It's only 213 mi. from London to Paris, but when it comes to issues such as competitiveness and efficiency, the English Channel is starting to look wider than the Atlantic Ocean.

It is hardly news that U.K.-based aerospace and defense (A&D) companies have leveraged their country's close alliance with Washington to win access to the lucrative U.S. defense market. But they're also putting the dollars they're earning to much better use than they were five years ago. In terms of competitiveness, today's U.K. companies clearly are more aligned with their U.S. counterparts than those on the continent, which are heading in the wrong direction.

Rolls-Royce shows the most improvement in score over the last five years in the annual Top-Performing Companies (TPC) study, which uses a combination of complex financial and operating metrics to determine how well the industry's publicly traded companies are performing at the operational level. Rolls-Royce's success at reducing costs, raising employee productivity, winning roles on key aircraft platforms and growing its higher-margin services business was enough to place it third in this year's large company rankings. It is the only non-U.S. company to make the Top 10.

BAE Systems ranks 12th, but its five-year score improvement is the industry's third-best, a sign that the company's push into the U.S. defense market is starting to pay off. The trend also extends to the U.K.'s smaller fish: In the category of companies with revenues between $1-5 billion, Cobham, VT Group and Meggitt all rank in the Top 10 and show better-than-average score improvements over the last five years.

By contrast, the rankings of large A&D companies in continental Europe are downright dismal: Companies from that region fill three of the four bottom slots, and even the best performer, Thales, finishes in the bottom half. Even more alarming is that with the exception of Thales, the TPC scores of large European A&D companies have actually decreased in the last five years, widening the gap with their U.S. and U.K. competitors, which posted strong improvements over the same period (see graph at right below).

To be sure, A&D companies in the U.S. and to a large extent the U.K. have enjoyed the huge advantage of unfettered access to the rapidly growing U.S. defense market. But members of this year's TPC project team, who analyzed the study's numbers in depth to help identify trends, say companies in continental Europe are also hampered by structural problems that prevent them from operating at anywhere near peak efficiency.

"Continental Europe is clearly falling behind the U.S.," says Antoine Gelain, a TPC team member and managing director of Octagon Partners Ltd., a London-based aerospace consulting firm. "We're talking about companies that are the leaders in their sector. They are going to lose momentum and market share if something doesn't happen."

"Companies have not been able to manage themselves freely because of government intervention and political pressures," Gelain says. "The French, the Germans, the Spanish and the Italians are all squabbling for their share rather than focusing on finding the optimum way to allocate resources or deliver a product. The recent fiasco with Galileo [Europe's planned global positioning satellite system] is an illustration of it."

The poster child for the European A&D industry's woes is EADS, the multinational parent of Airbus and by far the continent's largest A&D company.