10 billion by 2004-5. This is "the result of existing orders, for the Tiger, [NH Industries] NH90, Eurofighter and [MBDA] Storm Shadow stand-off missile," says Gergorin. "Those will start producing revenues this year, which will increase in subsequent years".
As for defence profits, which were weak in 2001, Gergorin blames Germany for "a huge decrease in orders, especially for defence electronics". But after internal restructuring, "in 2002, we're profitable in defence electronics: not hugely, but we are profitable".
He stresses, however, that the glut and slump in the space sector had been "the real challenge" in 2002, and will be again this year. But EADS has resolved to stay in the space business, albeit while pursuing a major restructuring, because "space is playing an increasing role in defence and also in other areas, such as navigation, linked to our core business of aeronautics," says Gergorin.
"At a time of an explosion of net-centric warfare, to divest from space because of the capacity crisis would be the wrong direction to take. The only way is to restructure and stick to space," he adds.
Gergorin compares the situation to the 1991 decision by Aerospatiale and Daimler Benz Aerospace to continue the Airbus programme, despite the downturn in commercial aviation caused by the Gulf War. Although market pressure was for greater emphasis on defence, the Airbus decision paid off in the long run.
Despite the delay in EADS's acquisition of BAE Systems' 25% stake in the Astrium space consortium, to give EADS 100% of the company, Gergorin denies there are any fundamental problems. In fact the continued space crisis means the final price will be lower than the €165 million originally agreed last July, he says.
EADS remains keen to expand into the US market, says Gergorin, but he stresses that this is "a long-term strategy" - the company will need to build a reputation with the US Department of Defense, and will "start in niches, such as Deepwater, the major US Coast Guard modernisation programme for which we intend to supply helicopters and radars and maritime patrol aircraft".
He adds: "It's a start and we hope very much to continue. We don't doubt that we shall succeed."
Source: Flight International
