The tangled web of mergers, partnerships and joint ventures currently cross-fertilizing so many major projects and at times bemusing even the cognoscenti at Farnborough, has led one of its prime perpetrators, Rainer Hertrich -- himself a joint CEO with Phillipe Camus of new-born EADS -- to declare, "Defense and aerospace must be the most incestuous of all industries!"

But Tom Enders, who heads EADS' Defense & Civil Systems Divisions, warns that however consolidated the industry's big players might be, they will have soon have to face up to new challenges by competitors from outside.

This is certainly going to apply in the rapidly growing services and operations sectors where European defense ministries are adopting more commercial practices, including outsourcing and turnkey solutions.

"They are recognizing the need for pre-signing things, and there will certainly be more pre-financing on the industrial side," said Enders.

"The trends are altering the traditional relationships between suppliers and defense ministries, which we hope will lead to more co-operation among governments too. We had upwards $400 million worth of business in this sector scattered round the group, and a strategy for these activities is now a high priority for us."

He says they are also running closely with the dramatic growth and happenings in high-tech defense electronics, telecommunications, e-commerce and Internet, and nanotechnology.

Of nanotechnology Enders says: "This ability at atom or molecular levels to create materials perhaps 20 times stronger than steel but much lighter, or to make things 100 or 1,000 times faster than they are already, is the core of the next industrial revolution.

"Of the 85% increase in budget to $500 million for work in this area authorized by the U.S. government for 2001, $150 million is coming from the defense ministry."

EADS has already created what it calls "a new constellation for a telecommunications thrust," which has led to a deconsolidation of DASA-Nortel and Mantra-Nortel joint ventures, accompanied by formation of the European Defense Security Network (EDSN), in which EADS has the majority holding.

This is initially causing the group a sharp drop in revenues. "But," says Enders, "the creation of a new European defense market will be increasing revenues for EDSN of some 20% per year."

By Steve Morris