Europe Aircraft is -- 29 Feb 2012

7/31/2019 Europe Aircraft is -- 29 Feb 2012

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Some considerations about theEuropean defense industrial

sector/aircraft sector

Sorin Lungu(February 29, 2012)

Industrial College of the Armed Forces

National Defense University


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Agenda

Patterns of governance

Future scenarios and challenges for the EU defense industrialsector

Q&A


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The transatlantic dimension

Americas globally dominant defense industry provides a strong rationalefor European collaboration to compete globally and avoid dependence onthe United States.

The development of a European defense industry has importantimplications for the future of transatlantic defense cooperation.

It will increase the competition with Europe in the global arms market.

That competition in turn may also increase the likelihood that Europeanfirms will sell weapons, military-use systems, and technologies tocountries/regions, where the United States and Europe have different

strategic interests.


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Key paradigm for understanding the EU dynamics

The restructuring of the European [defense] industry is far frombeing a simplepro rata adjustment of supply to changes indemands arising from objective changes in the securityenvironment. It is inextricably bound up with the development of

institutions, policy paradigms (in both the military and theindustrial domains), business networks, and relationshipsbetween companies and governments.

John Lovering, Which Way to Turn? The European Defense Industry After the Cold War,in Anne Markusen and Sean Costigan, eds.,Arming the Future: A Defense Industry for the21st Century(New York: Council on Foreign Relations Press, 1999), 342.


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CHARACTERISTIC Anglo-Saxon type Continental European type

Dominant orientation Capital markets Networks

Ownership Widely spread and public Concentrated and private

Influential stakeholders Shareholders and seniormanagers

Banks, trading partners,employees, and governments

Flexibility in respondingto economic and political

change

Capital and labor marketswell structured for a rapid

response

Capital and (rigid) labormarkets not well suited for

response

Principal objective To align the interests ofshareholders

and managers

To achieve continuity andmutuality

of all stakeholders' interests

Anglo-Saxon vs. Continental European corporategovernance systems


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Government-Government

Stranges and Stopfords triangular diplomacy model

Adapted after Figure 1.6 presented in Susan Strange and Michael Stopford (with MichaelHenley), Rival states, rival firms: Competition for world market shares (Cambridge:

Cambridge University Press, 1991), 22.

Company-

Company

Government-

Company


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Lawtons pentagonal diplomacy model

Adapted after Figure 2.1 in Thomas Lawton, Technology and the New Diplomacy: The creation and control of EC

industrial policy for semiconductors (Aldershot: Ashgate Publishing Company, 1998), 18.

Firm-Firm EU Commission-Firm

State-Firm

State-State

EU Commission-State


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Patterns of governance in Europes defense

industrial sector (since late 1980s)

Politics

The decreasing role of the European nation state in theinternational/European economy

The increasing power of national industrial champions andsupranational/transnational organizations like the European Union (inparticular the European Commission).

The Europeanization of the aerospace and defense industry influencedcertain operating parameters of the transatlantic relationship.

The intra-European procurement directives of the European Commission


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Markets

The trade-defense linkage is identified as an area of great concern inEurope since the mid-1990s.

The defense market becomes a global one.

The representative European companies seek to transcend their nationalorigins and to maneuver for survival and supremacy in a global arena.

They try to make themselves still larger and reap the economies of scaleby purchase or merger or, failing these, by joint ventures, alliances, andpartnerships.

The intra-European procurement directives of the European Commission

P f i E d f


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Firm strategies

The internationalization of technology and economy leads to the lesseningof state control and increasing privatization measures.

European arms companies are no longerworkshops for national armedforces but corporations driven by market imperatives (the technologicalrace with the U.S.).

The representative European companies seek to transcend their nationalorigins and to maneuver for survival and supremacy in a global arena.

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Firm strategies

European defense firms try to make themselves still larger and reap theeconomies of scale by purchase or merger or, failing these, by jointventures, alliances, and partnerships.

Increasingly powerful European companies determine in a substantialmanner the ways of restructuring, while the respective nationalgovernments underwrite their strategies and decisions.

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Finance

Aerospace and defense firms are increasingly affected by the globalizationof finance Forced to open to privatization and became dependent on the international mobility of

the capital.

Shareholder value and profit maximization establish themselves as buzz-words in Europes aerospace and defense sector.

The control of Europes aerospace and defense sector passes into thehands of a very few, but large companies who are overwhelmingly private.

The preservation of the French states interests in the aerospace anddefense industry relies increasingly on the interlocking of cross-financiallinks between the key players of the French armaments system andsubstantially less on the ownership of defense companies by the state.

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Technology

The aerospace and defense sector becomes directly concerned andaffected by internationalization of technology and economy.

The European nation states ability to manage military and commercialtechnology in the context of the U.S.-promoted RMA is heavily challenged. Moreover, EU members do not undertake impressive efforts for acquiring those

capabilities that would allow them to project military power globally in competitionwith the U.S. (not least for the costs associated with doing so).

There is no coherent EU-level response to the dual-use technologyparadigm.

2004 creation of the European Defense Agency


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Scenarios

Scenario I -- Fragmented Europe

Scenario II Core Europe

Scenario III A fully integrated Europe

What role will Article 296 of TEC play in all these scenarios?

Selected major European aircraft


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Selected major European aircraftprocurement programs

Selected major European aircraft


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Selected major European aircraftprocurement programs

Selected major European UAV procurement


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Selected major European UAV procurementprograms


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Selected defense industry transactions

Top 15 European manufacturers ranked by


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Top 15 European manufacturers ranked bydefense sales (1988, 2006, 2010 in $ million)


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Q&A

Europe Aircraft is -- 29 Feb 2012

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