ARTICLE

February 2002

Officials Push French-U.S. Industry Cooperation

European firms are seeking ‘level-playing field’ in U.S. weapons market

by Elizabeth Book

French and U.S. defense industrialists recently met to discuss how they could increase cooperation between both nations.

In an open letter to the Franco-American defense industrial community, Edward C. “Pete” Aldridge Jr., U.S. undersecretary of defense for acquisition, technology and logistics, and his French counterpart, Gen. Yves Gleizes, wrote that transatlantic cooperation between the two countries is more important than ever.

Aldridge and Gleizes said that both nations should work to improve interoperability, to jointly define future equipment needs and to strengthen the relationship between the French and American defense industries.

Many American and French officials noted that there are both cultural barriers and bureaucratic difficulties in working together. During the France-U.S. Defense Industry Business Forum, held in Baltimore in December, government and industry representatives from both countries discussed business opportunities and various initiatives designed to change procurement practices.

Among the changes sought by the French are more access to compete in U.S. defense programs, the streamlining of U.S. export-control policies and a more-even playing field for transatlantic competition. “The forum sought to provide an understanding of the two business operating environments, as well as provide opportunities for face-to-face meetings between French and U.S. executives,” said Frank Cevasco, the conference chairman.

“There must be strong political will on both sides for French-U.S. industrial cooperation to succeed,” said Francois de L’Estang, France’s ambassador to the United States. “Progress on a joint declaration of principles for the defense industry would be very welcome,” he said. Such a joint declaration of principles would go a long way toward building alliances, pooling scarce resources and leveraging technologies, he said. “Our respective governments must set rules to govern, in full respect of each country’s national security regulations, to mutually benefit armament cooperation efforts,” L’Estang said.

“The days are long gone when troops can forge their own musket balls around the campfire the night before the battle,” Aldridge said. “Defense industries cannot be invented on the eve of a national emergency. ... Defense industries must be maintained [by government] in peacetime as well as in war, with the ability to ramp up as needed.”

Aldridge recalled that on September 10, in a speech to his employees, he said that three of the last five major wars where the United States participated came by surprise. “Twenty-four hours later, that figure had been modified to four of six,” he said. “This illustrates that ways must be found around sparse defense budgets to be prepared for conflict when necessary,” Aldridge said.

“There is value as well as challenges to coalition warfare, but international cooperation is of critical importance in this,” he said. “If each country had to develop capabilities by themselves, we would isolate ourselves, and further widen the interoperability gap.”

But Aldridge also acknowledged that there are major structural barriers to transatlantic cooperation. “There are too many items on the [State Department’s] munitions list, technology transfer is too difficult, and the administrative process required for export controls takes too long,” he said. “But interoperability is key even when the bureaucracy is resistant to change.”

Deirdre Lee, director of procurement at the Pentagon, said that great difficulties are encountered by French firms trying to do business with the U.S. Defense Department. For example, “the Buy American Act,” part of the Federal Acquisition Regulations, says that any item with military or federal government use cannot be purchased outside of the United States unless no one in the country makes it. There are also statutory restrictions on purchases of food, clothing, fabrics and specialty metals from foreign sources. The legislation is known as the Berry Amendment.

Lee said, however, that there are restrictions associated with the U.S. procuring items that are unavailable in the United States, such as goat hair. “The area near the collar of a military uniform needs goat hair to keep its shape, but it is not available in the United States, so the government has to go through lots of hoops to acquire it from elsewhere,” she said.

Changes in the way the U.S. military buys equipment are necessary to ensure interoperability with allies such as France, said Brig. Gen. Bernard Malavielle, that nation’s director for strategic affairs at the Ministry of Defense. “Interoperability is quite essential. It is clear that future conflicts will be dealt with by coalitions,” he said. “The best way to ensure interoperability is to work out satisfactory military capacity. ... We need to have our acquisition procedures coordinated, so we receive the same results.”

As an example of a successful transatlantic venture, Aldridge cited the partnership between French and U.S. industrial conglomerates Thales and Raytheon. The firms created Thales Raytheon Systems in May 2001. The joint venture focuses on air defense/command and control centers and ground-based air surveillance and weapons-locating radars. Between France and the United States, Thales Raytheon Systems employs 1,300 people, with sales predicted at $600 million for 2001.

“It is a model of the new industrial environment,” said Laurent Giovachini, the director for cooperation and industrial affairs at the French Ministry of Defense.

Suzanne Patrick, U.S. deputy undersecretary of defense for industrial policy, spoke at the conference after returning from a tour of European defense companies. She said she was struck by the heterogeneity of the defense industry in France, Germany and the United Kingdom. “We were surprised by so much flexibility with extremely different standards. It is a futuristic, flexible, innovative work force.

“We have a substantive operational understanding of the European defense industry, but it has to get more real than just paper and agreements,” Patrick said.

“The idea of increasing globalization is here to stay,” said Kent Kresa, chairman and chief executive officer of Northrop Grumman Corp. “Globalization is even more essential after September 11 than before,” he told the conference. “The threat is very much worldwide, and as it is a global problem, it must have a global solution. The defense budget in the United States has turned upward, but this isn’t that way in Europe,” Kresa said. “Over the past five years, European defense spending has declined by 21 percent, while U.S. defense spending has increased by 5 percent. In France, overall defense spending has fallen 37 percent since 1995.”

Low levels of defense spending in Europe, however, are only part of the story, Kresa added. “There is talk of a technology gap, but I don’t think that’s what it is. I think it is a capabilities gap. Where we’ve (U.S. companies) had opportunities to build new equipment, when that has not been the case for Europe.”

More companies in Europe are going “global,” said Pierre Chao, managing director of Credit Suisse First Boston, a Wall Street investment firm. A case in point is the European Aeronautics, Defense and Space giant, EADS. “EADS has a multi-national presence in France, Germany and Spain, and 50 percent of its revenues are earned outside Europe,” he said. Chao noted that Thales employs 50 percent of its employees outside France, and “SNECMA, which, like EADS, earns 50 percent of its revenues outside Europe, has as its largest customer, the U.S. Air Force.”

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