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Focal points
of interest will be the Eurofighter Typhoon, Lockheed Martin F-35
and Airbus A380
Aviation Week & Space Technology
06/21/2004, page 72
Douglas Barrie
London
Michael A. Taverna
Paris
The commercial sector may
be showing the shoots of recovery, but U.K. industry faces pruning
on local military procurements
Critical Path
The British aerospace and defense sector is at a crossroads. The
eventual path taken will have far-reaching implications, not only
nationally, but also for relationships with its U.S. and European
counterparts.
Farnborough International 2004, to be held July 19-25, will reflect
a national industry in a state of change, striving to realign itself.
It will also see industry officials testing political rhetoric against
fiscal reality as to whether the British government's avowed support
for the sector is more than lip service.
Beyond the domestic front, European and U.S. industry executives
will be looking to gauge the strength and time scale of the recovery
in the commercial airline sector, along with keeping an eye on budgetary
developments in the defense arena. All of this will occur in the
context of, at best, cool relations between Washington and some
of the capitals of continental Europe's main aerospace players--the
fallout from the politically divisive war with Iraq.
"One key defense issue is linked to the events in Afghanistan and
Iraq, and what this means in terms of capability needs," says Alexander
Nicoll, assistant director for defense industry and procurement
at the International Institute for Strategic Studies. Nicoll believes
there's an opportunity for Europe to address its future capability
requirements in the light of the lessons of recent conflicts. He
points to the European Defense Agency as a potential vehicle for
achieving this, though cautions not to expect quick results.
Despite a difficult market environment, available space at the
show was booked up by February, according to the Society of British
Aerospace Companies. This year's event will also see the introduction
of a dedicated business aviation park, as well as a space pavilion,
as the organizers attempt to cater for the broadest spectrum of
the aerospace community.
For U.K. national champion BAE Systems, the show is on its doorstep.
"It allows top management to get together with their counterparts
from other companies," one BAE executive said. "For middle-level
marketeers, it also provides an opportunity to see seven or eight
customers in fewer days, and it's not often they can do that."
Britain's national interest in helicopter development, including
the EH-101 Merlin, appears to be flying off into the sunset
with the planned sale of the remainder of Westland. Credit:
AGUSTAWESTLAND |
CONSOLIDATION IS EXPECTED be a key topic, too. While the industry
looks very different from what it did a decade ago, mergers and
acquisitions are still going strong, with activity at both the prime
and supplier level.
"It's a very interesting time to think about where the U.K. could
generically go," says one senior aerospace and defense analyst.
He speculates that BAE's strategy may be dependent on the politically
sensitive issue of technology access, which is now the subject of
bilateral discussions between London and Washington.
Meanwhile, the U.K.'s sole remaining helicopter manufacturer, Westland,
is slipping into foreign ownership with hardly a whimper. Compare
this to the furor in the mid-1980s over the company's fate, which
led to the resignation of then-Defense Secretary Michael Heseltine
in 1986. Finmeccanica is purchasing GKN's 50% stake in Westland.
This leaves the government with a question mark over its ability
to influence helicopter research and development. Also at issue
is medium- to long-term job security for U.K. employees in the Italian-owned
company.
Finmeccanica and BAE Systems will likely also use Farnborough to
unveil details of their proposed Eurosystems venture, which would
see the creation of joint avionics and radar business units.
BAE has also been acquisitive recently, snatching Alvis out from
under the nose of U.S. land systems powerhouse General Dynamics
on the same day in June that the government provided regulatory
approval for the U.S. bid.
The show will mark the debut of Dick Olver as chairman of BAE.
As of July 1, Olver replaces Sir Richard Evans, who joined the British
Aircraft Co. (a predecessor of BAE) in 1969. Following a variety
of increasingly senior roles within the company, he became chairman
in 1998. Evans is retiring at a difficult time for BAE. Relations
with its national customer, the British Defense Ministry, have seldom
been more strained, and the company seems hesitant in its overall
industrial strategy. Apparent attempts to forge a strategic alliance
with a U.S. defense contractor have so far come to naught.
Timing is also a delicate issue for the British government. The
consensus among British-based defense manufacturers is that the
outcome of the latest round of spending negotiations will represent
a bitter pill for the ministry, and therefore for industry. Deliberations
on exactly where the cuts will fall are all but concluded, and an
announcement could come shortly. Certainly the aim seems to be to
spell out procurement changes and reductions to Parliament before
the July 22 recess.
While this Royal Air Force Eurofighter Typhoon is being flown
in blue skies, securing a contract covering the next major phase
of the program has hit turbulence.Credit: RAF SGT. JACK
PRITCHARD |
Underpinning some of the choices the government faces is a longer
term strategic question. "The U.K. has to make decisions regarding
fostering an indigenous capability in key defense areas, or to buy
off-the-shelf from the U.S.," suggests Will Mackie, an aerospace/defense
equity analyst at Commerzbank.
The four-nation Eurofighter Typhoon and the Lockheed Martin F-35
Joint Strike Fighter will be major talking points. The Typhoon is,
if belatedly, entering service. Signing off on the Tranche 2 contract
covering the next batch of 236 aircraft has proved a slow process,
however.
Some form of positive statement on Tranche 2 will likely be made
by the partner nations during Farnborough. Even signature, however,
would only provide momentary respite before attention is turned
to Tranche 3. Just how many Typhoons the British will eventually
purchase remains open to speculation, with future aircraft numbers
one of the key areas under consideration by the ministry.
Just as the Typhoon can act as a bell-wether for the state of European
collaboration, so the JSF is often a lightning rod for transatlantic
defense relationships. During the show, Lockheed Martin will stress
international industrial participation aspects of the program, which
was recently the focus of considerable concern among the European
participants. While publicly less vocal about JSF than some of its
fellow Europeans, Britain is grappling with difficulties in this
domain, too.
Strategy will also be a talking point among industry representatives
from the commercial sector. Airbus is less than a year away from
the first flight of its 550-seat A380. The Rolls-Royce Trent 900
has already entered the flight test program, a rather incongruous
sight dwarfing a CFM56 on an A340 testbed.
"The manufacturers are looking to the Asia-Pacific market coming
good," says Chris Avery, vice president at JP Morgan, "since they
won't find much reason for optimism coming from either Europe or
the U.S."
Avery, an airline specialist, adds that the emergence of low-fare
carriers in Asia is liable to swell Airbus' and Boeing's orderbooks
in the next two years. As for the A380, he says it's likely Airbus
will hit its 240 breakeven target, though perhaps at a leisurely
pace.
The Rolls-Royce Trent 900, seen on the Airbus A340 engine-testbed
aircraft, is indicative of the sheer scale of the 550-seat A380
passenger aircraft program.Credit: ROLLS-ROYCE |
Since Boeing's last visit to Farnborough, the company has ditched
the Sonic Cruiser, instead launching the 7E7 family. Commenting
on the outlook for this aircraft, Avery says: "I don't see a problem
at all . . . as long as it's on target for performance and price."
The hub-and-spoke versus point-to-point debate will undoubtedly
continue, regarding which of the two manufacturers is more accurate
in defining the future shape of the long-haul market. How Airbus
moves to counter the 7E7 will also likely occupy minds at the show.
China should also stir interest, in both the civil and military
arenas. Airbus and Boeing continue to battle for market share; the
A330 was selected earlier this month by China Eastern, with up to
20 to be acquired. The potential relaxation of present defense export
restrictions by the European Union on Beijing will also be piquing
the attention of European manufacturers, and likely U.S. State Dept.
officials.
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