The Fletcher School of Law and Diplomacy
Tufts University
European Defense Market Integration:
The Aerospace Sector in 1987-1999
PhD dissertation defense
by
Sorin Lungu
(March 29, 2005)
Agenda
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Objectives & relevance
PhD dissertation structure
Analytical framework
Interview sources
Conclusions
Future research agenda
Q&A
Objectives & relevance
Objectives:
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Examines to what extent the EU, industry, and leading national
governments contributed to the consolidation that happened in Europe’s
defense and aerospace sector in 1987-99, while examining the role that
perceptions of “economic security” played in this process.
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Indirectly, it addresses the great question of whether the creation of the
EADS was EU (national governments and/or the Commission) driven, or if it
was the industry that actually spurred the event.
Objectives & relevance
Relevance:
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Explores the changing patterns of governance in Europe’s aerospace
and defense sector since the end of the Cold War.
Investigates which factors and actors were the most influential in this
process, and why.
Evaluates what political, industrial, economic, and technological
circumstances enabled certain actors to bring about the consolidation.
Assesses whether the corporate sector played a catalytic role in
speeding up the dynamics of change and integration in European defense
industrial policies.
Concludes by reflecting to what extent Europe had by the end of the
1990s the competitive and defense technological base that might lessen
the risk of a fracture in transatlantic relations.
PhD dissertation structure
• Literature review (cross-disciplinary analytical framework)
• “Economic security” and the European aerospace and defense sector in
1987-99
• Power, techno-economics, and transatlantic relations: Airbus Industrie,
Galileo and the European RMA in 1987-99
• Corporate strategies, financial performance, and relations with the national
governments from the late 1980s to the mid-1990s: DASA, BAe,
Aérospatiale, Dassault Aviation, and the Matra-Lagardère group
• “EADC is dead, long live EADS!” – the European aerospace and defense
sector in 1996-99
• Analytical conclusions (the newly emerged pattern of governance in
Europe’s defense and aerospace sector in 1987-99) and future research
agenda
Analytical framework
“The restructuring of the European [defense] industry is far from
being a simple pro rata adjustment of supply to changes in
demands arising from objective changes in the security
environment. It is inextricably bound up with the development of
institutions, policy paradigms (in both the military and the
industrial domains), business networks, and relationships
between 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 the
21st Century (New York: Council on Foreign Relations Press, 1999), 342.
Analytical framework
A redefined post-Cold War
relationship
among technology,
economic security &
international affairs
“Dual-use” technology,
strategic industry &
strategic trade policy
THE EUROPEAN
AEROSPACE
& DEFENSE SECTOR
(1987-99)
Structural power &
international state-firm
bargaining theory
Transnational networks &
corporate governance
Technology, economic security &
international affairs
Relevant factors in assessing shifts in
transatlantic relations during the 1990s
MILITARY
TRANSFORMATIONS
(CAPABILITIES &
RMA)
INTERNATIONAL
STRATEGIC
ENVIRONMENT
POST-COLD WAR
TRANSATLANTIC SECURITY &
ECONOMIC RELATIONS
ECONOMIC, TECHNOLOGICAL & DEFENSE
INDUSTRIAL FACTORS
(“DUAL-USE” INDUSTRIES, TECHNOLOGY
POLICIES & CORPORATE STRATEGIES)
Technology, economic security &
international affairs
Rand Corporation’s view of new
generators of national power in the post-industrial age (2000)
EXTERNAL DIMENSION
Dominate “cycles of national
innovation” in “leading
sectors”
DOMESTIC DIMENSION
Develop “hegemonic potential”
and “effective military
capabilities”
Structural power & international state-firm
bargaining theory
“… [It] is the power to shape and determine structures of the
global political economy within which other states, their political
institutions, their economic enterprises and (not least) their
scientists and other professional people, have to operate …
Structural power, in short, confers the power to decide how
things shall be done, the power to shape frameworks in which
states relate to each other, or relate to corporate enterprises.
The relative power of each party in a relationship is more, or
less, if one party is also determining the surrounding structure
of the relationship.”
Susan Strange, States and Markets (New York: Basil Blackwell, 1988), 21-22.
Structural power & international state-firm
bargaining theory
Knowledge/
Technology
Security
Structural
power
Credit
Production
Structural power & international state-firm
bargaining theory
Strange’s and Stopford’s “triangular diplomacy model”
GovernmentGovernment
CompanyCompany
GovernmentCompany
Adapted after Figure 1.6 presented in Susan Strange and Michael Stopford (with Michael
Henley), Rival states, rival firms: Competition for world market shares (Cambridge:
Cambridge University Press, 1991), 22.
Structural power & international state-firm
bargaining theory
Lawton’s “pentagonal diplomacy model”
EU CommissionFirm
Firm-Firm
State-Firm
EU CommissionState
State-State
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.
Transnational networks & corporate governance
International technology strategic alliances (1987-1999)
900
800
700
Total
Number
600
Information technology
500
Biotechnology
400
New materials
300
Aerospace and defense
200
100
0
25
26
45
54
41
56
37
37
52
45
38
38
11
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Year
Transnational networks & corporate governance
“Anglo-Saxon” vs. “Continental European”
corporate governance
CHARACTERISTIC
“Anglo-Saxon” type
“Continental European” type
Dominant orientation
Capital markets
Networks
Ownership
Widely spread and public
Concentrated and private
Influential stakeholders
Shareholders and senior managers
Banks, trading partners,
employees, and governments
Flexibility in responding
to economic and political change
Capital and labor markets
well structured for a rapid response
Capital and (rigid) labor
markets not well suited for response
Principal objective
To align the interests of shareholders
and managers
To achieve continuity and mutuality
of all stakeholders' interests
List of interviewed people
GERMANY
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Dr. Hans Ruehle (former Minisiterialdirektor and Head of the Plannungsstab, German MoD in
1983-92; and former Head of the NATO MRCA/Tornado Agency).
Dr. Thomas Enders (VP Defense and Civil Systems, EADS).
Hans Olaf-Henkel (former President of the Federation of German Industries between 1995 and
2000)
Werner Dornisch (Head of Berlin Office of Diehl Stiftung & Co, member of the Board of Directors
of Diehl Gruppe)
Vice-Admiral Ulrich Weisser (retired, German Navy – former Head of the Plannungsstab,
German MoD in 1992-98).
Dr. Hans-Heinrich Weise (Ministerialdirektor, Abteilung Ruestung, German MoD).
Peter-Wolf Denker (Head Political Affairs Germany, EADS).
Joerg Leister (Head Berlin Office for Political Affairs Germany, EADS)
Stefan Hess (Head Space and Defense Section, German Aerospace Industries Association)
Dr. Holger Mey (President Institute for Strategic Analysis, since Summer 2004 VP EADS
Germany – Defense & Security Systems)
List of interviewed people
FRANCE
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Patrice Hummel (VP Policy & Strategy EADS Hq).
Admiral Jean Betermier (retired, French Navy - personal adviser to the CEO of EADS).
Ingénieur Général de l’Armement Alain Crémieux (retired, French Armament Agency, former
Armament Attaché in London and Washington, former Armament Counselor to the French
Ambassador to NATO)
Dr. Christian Harbulot (Director of l'Ecole de Guerre Economique and one of the persons which
was very active in redefining the concept of economic security in France in the post-1990 setting).
Patrick Barraquand (VP Marketing Eurocopter, EADS).
Dr. Jean-Paul Hebert (a well respected French academic in the field of defense industrial issues
from CIRPES).
List of interviewed people
OCCAR
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Stephen Logan (Program Coordination and Prospective Cooperation Section Leader).
NATO
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Robert Gregory Bell (NATO Assistant Secretary General for Defense Support).
Richard Williams (Head PfP Coordination and Support Section -- Armaments Planning,
Programs and Policy, Defense Support Division). In 1992-96 was the Head of the Defense
Cooperation Section at the U.S. Embassy in Paris.
Diego Ruiz Palmer (Head, Council Operations Section -- Crisis Management and Operations
Directorate). In 1991-97, he led the Armaments Planning Section, responsible for the
harmonization of the defense procurement plans of the Alliance member nations. Served in 199799 as Head of the NATO Armaments Review Task Force, aimed at reforming armaments
cooperation processes, and as Chairman of the review's civil and military working groups. In
2000-01 was International VP Central and Southern Europe, Northrop Grumman International.
Bob Reedjik (Head Planning and Policy Section -- Defense Support Division).
Michael Ruehle (Head, Policy Planning & Speechwriting Section -- Political Affairs Division).
Captain James Moseman (U.S. Navy - U.S. Mission to NATO). Currently Director, Europe and
NATO, Northrop Grumman International.
Conclusions – “New BAe”/BAE Systems
(January 1999)
Dassault
Industries
DASA
37.9%
Aérospatiale Matra
49.9%
70%
Dassault Aviation
30%
50%
37.9%
Matra BAe
Dynamics
4.2%
Matra Marconi
Space
20%
38%
“New BAe”
33%
Thompson Marconi
Sonar
5.8%
50%
Alenia Marconi
Systems
35%
50%
Thompson-CSF
Alenia
Aerospazio
20%
GTDAR
Radar
33%
Eurofighter
LFK
Airbus
Industrie
49%
33%
12%
Euroradar
50%
European
Aerosystems
CASA
Saab
49%
STN
Atlas
Conclusions – EADS (November 1999)
SOGEPA
French state-owned
aerospace holding
company (including
Aérospatiale’s shares)
50%
(15%)
Lagardère
SCA
French private
financial
investors
37%
(11.1%)
50%
(15%)
13%
(3.9%)
DaimlerChrysler
SEPI
8.4%
(5.5%)
French
private investors
45.8%
(30%)
45.8%
(30%)
French pooling company
SOGEADE
(Société de Gestion de
l’Aéronautique,
de la Défense et de l’Espace)
Public
Holding
company
34.5%
All figures after flotation and capital increase
(summer 2000) and SEPI sell down
All figures depending on size of capital
increase
( ) = shares in EADS NV
65.5%
EADS
(Dutch NV)
Conclusions – Aérospatiale Matra (February 1999)
Employees
Stock market
about 17%
51%
Aérospatiale
Airbus
100%
50%
37.9%
Aérospatiale
ATR
Eurocopter
ATR
GIE
33%
French state
shareholders
pact
48%
45.76%
Dassault
Aviation
Airbus
Industrie
GIE
Lagardère SCA
Aérospatiale
Matra
about 2%
100%
70%
Maintenance pole
SOGERMA
Arianespace
Matra BAe Dynamics
+ Aérospatiale Missiles
33.3%
100%
50%
SOCATA
15.2%
Matra
Marconi
Space
100%
100%
Space and
strategic
launchers
Systems pole
MS&I, MDS and
ISTI
100%
50%
Matra Nortel
Communications
EUROSAM
GIE
33.3%
EUROMISSILE
GIE
Conclusions
Company/Criteria
(Year 1999)
Boeing
Lockheed Martin
EADS
Total sales
$58 billion
$23 billion
$22 billion
Profits
$2.3 billion
$0.382 billion
$0.94 billion loss
Civilian/military
production mix (%)
60/40
10/90
76/24
Main products
Commercial
planes
Military systems
Airbus &
helicopters
Conclusions – The new pattern of governance in
Europe’s aerospace & defense sector (1987-99)
Politics
The decreasing role of the European nation state in the
international/European economy
The increasing power of “national industrial champions” and
supranational/transnational organizations like the European Union (in
particular the European Commission).
o
What is the object of European integration – to set up a rival to the United
States or a partner in its global hegemony?
The “Europeanization” of the aerospace and defense industry influenced
certain operating parameters of the transatlantic relationship.
Conclusions – The new pattern of governance in
Europe’s aerospace & defense sector (1987-99)
Markets
“The trade-defense” linkage is identified as an area of great concern in
Europe since the mid-1990s.
The defense market becomes a global one.
The representative European companies seek to transcend their national
origins and to maneuver for survival and supremacy in a global arena.
They try to make themselves still larger and reap the economies of scale
by purchase or merger or, failing these, by joint ventures, alliances, and
partnerships.
Conclusions – The new pattern of governance in
Europe’s aerospace & defense sector (1987-99)
Firm strategies
The internationalization of technology and economy leads to the lessening
of state control and increasing privatization measures.
European arms companies are no longer “workshops” for national armed
forces but corporations driven by market imperatives (the technological
race with the U.S.).
The representative European companies seek to transcend their national
origins and to maneuver for survival and supremacy in a global arena.
Conclusions – The new pattern of governance in
Europe’s aerospace & defense sector (1987-99)
Firm strategies
European aerospace & defense firms try to make themselves still larger
and reap the economies of scale by purchase or merger or, failing these, by
joint ventures, alliances, and partnerships.
Increasingly powerful European companies determine in a substantial
manner the ways of restructuring, while the respective national
governments underwrite their strategies and decisions.
Conclusions – The new pattern of governance in
Europe’s aerospace & defense sector (1987-99)
Finance
• Aerospace and defense firms are increasingly affected by the globalization
of finance
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Forced to open to privatization and became dependent on the international mobility of
the capital.
• Shareholder value and profit maximization establish themselves as “buzzwords” (in particular after the mid-1990s) in Europe’s aerospace and
defense sector.
• The control of Europe’s aerospace and defense sector passes into the
hands of a very few, but large companies who are overwhelmingly private.
• The preservation of the French state’s interests in the aerospace and
defense industry relies increasingly on the interlocking of cross-financial
links between the key players of the French armaments system and
substantially less on the ownership of defense companies by the state.
Conclusions – Ownership in the French aerospace
& defense sector (2000)
French state
98%
SNECMA
47%
(aero engines)
40%
Aérospatiale Matra
4%
Thompson-CSF
(commercial aircraft, helicopters,
missiles & space)
(electronics & satellites)
46.7%
33%
Lagardère SCA
(media, publishing &
communications)
6%
Dassault
Aviation
(combat aircraft)
16%
Alcatel
(telecommunications & satellites)
Conclusions – The new pattern of governance in
Europe’s aerospace & defense sector (1987-99)
Technology
• The aerospace and defense sector becomes directly concerned and
affected by internationalization of technology and economy.
• The European nation state’s ability to manage military and commercial
technology 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 competition
with the U.S. (not least for the costs associated with doing so).
• By the end of the 1990s there was no coherent EU-level response to the
“dual-use” technology paradigm.
Future research agenda
•
Dissuasion in the transatlantic allied context since the end of the Cold
War?
– Did European elites take the deliberate decision to trade-off military capability for
economic competitiveness?
• To what extent, and in what circumstances, is parity or inequality in
technological and industrial capabilities a significant factor in the health of
a long-term political partnership?
– To examine the extent to which the degree of parity or inequality in technological and
industrial capabilities (in both the military and civilian sectors) has become politically
sensitive since the 1980s for the transatlantic relationship.
Q&A