ALEXANDER CAMPBELL / HELSINKI &
JUSTIN WASTNAGE / AARHUS, COPENHAGEN, GOTHENBURG & STOCKHOLM
The Nordic nations are trying to shake off their traditional self-sufficiency and are tapping into the global market, but some cultural barriers have yet to be overcome
Facing geographical isolation, sparse populations, hostile climates and threatening neighbours, Europe's Nordic countries have long held self-reliance as a valuable quality. But now the aerospace industries of Finland and Sweden are following the lead of Denmark in ditching old habits and reaching out to the rest of the world.
The transition will be difficult, but the Scandinavian nations and Finland recognise that the risks of not globalising are far higher. Politically, this has meant moving closer to international alliances such as the European Union and NATO. Commercially, it has meant increasing industrial specialisation and joining manufacturing alliances, rather than trying to do everything.
Some companies are further ahead in this respect than others. Terma Industries, Denmark's largest aerospace manufacturer, has specialised in electronic warfare (EW) systems and weapons pylons, areas in which it is among the world leaders. Terma owes this position to its involvement in European co-production of Lockheed Martin F-16 mid-life updates, says Ole Fogh, director of business development for EW systems.
"The worldwide supply of weapons pylons started in the 1980s as part of the [F-16] offset deal, and this gave the company the expertise to carry out more development and led to export sales," Fogh says.
Terma makes 83% of its sales - DKr804 million ($134 million) out of DKr963 million - outside Denmark, and is rated one of the world's top EW houses. Achieving this has not been easy, Fogh says, since the company's ALQ-213 EW management system had to undergo four years of foreign comparative testing before it could be supplied to the US Air Force, which now has over 1,000 units. "After they test your product's quality, they check whether there is an existing US product capable of doing the same function, they then publish details of your product to all interested manufacturers to see whether anyone could manufacture a similar product, and only after that do you get the right to sell there," Fogh says.
The Danish military is too small to be a significant customer for Terma. But even in the absence of a relatively safe home market, the defence sector is still less cut-throat than the airline market, Fogh says. "Seeing how Airbus squeezes its suppliers, we would never survive, as producing components to specification would not be cost-effective."
Self-sufficiency costs
Sweden, with a larger domestic market and a stronger political tradition of neutrality - it remains outside NATO, as does Finland - has clung to self-sufficiency longer than Denmark, producing home-grown aircraft such as the Saab Draken, Viggen and Gripen fighters. The consequences have reached beyond Saab, the country's only aircraft prime contractor, to its domestic suppliers.
Sweden has much more indigenous industrial capability than NATO members of similar size, says Bertil Hellstr"m, vice-president of international business development for radar supplier Ericsson Microwave Systems. "If you compare Sweden with Norway, Denmark or Finland, their industry is largely based on offset agreements with rather limited export potential," he says.
Volvo Aero's existence, meanwhile, is due to programmes such as the RM6, RM8 and RM12 powerplants for the indigenous J35 Draken, JA37 Viggen and JAS39 Gripen, respectively, which equipped the company with a full engine manufacturing capability, says chief financial officer Lars Thoren.
But self-sufficiency has meant that Sweden has traditionally had a disproportionately large defence budget: in 2002 it spent almost $4 billion on defence, or $450 per person, well above the European NATO per-capita average of $360. "Sweden has concluded that to be self-sufficient is too costly," says Per Hroar Olsen, senior vice-president marketing and programmes at Volvo Aero. Most Swedish industry experts see such self-sufficiency as unsustainable and believe that more export sales and further multinational collaboration are the only way forward.
"Saab intends to be a player in the European aerospace industry," says Lennart Sindahl, general manager of Saab Aerosystems, which has system responsibility for the Gripen. "We are transforming into an international company from one based on [domestic] needs." The Gripen multirole fighter is Sweden's principal bid for international status. Since 1995, Saab and BAE Systems have jointly marketed the fighter, which has been selected by the Czech, Hungarian and South African air forces.
Although Saab makes 78% of its revenue from defence, it hopes to reduce its dependence on the military market by increasing its contracts with Airbus. Saab Aerostuctures is a risk-sharing partner on the Airbus A380, producing wing leading-edge components, and also makes components for the A320 and A340-500/600 families. "The commercial side of the business will grow as Airbus production increases," says general manager Pontus Kallen, setting a goal of 50% commercial sales for the aerostuctures division. Kallen plans growth through risk-sharing deals, with the aim of becoming "firmly positioned as a tier 2/3 supplier".
Ericsson Microwave Systems has also benefited from Sweden's self-sufficiency, but now plans to form international partnerships and increase exports. The company's international success in airborne radars can be traced to Sweden's decision to develop an indigenous airborne early-warning system based on Ericsson's Erieye phased-array radar, says Hellstr"m.
The move towards exports has gone a long way - reducing domestic sales from 65% of revenues during the 1980s to around 30% today - but Ericsson still relies on Sweden's defence forces to fund development of future systems. He expects this to change: Ericsson has begun development of a sixth-generation fully integrated fighter radar to be jointly developed with European radar specialists and aimed at later production batches of European fighters.
The three European fighter programmes use different radars: the Gripen Ericsson's PS-05A, the Eurofighter Typhoon Euroradar's Captor and the Dassault Rafale the Thales RBE2. "No European radar company can support the development costs of the next generation alone," Hellstr"m says.
Developing a new radar as part of an international group would mean Ericsson losing one of its chief advantages: the Swedish armed forces would no longer pay all the development costs. But this change is "inevitable", Hellstr"m says. "After the definition phase for many of these new projects, we will have to find funds for some limited development, then after that we will have to look for partners. But we will still avoid self-funding projects," he says.
Exports essential
Even in small, niche markets, exports are essential. Gas Turbine Efficiency (GTE) produces a high-pressure core turbine engine cleaning system. With global approval imminent from leading engine manufacturers, the system is being rebranded and re-engineered for the US market. "We have the local market conquered, but to do business in the USA, especially as they are now very nationalistic, is very difficult, so we needed to refocus on that market," says P„r Krossling, GTE vice-president sales and marketing for Europe and Asia.
Of the Scandinavian countries, Norway has only one aerospace contractor of significant size - Kongsberg, which produces the Penguin anti-ship missile and components for various aircraft, including the NH Industries NH90 helicopter. Like Denmark, Norway is using the leverage of a forthcoming fighter contract in industrial participation negotiations with Eurofighter and with F-35 Joint Strike Fighter (JSF) prime contractor Lockheed Martin.
Although Norway joined the JSF development programme in June 2002 as a Level 3 partner, domestic opinion is divided over whether to pull out. Defence industry association NFL supports Eurofighter "for the time being", says manager Steinar J¿ssund, arguing the country has yet to land significant JSF work. But the Royal Norwegian Air Force, an F-16 operator, may prefer the F-35 on grounds of interoperability.
To complicate matters, doubts have been raised as to whether Norway can keep its F-16 fleet flying until the JSF becomes available in the next decade, meaning an interim purchase may be necessary and tilting the balance towards the Typhoon. With only one firm export order, from Austria, Eurofighter may be more willing to place offset deals. Norwegian industry already has Eurofighter technology development agreements and hopes for more work.
Military versus civil
Kongsberg produces aerostructures for Eurocopter civil helicopters, but its main effort remains in the military sector, with a major programme - the Royal Norwegian Navy's next anti-ship missile - set to take up much of its research and development effort. The situation is different for Finland's leading aerospace manufacturer, Patria, traditionally a military company, but preparing to put its weight behind the A380.
Patria's Aviation division handles support, maintenance and training on military aircraft, while the Civil Products and Services division includes the aerostructures unit. "Our business practices are different to Aviation," says aerostructures vice-president Juha Soutolahti. "They are very close to the Finnish air force, while we are more based on pure business principles."
Patria will manufacture composite spoilers for the A380 and, while Soutolahti hopes this will lead to more contracts, he acknowledges the spoiler work will take up a large share of the plant's capacity. "We are expanding our research and development from 10 to 70 engineers...the A380 will take up one-third of the total workforce after production starts. This year we expect our deliveries will increase by 25-30%, led by the A380 and expansions in [work on the] NH90, Embraer ERJ-145 and the A320 family. At the moment we have an 80-90% civilian business, and this will expand with the start of A380 production."
Aarne Nieminen, Patria executive vice-president in charge of the Aviation division, sees potential for the military maintenance business to grow. "In the future military maintenance will become more like civilian maintenance - with outsourcing, pooling of spares, and common technologies, so there is scope for growth here," he says.
Nordic countries have tended to be self-sufficient politically as well as industrially. Norway and Iceland remain outside the EU, and only Finland has joined the euro. Finland and Sweden are not in NATO.
Swedish equipment was formerly not approved for NATO use, but this has changed and NATO interoperability is crucial to all export competitions. "Hungary and the Czech Republic would never have bought Gripen if it were not NATO-compatible," says Swedish Defence Industries Association director Percurt Green.
But the difference between Finnish and NATO standards is not so easily overcome, Nieminen complains: "Procurement and development is all done to NATO standards. But many Finnish standards are different, and many higher, than NATO standards." Producing military equipment to two sets of specifications for the Finnish and NATO markets is inefficient. Despite this, he says, industrial co-operation will keep growing.
Nieminen sees the Nordic Standard Helicopter Programme as a model for such co-operation, despite its failure. Under the programme, Denmark, Finland, Norway and Sweden agreed in 1999 to buy up to 90 helicopters jointly; the pact collapsed in 2001 with Denmark selecting the EH Industries EH101 and Finland, Norway and Sweden choosing the NH90. But Nieminen says: "Nordic co-operation is getting stronger. The Nordic helicopter deal was a founding project for this. There are difficulties because there are NATO and non-NATO members, and EU and non-EU members, but there is co-operation and it will happen more."
Strong co-operation
While Iceland does not have an active aerospace industry, there is international co-operation: Reykjavik-based Icelandair Technical Services has a parts support deal with British Airways Engineering. Isolation may have bred self-sufficiency, but Nordic aerospace industries are realising that survival will mean co-operation with each other and with partners outside the region. Nordic countries, like those in the rest of Europe, are challenged with finding ways of collaborating that transcend the barriers of language, political geography and culture. The good news is they so far been successful. The bad news is there is no other choice.
Source: Flight International
