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French Defense Company Chiefs Warn of a Weaker Industry Under Budget Cuts

Apr. 15, 2013 - 03:45AM   |  
By PIERRE TRAN   |   Comments
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PARIS — The top executives of seven large defense companies warned President François Hollande April 15 of job losses, weaker competences and a threat to French leadership in Europe if the government cuts military spending.

“The president of the Republic received today the heads of defense companies Dassault, DCNS, EADS, MBDA, Nexter, Safran and Thales,” Hollande’s office said in a statement after the meeting at the Elysées.

The chief executives laid out arguments against spending cuts in a three-page note bearing the seven company names, a copy of which was seen by Defense News.

Hollande is due to arbitrate over budget cuts demanded by the Finance Ministry in a drive to balance the budget by 2017, and the Defense Ministry, which hopes to limit the reduction.

Defense is France’s third-largest industrial sector with annual sales of 17.5 billion euros ($23 billion), and offers one of the most efficient levers for a structured and ambitious industrial policy, the companies’ note said. The defense industry employs 165,000 workers, including thousands in the small and medium-sized company sector, it said.

Foreign arms sales contribute 2.7 billion euros to the trade balance, which stands in deficit to the tune of 70.1 billion euros, the note said.

Industry relies on government investment for the heavy spending needed for research and development. “These investments must be maintained. The future of the sector depends on it,” the companies said.

Defense companies must offer technology transfer to win export contracts, which means that they must maintain a permanent technological lead if they are to stay ahead of emerging markets. The R&D spending is also needed because of dual military and civil applications, with the note citing Boeing benefiting from the money spent on defense but which spills over into civilian use.

Strategic competences are at risk if spending is cut, with consequences for design, production, and support which are needed for autonomous decisions, freedom to act, and security of supply, the note said.

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“These competences are built very slowly, are lost very quickly and almost impossible to recover,” the companies said.

European countries are cutting defense spending while foreign competition is rising, both from “low-cost” producers from emerging markets and at the top end from American companies. Beyond these contemporary factors, an integration of European industry and cooperation on programs are inevitable, the note said.

“In this context, French industry must not be weakened as this risks acting as a brake in this European movement in which France today is the driving force,” the companies said. “Only strong industrial actors will allow France to keep its place in the move … and to save the future of its jobs and sites.”

The companies warn on employment. “Cutting investment in large military programs could lead to the loss of several thousand jobs, lead to the closure of many vulnerable subcontractors…and the loss of key competences among equipment companies.”

National orders are essential for export wins, as they equip the French armed forces with some of the best systems in the world, which are used in overseas operations and carry the label “combat proven.”

Industry builds the sophisticated weapons -- nuclear submarines, strategic launchers, cruise missiles, Rafale fighters, air defense radars, satellites, artillery and helicopters -- which put France in a select group of world class powers at the global level, the companies said.

Those systems were built on research-and-technology spending dating back to the late 1980s and early 1990s. “If that effort is not maintained the risk is serious not only for the loss of our level of excellence but also more seriously, an irreversible loss of technology in certain domains,” the companies said.

The president noted the defense industry is a major component of strategic autonomy and contributes significantly to the economy and job creation, the official statement said.

Hollande also pointed to the work being done in the European Union to strengthen the industrial and technological base in defense, with the European Council due to take decisions in this area in December, the statement said.

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