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French industry group presses presidential hopefuls on defense spending

April 13, 2017 (Photo Credit: Eric Piermont/AFP/Getty Images)
PARIS – The French aerospace industry is calling on the next government to boost defense spending by 40 percent to reach 2 percent of gross domestic product by 2022, Marwan Lahoud, chairman of the Gifas trade body, said April 13.

“It is imperative, essential that defense spending be raised to 2 percent of GDP by 2022,” he told a press conference on the 2016 results of Groupement des Industries Françaises Aéronautiques et Spatiales, or Gifas.

“All the candidates in the presidential election call for a spending increase but…it is very important after the elections, once France has a new executive, a new government, how that effort will be translated into action and decision,” he said.

“For the aeronautical, space and defense industry, it is a key issue that will determine our business model and our future,” he added, arguing that there are programs, research and development at stake.

Voters go to the polls April 23 and May 7 in a two-round presidential election.

The call by industry for a spending boost follows pledges by the presidential candidates that they would increase the military budget if elected. NATO has called on members to hit the 2 percent target by 2025.

Lahoud sketched an overview of French defense spending and its impact on the industrial sector.

Paris has slashed the defense budget to 1.43 percent of GDP, excluding pensions, from 2.86 percent in 1990, a 26 percent spending decline in response to the shift in international relations, he said.

“This change is a determining factor for our industry,” he said. Sixty percent of funding for feasibility studies “has disappeared. That determines product policy for industry,” he said.

The services have said they have capability gaps and are overstretched in missions, while industry is at “breaking point,” as the technology base is in a fragile state. France risks losing a leading position based on technology, according to Lahoud.

It is up to the air force, army, navy and the nuclear specialists to decide the priorities for future capabilities, but communications and cyber were among key capabilities, he said.

Lahoud renewed a longstanding call for spending €1 billion ($1.1 billion) on research and technology.

The R&T budget for 2016 was €855 million, according to the defense ministry’s booklet on key figures.

Ninety percent of defense procurement is spent in France, a level of domestic orders which outstrips other industrial sectors, Lahoud said. French companies moved to a dual military and civil production in the late 1980s and early 1990s, an approach that boosted their competitiveness, he said. The defense sector added 5,000 jobs and appointed 4,500 apprentices last year, according to Cidef, the French defense industrial council, a trade body which groups the aerospace, land and naval associations.

A third export sale of the Rafale fighter jet last year helped give small and medium firms in the supply chain a clear view of production, with monthly output rising to two units per month from one.

On Britain’s leaving the European Union, or Brexit, “nobody knows what will happen,” Lahoud said. The British and French supply chains are highly integrated, and there is concern over the regulatory effect on employees and equipment on either side of the English Channel.
“There is a real question,” he said.

Aerospace and defense 2016 sales hit a fresh high of €60.4 billion, up from €58.3 billion in the previous year, with defense accounting for 22 percent.

Orders slipped to €73.1 billion from €78.3 billion, with defense accounting for 31 percent, down from 32 percent.

Under the generally buoyant figures, there is strain on 25 percent of the small- and medium-sized companies. Those firms specializing in supplying the Falcon business jet and civil helicopters came under pressure as orders have slumped. Gifas seeks to help these suppliers by encouraging them to diversify, with military and medical sectors seen as promising.

At the Paris Air Show, seen as a showcase for French industry, Chinese and Russian companies will be among the exhibitors despite the chill in relations with Moscow and the military embargo against Beijing.

“The Russians will fly over, not cross by land,” said Eric Trappier, deputy chairman of Gifas. Trappier is also chairman and CEO of Dassault Aviation.

Lahoud in February unexpectedly left Airbus, where he had been director for strategy and specialist in mergers and acquisitions. A wide-ranging reorganization was seen as casting doubt over his future in the aerospace group.
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