Who would relocate their aerospace business to France? The country is trying to shake off its inward investment unfriendly image and welcome foreign firms
Midi-Pyrénées Expansion, the French regional government agency for the Toulouse area, has a favourite trick for visiting Americans: it shows them productivity data for the region.
Foreigners, especially Anglo-Saxons, have a view of French workers that is at odds with the truth. In fact, France ranks second to Canada in worker productivity league tables and is 25% more efficient than the neighbouring UK.
Yet France does have, at best, an image problem, at worst serious structural problems with its labour market. Its growth is at a sluggish 1.2% for the second quarter, but more worrying for its politicians is an unemployment rate that has barely budged from 10% in July last year to 9.9% this July. Job creation is therefore a major government priority and attracting foreign investment is a cornerstone of this policy, says Olivier Poncet, director of Invest In France, an agency representing both the finance and regional development ministries.
Philipe Baylet, Midi-Pyrénées Expansion project manager for inward investment, says that despite the growth of Airbus and knock-on effect on subcontractors and suppliers, jobs are being lost by the internationalisation of aerospace projects. No longer can Toulouse-based suppliers count on a contract being issued by Blagnac without a full tender process.
The need for foreign companies in the region seems obvious: while almost every aerospace supplier has a base in Toulouse, often this is a sales office staffed by a few technical support account managers. Of the aerospace companies in Toulouse with more than 100 employees, most are French-owned. From Europe, only Swiss aircraft air systems supplier Liebherr Aerospace and German distress beacon supplier Elta have big facilities, while from the USA have come Alcoa Fastening Systems, Goodrich Aerospace Europe, Rockwell Collins France and Positronic Industries. French propeller manufacturer Ratier Figeac is now part of United Technologies, owner of Hamilton Sundstrand, Pratt & Whitney and Sikorsky.
However, this could be about to change as European companies begin to challenge US suppliers in their backyard and US companies, in turn, pursue European civil contracts harder, predicts Baylet. “These businesses will have to act when they see European companies selling in their own market,” he says. Canadian, German and UK industry is also being targeted. “These are the biggest aerospace manufacturing countries, so they have the biggest companies,” says Baylet.
Aerospace Valley
The Midi-Pyrénées region attracted the fourth highest amount of direct foreign investment in France last year. It was half as much as the Île-de-France region around Paris, but almost on a par with the other top three. Aerospace remains the top business sector, but its lead fell from 47% of foreign investment in 2003 to 28% and most of that involves multinational joint ventures rather than new facilities, says Baylet. To reverse this decline, in July the French regional development agency declared Midi-Pyrénées and neighbouring Aquitaine regions as one of six global “competitiveness clusters”, under the name Aerospace Valley. The aim is to unify marketing efforts, pool resources and encourage co-operation between companies, says Baylet, and create 40,000-45,000 jobs over the next 20 years.
Those companies already based in France are there out of an early necessity to be close to the customer. Goodrich’s 18,000m2 (195,000ft2) facility sandwiched between the Airbus plant in Blagnac and the runway owes its position to its a contract its predecessor Rohr Europe signed to provide nacelles on the GE Aircraft Engines CF6 used to power the A300 in 1973. The contracts grew as GE signed subsequent deals as a powerplant supplier on other Airbus aircraft.
But in the early 2000s, after Rohr had been acquired by then-BFGoodrich, the company used the site to bid for undercarriage work and won the A380 landing-gear supply contract. The result was a final assembly line in Toulouse, making the company the largest non-Airbus facility in Blagnac. “You cannot be far from your customer today, so 80% of the programme management for Airbus nacelles will be done in Toulouse by the end of the year; it was a need expressed by the customer,” says Jean-Michel Jannière, Goodrich France development manager.
For others, being close to Airbus may have been the main motivation to move to the south west of France, but contracts from overseas have actually surpassed revenues from their Toulouse neighbour. When Liebherr took over the former ABG-SEMCA it worked chiefly with Airbus and Dassault, but by 2004 Canada’s Bombardier had become its biggest customer.
Francis Niss, Liebherr Toulouse president says it still makes sense to concentrate aerospace production in Toulouse rather than in Canada as there are advantages such as the numerous research institutions and universities. He also highlights another factor Toulouse has going for it: the quality of life in the city makes it easier to attract talented staff, he says.
Poncet says there is a big international battle to attract new companies, not least since globalisation has made outsourcing production feasible and cheap thanks to advances in communication and infrastructure. Although today Europe outsources much of its manufacturing, France is still highly focused on creating jobs in the aerospace sector, as well as other key “value added” areas such as automotive, agri-food technology and pharmaceuticals, as these sectors tend to produce longer-term employment of highly skilled people.
In the past, France, like other European governments, threw money at the problem, using public funds for job creation. However, strict European Union rules on subsidies have changed that, says Baylet.
Today, the French government offers a range of financial assistance packages to attract foreign investment. The largest subsidy available is the prime d’aménagement du territoire (PAT), a national fund of €48 million ($58 million) this year going to those companies creating jobs in France’s regions. Tertiary activity, such as subassembly, has been added as a new sector for receiving government cash this year and there are also funds for research and development in high technology sectors and research tax credits from which aerospace firms could benefit.
Since much of the start-up aid is repayable or time-limited at best, Invest In France believes that the subsidy package is only the “icing on the cake” for most companies, and that they are attracted to France for other reasons. “Many foreign companies come without even knowing about the aid available so we have to tell them,” Poncet says. The task is to ensure that companies stay in France and, once there, expand, which is trickier, he says.
Red tape
A Canadian aerospace company attracted by subsidies set up a facility in Toulouse in 1998, but pulled out in 2002 citing “administrative hurdles”, says Baylet. This is a scenario investment managers are keen to avoid and Poncet says Invest In France has had to change its role to offer “after-sales service”, sorting out France’s bureaucratic jungle.
Foreign companies often complain about the unwieldy French incorporation and tax structure. To register a company in France, for example, used to be a three-stage process taking up to 21 days and requiring proof of significant capital. Furthermore, a non-EU company has to acquire a foreign business permit and faces the burden of acquiring work visas for employees.
But realising that red tape was offputting, Invest In France lobbied the government to create a friendlier business environment for foreign companies. In October last year the finance ministry unveiled 50 reforms to some of the most hated rules and regulation.
These reforms include a guaranteed three-week turnaround on visa, work and residence permit applications. They also involve scrapping the foreign business permit for subsidiaries of companies with more than €400,000 in capital; tax-exempt allowances for foreign executives living in France for less than 10 years; merging some agencies into a centralised international migration office handling all visa and permit procedures from one source; and automatic work permits for spouses of employees in management roles.
Tax overhauled
The company registration process will be streamlined and the business tax system overhauled, while there is ongoing debate about the 35h maximum working week, says Poncet.
However, many foreign companies, especially those from the USA, prefer to acquire a French company as a going concern rather than grow a company from scratch and face the red tape, says Baylet. “It’s a very American strategy, with less risk than growing a company organically,” he says. Goodrich is a good example. In addition to its two sites in Toulouse, Goodrich has three sites in Paris also added through acquisition, when it purchased TRW’s aerospace division in December last year.
There has also been a trend for service companies to set up shop in France. Lessor GATX has recently selected Toulouse as the site for its European office, edging out traditional finance centres like London, Frankfurt and Paris, while General Electric Commercial Aviation Services (GECAS) has chosen the city instead of Paris for its French operations. Baylet says this kind of financial service company is a new phenomenon in the city and shows Toulouse can attract new companies even as manufacturing declines in western Europe.
Some smaller companies exploring the greater Toulouse area include Stükerjürgen Aerospace Composites, an interiors thermoplastic component manufacturer from Bremen. Jean-Philippe Pysarevitch, commercial director of the newly founded French subsidiary Stuke France, says the move to Toulouse was essential for the company, which diversified from cabin components into cockpit parts and avionics shieldings.
The company is looking at opening a second manufacturing site, although Pysarevitch says that once social costs are included, French labour costs are even higher than in Germany.
Baylet admits that these high costs can make it difficult to attract pure manufacturing, with companies opting for central and eastern Europe or even further afield. However, Alain Poupin, vice-president for Europe, Middle East and Africa for US nacelle overhaul specialist Nordam, says experience with outsourcing production to low-cost countries has been mixed. “There is a whole cycle, and if the quality is bad with a higher percentage of parts failing quality control it slows the whole chain and the OEMs are realising that’s not a true cost saving,” he says.
Culture hurdle
Despite this, Nordam has decided to keep its own manufacturing in Tulsa. “We produce a lot for Airbus, but today we can produce from Oklahoma,” says Poupin. However, the company’s plan is to grow from its current role as maintenance facility for airlines to more original parts supply for the airframers. As that happens there may be some need for local production, admits Poupin. That is the kind of movement French investment agencies will seize on and try everything to make happen.
But there is one final hurdle to overcome: culture. This usually requires hiring a French head with US experience to act as a conduit. Jannière says his bosses in Charlotte, North Carolina often do not understand French labour laws. “We’re a bit different; we cannot work any more than 10 consecutive days or on Sundays, but ultimately if the customer is happy and you get the work done, then head office is happy,” he says. “The French can show productivity figures and that impresses the Americans,” he says.
JUSTIN WASTNAGE/TOULOUSE
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French win record share on 787 programme Boeing’s 787 Dreamliner has a significantly higher proportion of French involvement than any of the manufacturer’s previous aircraft programmes. There are several reasons for this, Boeing says. Although France was not a specific target when it was seeking partners and suppliers for the programme, “we decided to go for the best of industry worldwide”, Boeing says.The airframer found a considerable amount of that expertise among Airbus’s suppliers in Toulouse. A long-term drive by French companies participating in the 787 programme to develop relationships with Boeing as they seek to diversify their client bases, has also played a part. Some have already proved their expertise through subcontracted work or contracts for retrofit programmes for other Boeing aircraft. However, one of the most significant contracts on the 787 is with Latécoère, which has not previously worked for Boeing, but is a key supplier to Airbus. The company is the first French supplier to be included in the structure team for a Boeing aircraft. It has complete responsibility for the design, development and manufacture of the passenger doors. Latécoère pioneered risk sharing partnerships in the 1990s and says the contract “rewards the strategy of partnership with clients that Latécoère launched in the 1990s and demonstrates its competence and gives it international recognition”. Latécoère says the programme could add as much as 20% to its turnover once production of the aircraft begins in 2006 and that Boeing could match or even exceed Embraer as its biggest revenue source within three years. Says Boeing: “Latécoère is an important supplier. This is the first major part of a Boeing aircraft to be awarded to a French supplier.” Latécoère forsees no difficulties in working for both of the big competitors: “It’s a globalised industry – we’re seeing it more and more. We have to co-operate and make partnerships with others,” it says. From Airbus’s point of view, the Boeing contract can be seen as an endorsement of its manufacturing skills, while for Boeing Latécoère’s previous work on Airbus can be taken as a form of guarantee, the company says. Elsewhere in France, Messier-Dowty is supplying the 787’s main and nose landing gear structure, its first prime contract with Boeing on a commercial aircraft. Messier-Dowty already supplies landing gear for Boeing’s F/A-18, AV-8B, T-45 and V-22 military aircraft, as well as carrying out subcontract work on the 777. And Michelin is offering a combination of traditional radial construction tyres and new lightweight near zero growth (NZG) construction tyres for the programme. Snecma subsidiaries Messier-Bugatti and Labinal are supplying electric brakes and wiring respectively, while Thales is providing the electrical power conversion and the integrated standby flight display for the aircraft. Two of Zodiac’s US-based subsidiaries, Monogram Systems and Air Cruisers, will provide the water and waste system and escape slides respectively. Dassault Systemes is providing the product lifecycle management suite of software tools used to develop, manufacture and support the 787 for its lifetime. The contract is important in the context of the wider overseas participation on the programme as it allows Boeing to overcome the logistical challenges of co-ordinating a worldwide network of suppliers: “We wanted a tool to allow suppliers to work in a virtual environment – it’s as if they were in the same building,” Boeing says. “No other aircraft manufacturer has developed an aircraft with such extensive use of this software.” The trend towards international participation is likely to continue to strengthen on future aircraft programmes, as suppliers seek to diversify and manufacturers cast their nets wider to ensure they take advantage of advances in technology from around the world. |
Source: Flight International
