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Europe Struggles To Adapt as Businesses Cut Payroll

Dec. 16, 2013 - 02:01PM   |  
By PIERRE TRAN   |   Comments
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Tom Enders, CEO of EADS, stresses the need to boost competitiveness. (John MacDougall/AFP)
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PARIS — EADS’ announced plan to shed 5,800 jobs, mostly in its defense and space business, can be seen as a sign of more cuts to come in Europe, with production ranks still under fire even if export deals are won, analysts and industry sources said.

CEO Tom Enders pointed at the need to boost competitiveness as EADS announced Dec. 9 job losses that flow from a consolidation of Airbus Military, Astrium space, and Cassidian defense and security into a single division. That consolidation was also needed to improve export chances.

“With our traditional markets down, we urgently need to improve access to international customers, to growth markets,” Enders said.

Compulsory redundancy may fall on 1,000 to 1,450 posts if voluntary moves fail, EADS said.

But exports mean foreign clients demanding technology transfer, and local production can be seen as a threat to jobs at home.

That export-or-die dilemma pushes companies to get closer to prospective foreign clients through local research centers and production lines, by raising funds for joint venture deals and strengthening bilateral ties through civil market agreements. France is seen as a poor player compared with Germany on that broad front, an analyst said.

“We see defense budgets are decreasing,” said Philippe Bensussan, chairman and CEO of Sofradir, a maker of infrared detectors. “We can’t wait until we know the company is going down. When a company goes well, you need to take care of it — adapt, merge, diversify. EADS makes money. It’s the time to do it.”

The EADS move can be seen as a harbinger of job losses across Europe, probably in the tens of thousands over the next five or six years, a defense specialist said.

“The economic model needs to be changed, the model of industrial partnership and intergovernmental cooperation,” said Hélène Masson, senior research fellow with think tank Fondation pour la Récherche Stratégique.

In Britain, France, Germany and Italy, job prospects hang on export wins of archrivals Eurofighter Typhoon and Rafale jets.

For the Typhoon, the last delivery for partner nations Britain, Germany, Italy and Spain is toward the end of the decade. Those countries need foreign clients to keep production open and thousands of workers on the line.

Apart from the Typhoon, Germany has roared ahead in sales of armored vehicles to foreign clients.

An export deal for the Rafale is vital to Dassault’s jobs in 2014, an industry executive said, as Dassault could ship the last fighter to the French Air Force in 2016.

The Rafale order falls to nine units in 2014, down from the previous annual order of 11, and the multiyear budget law sets out orders for 26 units over the six-year period. Subcontractors include engine maker Safran and radar specialist Thales, with some 500 small- and medium-sized firms in the production.

Exports Come at a Price

Demand for tech transfer and local production in export sales is a standard now, said François Chopard, director of Impulse Partners consultancy. EADS has followed the path with an Airbus airliner factory in China and foreign sale of satellites, Chopard said.

“Why not for defense?” he said. That excludes China, which is under arms embargo from the West.

Key countries such as Brazil, India and the United Arab Emirates require transfer of technical capability, local manufacture or maintenance, and sovereign control of technology.

As military money dries up at home, future funding may come from export clients that want a local industry with high technology.

Britain fares no better than other major defense players in Europe, as reduced spending takes its toll and companies move to cut costs and increase competitiveness in an industry estimated to support up to 300,000 people.

BAE Systems, Cobham, Finmeccanica, General Dynamics, Qinetiq, Thales UK and others have cut jobs in recent years. Now EADS can be added to that list with 450 employees going in the shake-out.

The defense sector has been hit with even larger cuts as military personnel and civil service jobs have been axed.

It’s not all bad news, though. Lockheed Martin UK is one of the companies that has bucked the trend, adding about 1,000 staff through acquisition and growth to liftemployee rolls to 3,000. A company spokesman said some of the increases came from deals in civil information and technology.

Last month, BAE, which dominates the sector, announced a yard closure and 1,775 job losses in its naval shipbuilding, while a month earlier 200 posts went from its M777 artillery production line.

Paul Everitt, CEO at ADS, the national defense and aerospace trade association, said spending constraints in the last two or three years around most of Europe and some other major markets have taken a toll.

“Part of the drive for all businesses, particularly in globally competitive sectors like defense, is productivity and competitiveness improvements,” he said. “There’s no point in being here to manage a decline. That’s why we are currently focusing on creation of a defense growth partnership involving industry and the UK government.”

But growth relies on exports, he said.

In France, the defense sector directly accounts for 165,000 jobs, with an estimated 400,000 in indirect employment, figures from the Direction Générale de l’Armament procurement office show.

An unofficial estimate sets the former figure at around 120,000.

Thales Executive Chairman Jean-Bernard Levy told the defense committee of the French parliament’s lower house the company is in talks with unions over an unspecified number of job cuts at “certain sites.”

The company employs 35,000 in France. Military makes up some 65 percent of Thales’ annual sales, Levy said.

France’s growth strategy hangs on emerging markets such as Brazil and India, a company spokesman said.

MBDA has a back-up plan to cut 400 to 500 jobs among its 10,000 if the European missile maker fails to land export contracts, a company spokesman said. The jobs also depend on the execution of the multiyear military budget law.

“We have prepared this for some time,” the spokesman said.

The budget law maintains large programs but has pushed back deliveries to try to keep within €190 billion (US $261.6 billion) over the six-year period, with an annual €31.4 billion up to 2016.

Shipbuilder DCNS must deal with a two-year delay in delivering to the French Navy the Barracuda nuclear-powered attack submarine and talks are ongoing for a late delivery of the FREMM multimission frigate.

DCNS expects to maintain staff at the current 13,500 total, a spokesman said, and is also working on marine energy and nuclear power in the civil market.

Vehicle maker Nexter is hiring 210 people, including 85 to replace retiring staff and 70 apprenticeships. The jobs outlook hangs on a contract for the Véhicule Blindé Multi-Role armored vehicle, expected in 2014. A domestic order is needed because building of the Véhicule Blindé Combat d’Infanterie ends in 2015.

Nexter is seeking sales in Canada, Qatar, the UAE and India.

For Germany, the job market has fallen in recent years.

“In 2011, the German Aerospace Industries Association [BDLI] for the first time saw a negative trend in the military aerospace industry in Germany,” said Cornelia von Ammon, spokeswoman for the trade body.

The trend has continued. The sector employed 21,900 staff in 2012, down 2.2 percent from 22,600 in 2011, BDLI figures show. The 2012 revenue for the sector fell 0.5 percent from the previous year to €6.37 billion.

“For some time now, we see with great concern a trend that highly qualified personnel are leaving this sector,” von Ammon said.

Two thirds of small and medium-sized firms see a negative trend, with some looking for relief in the civil sector, she said.

“We are worried about a possible loss of competence in high technology,” she said.

In Italy, Finmeccanica came late to restructuring, but managers hope they have cut enough to survive the downturn.

Asked Dec. 10 about the EADS job cuts, Finmeccanica CEO Alessandro Pansa said, “Everyone has their strategy — we have also cut our personnel.”

In April, the firm announced 2,500 cuts at its Selex ES electronics unit, which had, until then, employed 17,000 at facilities in Italy and the UK. Some 500 of the cuts were to be made in the UK, amounting to 10 percent of the company’s British workforce.

Finmeccanica unit Alenia Aeronautica was working to reduce its workforce in 2011 through early retirement.

The 150 firms signed up to Italy’s aerospace and defense industry association (AIAD) employ 52,000 staff, although smaller suppliers and indirect employment take the total to 200,000, said AIAD General Secretary Carlo Festucci. Revenue stands at €14.5 billion.

“It’s almost impossible to say what that number will be in five years because it depends on European integration and new programs,” he said. “But I do not expect it to rise.”

Andrew Chuter in London, Tom Kington in Rome and Albrecht Müller in Bonn contributed to this report.

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