EADS sees broad scope for new Naval partnerships

Sea Power,  Sep 2001  

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The scope for further consolidation in Europe's naval electronics sector is so limited that the best option for the European Aerospace & Defense Systems (EADS) group is to seek partnerships-either with the two main European players, Thales (formerly Thomson-CSF) and BAE Systems, or with a U.S. company-says Dr. Stefan Zoller, head of the EADS Systems and Defense Electronics Unit.

Neither organic growth nor growth by acquisition is seen as a realistic option. "We have to partner with other players," Zoller said, specifically mentioning BAE Systems and Thales. He also addressed the option of linking with a U.S. company: "The Americans are keen to have a foothold in the European market," he noted. Zoller stressed that the recommendation that EADS become a junior partner with competitors would apply only to naval activities. "In all ... other areas I see [us] in a strong position," he said.

Generally, EADS sees further European consolidation and restructuring as the key to future growth and profitability in the electronics field, Zoller said in an interview at the Paris Air Show. "Our electronics capabilities are small compared with [the capabilities of] our peers and competitors-the Raytheons, the BAE Systems, the Lockheed Martins."

"In all ... other fields-aircraft, satellites-you see pan-European activities," he continued, "but nothing similar has arisen yet in defense electronics. We have to do something in that regard."

Another significant shortcoming, Zollers said, is EADS's limited market access in electronics. "We have to penetrate new markets," he commented, citing the U.K. and U.S. markets in particular.

EADS was created in mid-2000 but delayed the integration of its defense electronics activities pending the outcome of six months of studies on the best way to organize and develop this part of its business. The new integrated defense electronics sector, inaugurated on 1 June, consists of four distinct "pillars": airborne systems; intelligence, surveillance, and reconnaissance (ISR) systems; naval and ground systems; and command, control, communications, and information (C31) systems.

The strategy in the field of airborne systems is relatively straightforward, Zoller said: "Further consolidation and greater access to markets."

For the other pillars, though, different approaches are needed. EADS's ISR capabilities are broad, especially in the area of unmanned aerial vehicles, where the company produces a wide range of both platforms and payloads. "This is a business that you can really grow organically," he said.

In the C31 sector, the company's key goal is to promote joint procurement by European governments as a means of securing the essential R&D funding for programs too large for the budgets of individual states. This implies an acute need for interoperability.

"The question for all the parties," said Zoller, "is whether it might not be sensible to opt for a consolidation ... (with] other European players. ... (Because there is] no joint procurement yet, many problems can be solved by industry. As industry consolidates, it will offer joint systems to all the parties, and we will automatically achieve interoperability in Europe."

Turning to wider issues, Zoller said that the lack of a state defense-- exports organization puts the German sectors of the business at a disadvantage. Germany's strict arms-export controls present another difficulty.

Other sources have confirmed that the Polyphem missile exists as a project to be taken on by the European MBDA (Matra-BAE Dynamics-Alenia) missile house, which is now being formed to link EADS, the U.K.'s BAE Systems, and Italy's Alenia. The new company will be the result of a merger between the existing MBD (itself an EADS-BAE Systems joint venture) and Alenia's missile activities. The same sources say that it seems "highly likely" that Polyphem will be offered to the Royal Navy.

Other reports suggest that MBDA's program to upgrade the Exocet antiship missile is going well. MBDA has won two contracts in the last 18 months from France's military procurement agency, the DGA. The first contract covered the development of a new mission computer for the missile. The second is for the development of a new seeker and a new hybrid inertial navigation system/global positioning system, involving laser gyro technology, for land-attack missions.

Because the Exocet is a modular missile, it can be upgraded in stages. MBDA is now waiting for contracts for final improvements; the Exocet is expected to be completely upgraded by the end of next year.

The Exocet upgrade program followed the collapse of a French project to develop a supersonic Future AntiShip Missile (ANF). Aerospatiale Matra Missiles (later incorporated into MBDA) had signed the ANF contract, but it was cancelled at the last minute by the Naval Chief of Staff, Adm. Jean-Luc Delaunay, who opted instead to acquire new ships before buying their weapons systems and who had to free resources to pay for the naval version of the Rafale fighterbomber.