Expensive labour and a small domestic market have not hindered the Swiss aerospace industry's success, and now it is looking for a bigger role on the world stage
Small, land-locked and fiercely independent, Switzerland's status as one of Europe's second-tier aerospace nations draws on both its affluence and its neutrality. The Alpine state - whose 7.5 million people have four official languages - is home to many of Europe's top business aviation companies and has a thriving maintenance, repair and overhaul (MRO) sector. Thanks to national champion Pilatus, it is also one of a tiny handful of countries that still manufactures complete aircraft.
Neutral through both world wars and outside NATO (as well as the European Union, United Nations and virtually every international organisation), Switzerland has not been involved in a conflict for hundreds of years. Yet it is one of the most militarily minded European countries, with almost all its citizens subject to national service. This has led to a policy of self-sufficiency in defence, which has, in turn, boosted its local aerospace industry.
One of the largest beneficiaries of this policy has been state-owned Ruag Aerospace. However, the Lucerne-headquartered company is now shifting its emphasis from military offset deals to become more of a civil systems specialist. Many of the country's smaller aerospace firms - specialising in niche fields including engine components, structures, health and usage monitoring sensors, simulator equipment and avionics - have built businesses around the trickle-down effect from Ruag. Most are represented by the Swiss Aerospace Industries Group (SAIG), which estimates the entire country's aerospace manufacturing revenues last year at more than SFr1 billion ($870 million).
Traditional values
Like many of its European counterparts, Switzerland's aerospace industry is changing because of globalisation and what SAIG president Albert Gaide calls the "challenging of traditional Swiss values". Switzerland has long been a relatively self-sufficient aerospace market, partly because of military neutrality and partly due to the country's introspective tradition. SAIG is only now joining the Aerospace and Defence Industries Association of Europe (ASD) and Gaide says Swiss suppliers have suffered from being outside the core research and development group of European aerospace companies. "Previously Swiss companies networked nationally, not globally," he says. "It was harder for us being outside NATO and the European Union, but it was also to do with attitudes."
The Swiss are masters of understatement, says Tim Talaat, president and chief executive of Zurich-based MRO provider SR Technics. This leads to a reluctance to engage in self-congratulatory marketing and subsequent lack of exposure.
Much of this industrial introspection also comes from a procurement policy based on retaining industry independence. Ruag Aerospace was the product of a 1995 merger between Swiss air force maintenance and the Federal Aircraft Factory (FAF), with which the Swiss had initially planned full independent production capability. Despite developing the N20 Aiguillon short take-off and landing jet in the 1940s, FAF had long ago opted for the cheaper option of offset deals, albeit among the most comprehensive in Europe. Recently Ruag was involved in the design, development and production of the country's Boeing F-18 Hornets fighters.
Ruag's assembly line has created a healthy family of subcontractors around the country. However, the Swiss military budget is falling dramatically. Only 42% of Ruag's revenues last year came from defence ministry contracts, compared with 90% in 1999. And the Swiss government says it will opt in future for off-the-shelf aircraft, rather than be involved in development. SAIG worries that, if future military requirements are met by designs already flying, its members will miss out on design phase expertise. It is urging them to explore new markets, as Ruag is already doing.
An example of the new approach, says SAIG's Gaide, is the formation of the Swiss Engine Syndicate from seven component suppliers previously providing parts for the General Electric F404 engine powering theF-18s. The grouping now provides subsystems for the GE CFM34-10 powerplant for the Embraer 170 family of regional jets.
This kind of combined approach is made possible by the fact there is little overlap in Swiss industry. Swiss society is based on a concept of harmony and companies are often reluctant to enter market segments occupied by others. Even in the media, freedom of speech is far from enshrined; most companies involved in this supplement, for example, asked Flight International for approval rights.
For the Ruag group, which also includes ground-based defence, arms, missile and space divisions, the search for new customers in its core areas of aerostructures and maintenance is a priority, says chief executive Toni Wicki. "We are facing a change in the supply chain, so we engaged as a risk-sharing partner with Airbus in the A380 programme, where we are producing the wing's outer fixed trailing edge."
Ruag is responsible for the development, testing, certification and production of the 14m (46.2ft) subassembly, comprising left and right aluminium spars, each with 35 ribs and mountings for actuators. Early involvement in the development phase of products is necessary to avoid losing expertise, says Wicki.
In other countries, the government would intervene to ensure the survival of a national champion, but Wicki says Ruag has to find its own path. "The government has no obligation to keep Ruag alive, but neutrality means it is beneficial to keep knowledge in the country," he adds.
This underlines another distinctive aspect of Switzerland: the separation of industry and politics. The Helvetic Confederation, as the country is officially named, is one of the most decentralised nations, with its 26 cantons (states) loosely bound together but retaining control over economic and financial measures. The Berne-based federal government therefore has little power to support industry.
SAIG says Swiss suppliers receive little direct financial support from the government, although development money is starting to flow because of a deal signed with the EU to participate in research funding. There is also co-operation with federally funded research programmes in Lausanne and Zurich technology institutes.
Instead of government assistance, as Swiss companies turn to face the world, they are relying on a perception of superior craftsmanship to win deals. Foremost among Switzerland's attributes, in a poll carried out by the US-Swiss Chamber of Commerce, is its reputation for quality. Pilatus has used this tradition of excellence to market its PC-12 single-engined turboprop business aircraft and Jet Aviation trades on the country's craftmen's attention to detail when promoting its aircraft interior completions to wealthy customers.
Disadvantage
Swiss precision also has its downside, however. Many in the industry believe the rigour of Swiss airworthiness body FOCA puts the industry at a competitive disadvantage. Wohlen-based MSW Aviation, for example, when attempting to get experimental-category approval for its Votec 322 aerobatic kitplane, had to endure five years of test flights to prove the aircraft's strength up to 16g. "This is more than most fully certificated general aviation aircraft have to endure in other countries," says MSW Aviation director Stephan Hangartner.
More ire is reserved for the implementation of the joint airworthiness requirements for aircraft engineers, JAR-145. Different EU nations interpreted the guidelines differently, whereas Switzerland had passed the rules and a federal law, mandating unprecedented levels of training. "Our training costs spiralled as we had to get all the necessary paperwork for every engineer," says Ren‚ Kunz, logistics manager at Swiss Helicopter Maintenance (SHM). With the creation of the European Aviation Safety Agency, all EU states will also pass JAR-145 into law, but Kunz believes Switzerland's strict adherence to rules will make its engineers ever more expensive.
So quality comes at a price and even before JAR-145, Swiss workers were not cheap. Zurich and Geneva, the country's twin economic poles, regularly appear in lists of the world's most expensive cities. For top-level aerospace jobs this is irrelevant because there is a global market and a global pay scale, but for more junior posts, it can add costs, says Jim Roche, Pilatus's vice-president government aviation.
On the plus side, Swiss firms benefit from one of Europe's most flexible workforces. The country has an official 45h working week, 10 more hours than neighbouring France and Germany, and workers will often work overtime at short notice. Also, unionisation of workers is low, replaced with works councils at most companies, ensuring industrial action is virtually non-existent, says Oscar Schwenk, Pilatus president and chief executive.
A bigger hurdle is finding staff in the first place. There is a lack of qualified engineers coming from the Swiss education system and companies have to either import workers or train them from scratch. For Jet Aviation's Basle facility, the proximity of both France and Germany not only eases the pressure on the domestic labour pool, but also reduces salary costs, because many workers live more cheaply across the borders, says Rainer Albecker, senior vice-president and general manager of Jet Aviation Basle. For SHM, with its main base in Berne, such luxuries do not exist and instead it takes auto mechanics and puts them through an apprenticeship.
Flexibility of workers is crucial if Swiss firms are to meet another of their traditional strengths: on-time delivery. Albecker believes that project management, a realistic view of deadlines and the ability to introduce night shifts at peak periods all contribute to the company's envied delivery record. Likewise, Ruag had to rearrange its production line at short notice to meet the tight schedule of its A380 contract.
Despite access to adaptable employees, Swiss aerospace is still hampered by several external factors. Not least is the country's non-aligned strategy, including its exclusion from the EU. Swiss exports attract an import duty into the 25-nation bloc, into which 75% of the country's trade flows. Pilatus, for example, has to temporarily import its aircraft into the EU when conducting demonstration flights and several SAIG members truck goods first through Austria, with which Switzerland has a special tariff deal, before shipping them elsewhere.
Immigration hurdle
But these administrative hurdles are easy to overcome, says Roche. Harder was the restriction on foreign workers in immigration-shy Switzerland. Employers had to convince the federal government as well as the cantons of the necessity and uniqueness of each foreign employee to gain a work permit.
These rules were largely swept away in June, with the signing of a long-debated bilateral agreement between the EU and Switzerland. "Now there should be no problem hiring EU nationals; the only people likely to lose out are North American engineers," says Roche.
Nevertheless, Switzerland benefits from its geographical position at the centre of Europe. Maintenance, repair and overhaul providers can tout for business in much of western and central Europe, and component suppliers can ship units quickly to most prime contractors. The SAIG says the country's mixed cultural and linguistic mix is another advantage. "People here can usually speak two or three languages in addition to English and we see ourselves as a crossroads for suppliers," says Gaide.
The country's cosmopolitan environment is one element that makes it a top tourist destination and another draw, especially for high net-worth individuals, is its banking sector, which offers highly confidential accounts. The concept of secrecy is ingrained in Swiss culture, and few details of aviation deals appear before they are concluded. This is particularly helpful in the private-jet completion market, where client confidentiality is paramount. Jet Aviation Basle, for example, bans picturephones from its site, has strict clauses in its contracts and even requires written authorisation for employees' family members to visit the hangar. Albecker says: "It is probably a Swiss trait, but we teach confidentiality to our employees all over the world."
Swiss military neutrality also has its benefits, with Middle Eastern companies attracted to the non-aligned state. But these benefits are overstated, says Albecker, who points out Jet Aviation's main completion competitors are in the USA as well as Germany and France. More likely, says Albecker, is the fact that Switzerland is a prime tourist destination particularly popular with residents of the Gulf states, many of whom enjoy visa-free travel to the country.
But if Switzerland now has no problem attracting overseas workers, it does face the same dilemma as other European countries in selling its products in US dollars. While the Swiss franc has remained stable against the euro, at around €1.50, it has appreciated against the dollar, which now yields only Fr1.25, compared with over Fr1.55 two years ago. As airframe manufacturer, Pilatus feels the pinch most, says Schwenk. "We sell the aircraft in dollars, but most of our costs are in francs, so such a fall in the value of the dollar reduces our margin massively."
Fortunately, the Swiss brand goes a long way, and the country's aerospace companies have enough flexibility and commitment to quality to weather the current storm. But as they battle to gain a larger share of the world market, they will have to do better at making their skill known. The mountains of Switzerland have produced many unique skills, and the country's aerospace industry is going to have to learn to shout loud enough to produce a few long-lasting echoes.
JUSTIN WASTNAGE / BERNE, BASLE, LUCERNE AND ZURICH
Source: Flight International
