Study on the Perspectives of the European Land

Transcription

Study on the Perspectives
of the European Land
Armament Sector
Final Report
(ref. E3779 v_03)
14th November 2012
Financed with support from
the European Union
Hoja de Aprobación y Control de Revisiones
Study on the Perspectives of the European Land Armament Sector
Final Report
(ref. E3779 v_03)
Donostia-San Sebastián, 14th November 2012
Prepared by:
Jessica DURAN, Iñigo ISUSI and Antonio CORRAL
Signature:
REVISIONS’ TABLE
Version No
date
description
01
25/09/2012
Final Report (extended version), original version
02
31/10/2012
Final Report (extended version), second version
03
14/11/2012
Final Report (extended version), third version
ISO 9002
ISO 14001
Financed with support from the European Union
Index
1.
Introduction .............................................................................................................................8
1.1. Objectives of the study.........................................................................................................................9
1.2. Definition of the Land Defence Industry..........................................................................................10
1.3. Methodology........................................................................................................................................11
2.
The European land armament sector: the demand perspective.....................................13
2.1. The demand of Land armament products: The key role of European Governments ............14
2.2. Cooperation activities in the Land Defence sector amongst European governments .........20
3.
The European land armament sector: the supply perspective ........................................25
3.1. Position of the sector in the world context......................................................................................26
3.2. General overview of the Land armament sector from an economic perspective ................27
3.3. Main Groups and Enterprises.............................................................................................................31
3.4. Main subsectors and products included in sector ........................................................................37
3.5. Main qualitative characteristics of the European land armament sector................................40
3.5.1.
Specialisation of main sector enterprises in defence-related activities ...........................41
3.5.2.
Fragmented production capacities .......................................................................................41
3.5.3.
Positive profit levels of the ent enterprises .............................................................................43
3.5.4.
Key role of internationalisation and external trade activities.............................................44
3.5.5.
Process of concentration of the sector in the last twenty years........................................48
3.5.6.
Restructuring processes of the sector in Eastern Europe.....................................................50
3.5.7.
Collaborative activities between enterprises in the sector ................................................51
3.5.8.
The particular ownership structure of the sector in some EU Member States..................53
3.5.9.
Geographical concentration of the sector in some EU regions ........................................53
3.6. The role of SMEs and production chains in the sector ..................................................................55
3.6.1.
The role of SMEs ..........................................................................................................................55
3.6.2.
Production chains in the European Land armament sector ..............................................56
3.7. Research and Development and Innovation activities in the European Land
armament sector .................................................................................................................................60
4.
3.7.1.
Importance of R&D activities ...................................................................................................60
3.7.2.
Current R&D and Innovation approaches within the sector..............................................61
3.7.3.
Co-operation in R&D activities at European level................................................................64
The European land armament sector from an employment perspective.......................66
4.1. General Overview of the sector from an Employment Perspective ..........................................67
4.2. Main Employment Patterns in the sector.........................................................................................72
5.
4.2.1.
Employment patterns: Gender, age, levels of education and main
occupations................................................................................................................................72
4.2.2.
Social Dialogue in the sector ...................................................................................................77
4.2.3.
Qualitative changes in the sector’s employment in the last two decades.....................78
Country specific information on the Land armament sector............................................80
5.1. Introduction ..........................................................................................................................................81
5.2. France....................................................................................................................................................81
3
Index
5.3. Germany ...............................................................................................................................................82
5.4. Italy .........................................................................................................................................................83
5.5. Poland....................................................................................................................................................84
5.6. Spain ......................................................................................................................................................85
5.7. Sweden..................................................................................................................................................86
5.8. United Kingdom ...................................................................................................................................87
6.
Industrial Outlook of the European land armament sector ..............................................88
6.1. Main Strengths and Weaknesses of the European Land Armament Sector.............................89
6.1.1.
Strengths of the European Land armament sector..............................................................89
6.1.2.
Weaknesses of the European Land armament sector ........................................................90
6.2. Main Factors of Change (Opportunities and Threats) for the European Land
armament sector .................................................................................................................................92
7.
6.2.1.
Opportunities for the European Land armament sector ....................................................92
6.2.2.
Threats for the European Land armament sector ................................................................94
Drivers of change and future possible scenarios of the European Land Armament
Sector .....................................................................................................................................97
7.1. Recapitulation of main Drivers of Change .....................................................................................98
7.2. Classification, Ranking and Selection of Key Drivers.....................................................................99
7.3. Building of Scenarios .........................................................................................................................100
7.4. Possible Future Scenarios of the European Land Defence Sector ...........................................101
8.
Final conclusions and Recommendations .......................................................................107
8.1. Conclusions stemming from the research.....................................................................................108
8.2. Recommendations............................................................................................................................109
Annex A.
Bibliography and Interviewed experts .................................................................111
A.1. Bibliography ..................................................................................................................................112
A.2. Interviewed experts .....................................................................................................................115
Annex B.
Country Case Studies.............................................................................................118
B.1. FRANCE..........................................................................................................................................119
B.1.1.
B.1.2.
B.1.3.
B.1.4.
Mapping of the National Land Armament Sector (LAS) .................................................. 119
Employment ............................................................................................................................. 126
Qualitative characterisation and perspectives of the national LAS .............................. 127
References ............................................................................................................................... 129
B.2. GERMANY......................................................................................................................................133
B.2.1.
B.2.2.
B.2.3.
B.2.4.
Mapping of the National Land Armament Sector (LAS) .................................................. 133
Employment ............................................................................................................................. 142
Qualitative characterisation and perspectives of the national LAS .............................. 143
References ............................................................................................................................... 144
B.3. ITALY ...............................................................................................................................................147
B.3.1.
B.3.2.
B.3.3.
B.3.4.
Mapping of the National Land Armament sector (LAS) .................................................. 147
Employment issues within the National Land Armament Sector (LAS). ......................... 153
Qualitative characterisation and perspectives of the National LAS.............................. 154
Annexes .................................................................................................................................... 155
B.4. POLAND .........................................................................................................................................158
4
Index
B.4.1.
B.4.2.
B.4.3.
B.4.4.
Employment issues within the National Land Armament Sector (LAS) .......................... 166
Annexes .................................................................................................................................... 169
B.5. SPAIN ..............................................................................................................................................172
B.5.1.
B.5.2.
B.5.3.
B.5.4.
Employment issues within the National Land Armament Sector (LAS) .......................... 182
Annexes .................................................................................................................................... 187
B.6. SWEDEN .........................................................................................................................................191
B.6.1.
B.6.2.
B.6.3.
B.6.4.
Mapping of the Land Armament Sector (LAS) in Sweden............................................... 191
Employment issues .................................................................................................................. 195
Qualitative characterisation and perspectives of the sector ......................................... 196
References ............................................................................................................................... 198
B.7. UNITED KINGDOM ........................................................................................................................200
B.7.1.
B.7.2.
B.7.3.
B.7.4.
Mapping of the National LAS................................................................................................ 200
Employment Issues within the National LAS ........................................................................ 216
Qualitative Characterisation and Perspectives of the National LAS ............................. 221
References ............................................................................................................................... 224
5
Index
TABLES
Table 1.1.
Table 2.1
Table 2.2
Table 2.3
Table 2.4
Table 2.5
Table 2.6
Table 2.7.
Table 3.1
Table 3.2
Table 3.3
Table 3.4
Table 3.5
Table 3.6
Table 3.7.
Table 3.8
Table 3.9
Table 3.10.
Table 3.11
Table 3.12
Table 3.13
Table 3.14
Table 3.15
Table 3.16
Table 3.17
Table 3.18.
Table 3.19.
Table 4.1.
Table 4.2.
Table 4.3.
Table 4.4.
Table 6.1
Table 7.1
Table 7.2.
Table 7.3.
Table 8.1
Composition of the work team ............................................................................................................11
Article 346 of the TFEU (Treaty on the Functioning of the European Union) (ex Article 296
TEC) ...........................................................................................................................................................15
Main Defence expenditure data in EDA participating Member States, 2009 and 2010 ...........17
Main Defence Data in EDA participating Member States compared to the USA. 2006 to
2010 (billion Euros)...................................................................................................................................20
The Boxer Multi-Role Armoured Vehicle (MRAV)...............................................................................21
The European Defence Agency (EDA)...............................................................................................22
Brief explanation of Directives 2009/43/EC and 2009/81/EC ..........................................................23
The Ghent Framework ...........................................................................................................................24
Main enterprises and groups in the Land armament sector at world level, 2010 .......................27
Turnover and employment in the European Aerospace and Defence Industries, 2009
and 2010. .................................................................................................................................................28
“Manufacture of Weapons and Ammunitions” sector (NACE Rev 1 29.6), Structural
profile, EU-27, 2004 to 2008....................................................................................................................28
Main economic indicators of the “Manufacture of Weapons and Ammunitions” sector,
by EU countries, 2008 .............................................................................................................................29
Main economic indicators of the “Manufacture of weapons and ammunition” sector
for a selection of EU Member States, 2010.........................................................................................30
Main European Land armament firms/groups, 2010 (*) ..................................................................32
The German Heeresinstandsetzungslogistik GmbH (HIL) company...............................................40
Main qualitative characteristics of the European Land Armament sector..................................40
Percentage of total sales obtained from arm sales amongst the main European Land
armament firms/groups, 2010...............................................................................................................41
National Defence Industrial Strategies of the three big defence markets (UK, France
and Germany) ........................................................................................................................................43
Total profits of main European Land armament firms/groups, 2008-2010 (US$ m)) ....................44
Arms trade in the EU-27. Exports, Imports and Trade Balance by country. Total for the
period 2005-2010 (US$ Million) ..............................................................................................................45
EU-27 Extra Community Trade of Arms and Ammunition (891 SITC Code). 2001-2010 (Eur
Million).......................................................................................................................................................46
The example of BAE Systems ................................................................................................................48
Importance of SMEs in the manufacture of weapons and ammunition sector, 2007................55
Main categories of existing defence suppliers in the new EU Member States ............................58
R&D ranking of main EU companies in Land armament related activities according to
R&D/Net Sales ratio in 2010...................................................................................................................61
Future expectations per Land armament segment from ELDIG/ASD’s point of view ...............62
Key R&D subjects suggested by ELDIG for proposed European cooperation in the Land
armament sector....................................................................................................................................65
Employment in the “Manufacture of weapons and ammunition” sector for a selection
of EU Member States, 2010 ...................................................................................................................71
Employment in the “Manufacture of military fighting vehicles” sector for a selection of
EU Member States, 2010 ........................................................................................................................71
BAE Systems’ Skills 2020 Strategy ..........................................................................................................75
Impact of context changes on skill needs in the Land armament sector....................................78
SWOT Matrix of the European Land Armament Sector....................................................................96
Main Drivers of Change.........................................................................................................................98
Classification of drivers of change ....................................................................................................100
Definition of future scenarios for the EU Land armament sector .................................................101
Main National Official Programmes and Strategies .......................................................................189
6
Index
GRAPHS
Graph 2.1
Graph 2.2
Graph 2.3
Graph 2.4
Graph 2.5
Graph 3.1
Graph 3.2
Graph 3.3
Graph 3.4
Graph 3.5
Graph 3.6
Graph 3.7
Graph 4.1
Graph 4.2
Graph 4.3.
Graph 4.4.
Graph 4.5.
Graph 4.6.
Graph 4.7.
Graph 4.8.
Graph 4.9
Graph 8.1
Percentage of European Defence Equipment Collaborative Procurement over total
procurement, 2006-2010........................................................................................................................15
Amount of money directly spent by the UK Ministry of Defence (MoD) with UK industry
and commerce broken down by industrial group, 2003/04-2009/10............................................16
Evolution of total public Defence expenditure in the EU (billion Euros) ........................................18
Total Defence expenditure and % of GDP: Comparison between USA and EU. 2006-10 .......19
Long-term evolution of Real Defence Spending per Capita for a number of selected
countries, 1980-2010 ...............................................................................................................................19
Main contributing Member States to EU-27 added value in the “Manufacture of
Weapons and Ammunitions”, 2008 (%) ..............................................................................................30
Turnover (Million Euro) of the “Manufacture of military fighting vehicles” sector for a
selection of EU Member States, 2010 ..................................................................................................31
MBDA historical process of formation .................................................................................................49
Main Land armament industrial poles of employment....................................................................54
The Land armament sector’s tiered organisation.............................................................................57
Knowledge intensity in “Manufacture of Weapons and Ammunitions” and total
manufacturing: Share of R&D expenditure in value added, selection of countries, 2007 ........60
European Collaborative R&T as a Percentage of Total R&T, 2006-2010 .......................................64
Recent evolution of employment in the European Land Armament Sector, EU27, EU 15
and EU12, 2001-2008 (thousands of people) .....................................................................................68
Trends in employment in the EU-27: comparison of total manufacturing and the
manufacture of weapons and ammunition (Index for 2001=100), distinction between
new and old Member States................................................................................................................68
Number of persons working in the European Land Armament Sector, by main Member
States, 2008 ..............................................................................................................................................69
Trends in the Land armament sector’s employment in some selected EU Member States
(Index for 2001=100) ...............................................................................................................................70
Percentage of male employment in the Land Armament sector, average 2008-2010 ............73
Distribution of employment by age groups in the Land Armament sector, average 20082010...........................................................................................................................................................74
Distribution of employment by level of education in the Land Armament sector,
average 2008-2010.................................................................................................................................75
Distribution of employment by occupational groups in the Land Armament sector,
average 2008-2010.................................................................................................................................76
BAE Systems Employment by Skills split...............................................................................................77
Spanish military industry network with the State and Financial Groups. .....................................191
7
1. Introduction
Study on the Perspectives of the European Land Armament Sector - Final Report
1. Introduction
1.1. Objectives of the study
The current research, namely Study on the Perspectives of the European Land Armament Sector, is intended to examine the medium and long term development prospects of the European land armament
industry. In this regard, and as part of a larger EMF project entitled “Social dialogue on the perspectives of
the European land armament sector”, the study is intended to provide information and analyses that will
enable the participants in the project to reflect and discuss different perspectives regarding the future of
the European land armament sector, with a view to facilitate dialogue in the land defence sector, the
promotion of networking among workers’ representatives within the sector and the provision of useful input
into the European Defence Partnership.
With this general purpose, the study tries to fulfil the following specific goals, that is to say:

Map the current situation of the European Land defence sector

Anticipate the challenges for the land defence industry in Europe and the perspectives
and possible realistic scenarios for the European Land defence sector, particularly in
terms of employment developments in the near future.

Provide useful information, consultation and participation of the social partners as the
precondition for managing possible industrial change within the European Land defence
sector.
This project is supported by the EU PROGRESS programme (restructuring, well-being at work and financial
participation).
In this regard, this final report is structured amongst eight chapters, in addition to this first chapter. Thus,
chapter 2 provides the demand perspective of the European Land armament sector, identifying the key
role that European Governments and public authorities play in the sector as well as the extent and importance of current cooperation activities amongst European governments in the sector.
Meanwhile, chapter 3 presents an industrial mapping of the European Land armament sector, stressing
different elements such as the position of the European Land armament sector in the world context, a
general economic overview of the importance of the sector, information on main groups/enterprises and
subsectors/groups forming the European sector, a description of the main qualitative characteristics of the
European Land armament sector, information on the role of SMEs and production chains in the sector or,
finally, information on Research and Development and Innovation activities developed by the European
Land armament sector.
Chapter 4 provides detailed information on the European land armament sector from an employment
perspective, including existing statistical information on the topic, the main employment patters of the
sector (i.e. in terms of ender, age, levels of education or main occupations) and, finally, information on
qualitative changes in the sector employment experienced in the last two decades. Subsequently, chapter 5 provides an industrial outlook of the European Land armament sector, identifying its main strengths
and weaknesses as well as the main factors of change (opportunities and threats) for the European sector
Meanwhile, chapter 6 identifies the main drivers of change and future possible scenarios of the European
Land Armament Sector, whereas chapter 7 finalises the report identifying some main conclusions stemming from the research as well as a number of recommendations.
The report is complemented with a number of annexes including the bibliography, the names of the experts interviewed in the context of the research and, finally, the national reports.
9
1. Introduction
1.2. Definition of the Land Defence Industry
It is a well know fact that the European Defence industry in general and the Land Defence industry is particular is a strategic sector of the European economy, not only because of its contribution in terms of value
added, high skilled employment, exports and innovations to other sectors1 but also because of its key contribution to the European and national defence and security policies.
In this regard, the “Land Defence” sector can be characterised as a very complex manufacturing sector
composed of an array of different sub-sectors and enterprises, often involved in the production of dual use
goods and technologies, i.e. products and technologies that have both civilian and military applications
(i.e. vehicles, lorries, electronics, etc). Thus, a recent position paper elaborated by the ELDIG (the European Land Defence Industry Group)2 has identified nine segments of activity within the European Land
Armament sector, that is to say:
– Vehicles
– Weapons and ammunition
– Soldier Systems
– Sensors for C4I (Command, Control, Communication, Computers and Intelligence)
– Protection equipment and systems
– C4I equipment and systems
– Logistic and support equipment and services
– Simulation and training equipment
– Complex and joint systems
However, within this variety of segments, the study will be primarily focused on three concrete subsectors,
that is to say, Armoured vehicles, Artillery and Ammunition, although it will also take into account the
complexity of the sector as a whole and the changes that can be observed in its activities and technological components.
Interestingly also, the statistical information provided by Eurostat and EU Member States’ official Statistical
offices presented in this report defines the sector accordingly to the so-called Statistical Classification of
Economic Activities in the European Community (NACE)3. In this regard, and according to NACEClassification Rev. 1.1, the activities of the sector are comprised under the NACE Rev 1.1. Code 29.6
“Manufacture of Weapons and Ammunitions”4. Meanwhile, and within the framework of the new NACEClassification Rev 2 adopted since 2009, two main groups related to the Land defence sector can be
Further chapters of this report will provide in-depth information on this.
ELDIG is a body of the Aerospace & Defence Industries Association of Europe (ASD).
3 NACE is derived from the French title “Nomenclature générale des Activités économiques dans les Communautés
Européennes” (Statistical classification of economic activities in the European Communities).
4 This Code comprises:
• The manufacture of tanks and other fighting vehicles
• The manufacture of artillery material and ballistic missiles
• The manufacture of small arms
• The manufacture of war ammunition
• The manufacture of explosive devices such as bombs, mines and torpedoes.
1
2
10
1. Introduction
identified, that is to say, Code 25.4 “Manufacture of weapons and ammunitions”5 and Code 30.4 “Manufacture of military fighting vehicles”6.
1.3. Methodology
The present report has been elaborated by IKEI Research and Consultancy from a combination of two
main sources of information. On the one hand, an extensive review of existing written information on the
issue of Land Armament Sector has been conducted (available materials, reports and documents), both
at international and country level (specific national reports have been elaborated for France, Germany,
Italy, Poland, Spain, Sweden and United Kingdom, as well as three literature reviews conducted in Austria,
Finland and Switzerland). On the other hand, in order to complement the already available information, a
number of interviews with privileged informers on the research issue has been also carried out (the list with
the interviewed experts can be found in Annexes). These interviews have tried to reflect as much as possible the different views of relevant sector stakeholders, so representatives of national trade unions, main
business associations and representatives of the National Ministry of Defence/Industry have been interviewed. Also, a presentation of the project was made to representatives of the ELDIG Group
Due to the key importance of reaching national sources of information, IKEI Research & Consultancy has
collaborated with a network of national researchers, who have been engaged with the collection of all
the information at national level, including the interviews and the literature reviews.
Table 1.1.
Composition of the work team
Coordination of the project and European reports
IKEI Research & Consultancy General direction
Project manager
Consultant
Antonio Corral
Iñigo Isusi
Jessica Duran
National contributions
Country
Austria
Finland
France
Germany
Italy
Poland
Spain
Sweden
Switzerland
United Kingdom
5
6
Institute/research organisation
KMU Forschung Austria
Turku School of Economics
Consultingeuropa
PCG-Project Consult GmbH
Università IULM
Entrepreneurship and Economic Development
Research Institute, Lodz Academy of Management
IKEI Research and Consultancy
Oxford Research Sweden
Schweizerisches Institut für Klein- und MittelUnternehmen, Universität St. Gallen
Institute for Employment Studies
Researchers
Ingrid Pecher
Niko Havupalo
Nicolas Rode, Dominique Sellier
Dr. Jörg Weingarten
Professor Giuliano Mussati
Paweł Czyż
Iñigo Isusi, Jessica Durán
Jan Persson
Sandro Keller
Kari P Hadjivassiliou
This code includes:
• Manufacture of heavy weapons (artillery, mobile guns, rocket launchers, torpedo tubes, heavy machine guns)
• Manufacture of small arms (revolvers, shotguns, light machine guns)
• Manufacture of air or gas guns and pistols
• Manufacture of war ammunition
• Manufacture of hunting, sporting or protective firearms and ammunition
• Manufacture of explosive devices such as bombs, mines and torpedoes
This Code includes:
• Manufacture of tanks
• Manufacture of armoured amphibious military vehicles
• Manufacture of other military fighting vehicles
11
1. Introduction
Additionally, several steering meetings have been held with sector representatives of IndustriAll European
Trade Union, both at national and European level, as well as a workshop for the discussion of the Interim
report (Roanne, France, 26-27 June 2012).
In order to guide the information searching process, a methodological dossier was elaborated by IKEI
Research & Consultancy in collaboration with IndustriAll European Trade Union. This methodological dossier
was conceived as the basis for a mutual understanding of the objectives, methods and general concepts
relevant for the study amongst all national members of the research team. The dossier also included a
research guideline, to steer homogeneously the work of all partners, comprising the instructions as to how
to conduct the research in practical terms. Finally, it is worth stressing that all the work (including data
collection and drafting of documents) was carried out since February to November 2012.
12
2. The European land armament
sector: the demand perspective
2. The European land armament sector: the demand
perspective
2.1. The demand of Land armament products: The key role of European
Governments
One of the most important specific features of the defence sector in general and the Land defence sector
in particular refers to the key role that governments play in the sector. In this sense, and on the demand
side, the market is characterised by the dependency on one customer (i.e. (national) government(s)),
who at the same time not only procure the products and services but also regulate the market. This situation results in a monopsony position that deeply influences the ownership, size, structure, and performance
of the national land defence industrial base (Europe Economics, 2009).
From this demand side perspective, public Land defence markets in Europe are dominated by a number
of additional characteristics that can be summarised as follows:
7
8
a.
New requirements for the European Land defence industry: Due to the current multi-polar world
situation and the end of the cold war, European military operations are nowadays part of international asymmetrical missions involved in peace keeping, crisis intervention, protection of population,
policing and state rebuilding tasks or counter terrorism activities, usually under the United Nations
mandate or under NATO command. Notwithstanding the key impact of airpower in these operations and missions, they are mainly performed by land forces acting together as part of a European
or multinational force, resulting in profound need changes in most European Land Forces (Craig et
al, 2011). First, this switch from cold-war type massive armies to international mission forces leads
mostly to a cut-down in numbers, where these military operations often require methods and
equipment very close to the security world. At the same time, international joint operations increasingly require interoperable technologies, equipment and systems as well as enhanced information
networking and improved command and control amongst different national armies, as well as an
increase in protection equipment and technologies. Also, global mobility is needed more than ever
before, requesting a strong need for an efficient transport of troops and equipment to the operation areas (TNO, 2009). Finally, the Libya crisis has shown that decreasing military spending and
spreading competition across European states do not constitute a sustainable approach for
Europe’s global ambitions (Faleg & Giovannini, 2012).
b.
Persistent primarily national defence procurement strategies: European countries are traditionally
favouring the principles of national sovereignty and comprehensive autonomy in defence-related
issues, with a clear impact on free competition amongst producers. In this regard, and despite the
existence of a “formally defined” European Common Security Defence Policy (CSDP) and the development of several common crisis management operations, Member States’ defence policies are
still very much defined at national level and not always in line with a common European perspective. Amongst other consequences, this situation results in closed and fragmented national markets
where public procurement practices usually favour national enterprises. A good example of this is
given by the recourse to Article 346 of the TFEU (Treaty on the Functioning of the European Union)7,
which prevents “de facto” the implementation of the Internal Market in the defence sector in general and the land defence sector in particular. As a result of this, Europe's defence sector remains
mainly fragmented at national level, with 27 different customers. Just to give some data, only
around one fifth of procurement is currently spent in collaboration projects in which at least two EU
members participate (data referred for the whole defence sector), very far from the benchmark established in 2007 by the European Defence Agency’s Ministerial Steering Board that suggested that
at least 35% of the European Defence Equipment Procurement should be related to European collaborative procurement8.
This current Article 346 TFEU is the (ex) Article 296 TEC
In the sense that at least two EU Member States Ministries of Defence collaborate with each other.
14
perspective
Table 2.1
Article 346 of the TFEU (Treaty on the Functioning of the European Union) (ex Article 296
TEC)
1. The provisions of the Treaties shall not preclude the application of the following rules:
(a) no Member State shall be obliged to supply information the disclosure of which it considers contrary to the
essential interests of its security;
(b) any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the internal market regarding products which are not intended for specifically military purposes.
2. The Council may, acting unanimously on a proposal from the Commission, make changes to the list, which it
drew up on 15 April 1958, of the products to which the provisions of paragraph 1(b) apply.
Source: Treaty on the Functioning of the European Union
Graph 2.1
Percentage of European Defence Equipment Collaborative Procurement over
total procurement, 2006-2010
35,0
40
30
20,9
18,9
2006
2007
21,2
22,0
22,0
2008
2009
2010
20
10
0
Source:
Benchmark
European Defence Agency, 2011
c.
Presence of specific public procurement designs (“Juste Retour” principle, Offset agreements): Public procurement activities in Europe (especially large contracts) are often subject to specific designs. A good example of this is given by the so-called “Juste Retour” principle, which implies that
the total value of the contracts awarded to companies from a particular Member State should reflect the amount of money that this Member State has committed to the project (in the case of
European collaborative projects). Meanwhile, offset agreements represent compensation to the
national authority from the foreign defence contractor for purchasing equipment from a nondomestic company. These offset agreements may include subcontracting (with the aim of integrating domestic firms in the supply chain) or other forms such as technology transfer, training or credit
assistance, and they may take also the form of direct offsets (relating directly to the purchased defence system and related services) or indirect offsets (which can either be related to defence or
civil sectors). Offsets are no longer possible within the EU borders, although they are a relatively
common practice in exporting activities to third countries.
d.
Relatively lower level of public procurement devoted to Land defence products: There is very limited
information related to the importance of public purchases of land defence products and systems.
In any case, information from the UK9 shows that the British Ministry of Defence (MoD)’ purchases of
land systems (i.e. weapons and ammunition, motor vehicles and parts) represent approximately a
20-25% of total MoD purchases from UK defence industries, a percentage lower than other defence
9 The UK is one of the rare examples of a nation which provides data on the relative importance of land systems in total
MoD procurement spending.
15
perspective
related sectors such as the military aerospace or the shipbuilding sectors, and an 8% of the total
purchases of the UK Ministry of Defence10.
Graph 2.2
Amount of money directly spent by the UK Ministry of Defence (MoD) with UK industry and commerce broken down by industrial group, 2003/04-2009/10
Figures exclude 'internal' UK Ministry of Defence expenditure such as pay and allowances
Source: UK Ministry of Defence, 2011.
e.
Strong differences in defence expenditure amongst EU Member States: According to the available
data for 2010, the major defence spenders in the EU were, in this order, the United Kingdom, France
and Germany (43.4, 39.2 and 33.5 billion Euros, respectively, a 60% of the total EU military spending),
followed by Italy and Spain (21.6 and 11.1 billion Euros, also respectively), whereas the defence expenditure in the remaining countries was lower than 10 billion Euros. Meanwhile, the Member States
with the highest defence expenditures in Investment (Equipment Procurement and R&D) were
again France, United Kingdom and Germany (11.9, 11.3 and 7.1 billion Euros, respectively, or 70.7%
of the total European investment expenditure), followed by Italy, Poland, Netherlands and Spain
(3.1, 1.6, 1.5 and 1.4 billion Euros, also respectively). The United Kingdom, Greece, Cyprus and
France are the only countries that devote more than a 2% of their national GDPs to defence activities (data for 2010).
Some consulted experts suggest that this percentage might be higher in other EU Member States with limited or nonexistent naval forces
10
16
perspective
Table 2.2
Main Defence expenditure data in EDA participating Member States, 2009 and 2010
Defence expenditure
(Millions of Euros)
Austria
Belgium
Bulgaria
Cyprus
Czech Republic
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
UK
2009
2010
2,401
4,048
659
339
2,262
256
2,686
39,190
36,180
6,023
1,068
988
21,946
227
289
179
43
8,733
5,428
2,671
1,609
967
571
12,196
3,510
39,596
2,430
3,951
629
361
2,016
249
2,707
39,237
33,492
4,756
1,022
911
21,637
194
246
201
44
8,472
6,392
2,782
1,575
853
583
11,132
4,265
43,403
Defence expenditure as a
% of GDP
2009
0.87
1.20
1.95
2.00
1.65
1.86
1.57
2.04
1.50
2.54
1.15
0.60
1.44
1.21
1.08
0.47
0.74
1.53
1.75
1.63
1.39
1.53
1.63
1.16
1.22
2.53
2010
0.86
1.12
1.74
2.06
1.39
1.72
1.50
2.01
1.34
2.07
1.04
0.59
1.40
1.08
0.90
0.48
0.71
1.43
1.81
1.61
1.29
1.29
1.62
1.05
1.23
2.56
Defence Expenditure in Investment (Equipment Procurement
and R&D)
2009
2010
301.6
342.6
92.3
39.7
456.1
67.8
780.2
10,575.0
6,286.4
2,132.8
138.2
61.0
2,544.7
11.4
48.6
68.1
0.4
1,554.2
1,095.9
363.7
151.8
143.7
60.0
2,208.1
940.6
10,451.6
310.8
265.0
96.9
71.8
196.2
58.2
736.4
11,852.0
7,112.4
1,148.2
123.6
84.4
3,140.7
23.9
25.9
90.0
2.2
1,449.4
1,556.4
296.1
121.3
84.3
112.7
1,427.5
1,142.8
11,338.1
Source: EDA, 2012a
f.
Decreasing levels of defence spending in Europe due to the current economic crisis and negative
forecasts for the future: In 2010, total defence spending by the EDA 26 participating Member
States11 reached a total of 194 billion Euros, which represented a 1.6% of the total EU GDP. Interestingly, and in comparison to previous years, the total amount of resources devoted to defence activities has experienced a remarkable downward trend since 2007 (-4,9%), when up to 204 billion Euros were devoted to these activities. If inflation is taken into account, this defence spending in real
terms has experienced a much more remarkable reduction. By way of contrast, investment expenditures (equipment procurement and R&D) have experienced a more sustained behaviour in time.
Meanwhile, available budgets in 2010 have been reduced in comparison to 2009 in nearly all
Member States, with some exceptions such as UK, Poland or Sweden. In this regard, current pressures on debt reduction and maintenance of social welfare spending are adding an increasing
pressure on public defence budgets, where existing expectations for coming years do not seem to
be very positive in this regard (at least for a large majority of EU Member States). Meanwhile, existing economic and financial perspectives for coming years are very gloomy in nearly all EU coun-
All EU Member States except Denmark participate in EDA. Data for Europe as a whole refers to these 26 Member
States.
11
17
perspective
tries12. Just to give some examples coming from the big European defence spenders, the British
budget will cut around a 10% over the next four years, with a significant reduction of 22,000 people
in serving personnel by 2015. Meanwhile, and in Germany, the Ministry of Defence is supposed to
save about 8.4 billion € until 2014, including reduction in procurement expenses and in personnel. In
France, it is expected a reduction of at least 1.2% per year on the defence budget in the time period 2010-2014.
Graph 2.3
Evolution of total public Defence expenditure in the EU (billion Euros)
250
204
201
200
201
194
194
150
100
50
39,0
42,0
42,0
41,0
43,0
0
2006
Source:
g.
2007
2008
2009
Investment (Equipment Procurement and R&D) Total
2010
European Defence Agency, 2011
Lower levels of European defence expenditure in comparison to USA: In 2010, the governments of
the 26 EDA participating Member States spent as a whole an equivalent to a 37% of the US total defence expenditure (this is 520 billion Euros (689 billion US$)). Also, US defence expenditure represented a 4.8% of the US GDP and 11.2% of overall government expenditure, whereas these ratios
were 1.6% and 3.2% in the EU, respectively (data for 2010). Moreover, these important differences
between EU and USA have been even exacerbated in the last years, in the sense that US expenditure has increased at an annual cumulative rate of 5.9% in the 2006-2010 time period in comparison
to a decreasing annual cumulative rate of 0.9% in the EU total. Moreover, these differences in scale
between the EU and the USA are even greater when more realistic comparisons between each EU
nation state and the United States are carried out13. Thus, the United Kingdom, France or Germany
(the EU Member States with the largest military defence budgets and the only ones that have any
reasonable prospect of having a relevant defence market) spent between 6-8% of the US total defence expenditure in 2010, where the United Kingdom and France each spent only a 5-6% of US total defence R&D14, so important opportunities derived from economies of scale are lost. In this regard, it is increasingly complicated for any single EU Member State (even for the largest ones) to
maintain a comprehensive national land defence industrial base, specially in the current context of
decreasing national defence budgets and escalating development costs.
Interestingly enough, the USA are also envisaging a reduction of $45.1 billion in the purchase of military equipment
and in Research and Development funding for year 2013, with important negative effects in terms of job losses (both
direct and indirect ones) (Fuller, 2012). By way of contrast, defence budgets in some of the emerging countries such as
China, Brazil, India or Russia are expected to increase in the coming years. For instance, the Chinese defence budget is
expected to rise from EUR 120 billion to EUR 250 billion by 2015 (European Economic and Social Committee, 2012).
13 In this sense, the EU total comprises all spending by each Member State and is not a genuine aggregate figure.
14 Indeed, the USA military expenditure was higher than the whole of the next 48 highest spending countries in the world
(Craig et al, 2010), where this result shows that the USA is the only actor able to act independently with its military spending.
12
18
perspective
Graph 2.4
Total Defence expenditure and % of GDP: Comparison between USA and EU.
2006-10
Total defence expenditure (in billion Euros)
600
500
434
414
520
471
416
400
300
204
201
200
201
194
194
100
0
2006
2007
2008
EU
2009
2010
USA
% of GDP
6
5
4
3
2
1
0
4,3
3,9
1,8
1,7
2006
2007
2008
EU
Source:
1,7
1,6
4,8
4,6
4,3
2009
1,6
2010
USA
EDA, 2012
Graph 2.5
Long-term evolution of Real Defence Spending per Capita for a number of
selected countries, 1980-2010
Source: UK Ministry of Defence, 2011.
19
perspective
h.
Different structure of the defence expenditures between US and EU as a whole: Another trait that
gives an impression of the specificities of European military expenditure refers to differences between European and US in the structure of defence expenditure. Thus, and taking as a reference
the year 2010, the EU spent half of its aggregated defence budget on personnel (civilian and military staff) (99 billion Euros), whereas in the US, personnel costs represented less than one third of total defence spending during the same year (166 billion Euros)15. By way of contrast, the expenditures on equipment procurement and R&D (investment) showed an even wider scale difference
between the EU and the US, as a 23% of the total European military expenditure was devoted to
equipment procurement in comparison to a 30% in the US case (43 billion and 159 billion Euros in total terms, respectively), whereas a 4.6% of total EU military expenses were devoted to R&D activities
in comparison to 11.2% in the US case (9 billion and 58 billion Euros, also respectively)16.
Table 2.3
Main Defence Data in EDA participating Member States compared to the USA. 2006 to
2010 (billion Euros)
EU-Total
Personnel
Operations & Maintenance
Investment (Equipment Procurement and R&D)
Equipment Procurement
R&D
Other
USA- Total
Personnel
Operations & Maintenance
Investment (Equipment Procurement and R&D)
Equipment procurement
R&D
Other
2006
2007
2008
2009
2010
201
111
43
39
29
10
8
414
155
106
126
71
55
27
204
106
47
42
32
10
9
434
132
117
126
73
53
59
201
107
43
42
33
9
9
416
132
126
131
80
51
27
194
98
44
41
33
8
11
471
148
140
149
93
57
34
194
99
44
43
34
9
8
520
166
155
159
101
58
40
Source: EDA, 2012.
2.2. Cooperation activities in the Land Defence sector amongst European
governments
European governments have taken since the nineties a number of initiatives intended to foster cooperative activities amongst them in the defence industrial sector and market (Craig et al, 2011). To start with,
initial relevant initiatives include the Western European Armaments Group/ Western European Armaments
Organisation (WEAG/WEAO), the Organisation for Joint Armament Cooperation (OCCAR) and the Letter
of Intent (LoI) Framework Agreement. The Western European Armaments Group (WEAG) was established
as a forum for armaments cooperation in 1976 with the aim of creating a European Armaments Agency
that gave way in 1996 to the so-called Western European Armaments Organization (WEAO), in practice
focused on research and development and not on formal regulations17. Meanwhile, the Organization for
Joint Armaments Cooperation (better known by its French acronym OCCAR) was created in November
1996 by France, Germany, Italy and the United Kingdom with the goal to provide more effective and efficient management of collaborative armament programmes. In 2000, defence ministers of the six major
arms-producing countries in Europe (i.e. France, Germany, Italy, Spain, Sweden and the United Kingdom)
This result implies that there are still many resources open to be liberated from personnel expenditure to other activities
(procurement, R&D, etc) more interesting for the Manufacturing sector.
16 All data referred to 2010
17 The function both of the WEAG and the WEAO have been taken over by the EDA
15
20
perspective
signed the Letter of Intent (LoI) Framework Agreement, intended to cover six main areas of action (security
of supply, export procedures, security of information, research and technology, treatment of technical
information and harmonization of military requirements). However, and in practice, these initiatives have
provided very limited results until now.
Table 2.4
The Boxer Multi-Role Armoured Vehicle (MRAV)
Within the OCCAR framework, the EU started several multinational development and procurement programmes. A good example of this is given by the development of the Boxer Multi Role Armoured Vehicle
(MRAV), signed in November 1999 between national governments of UK and Germany for the collaborative
development and initial production of a family of next generation armoured utility vehicles. The programme
was known as the Multi-Role Armoured Vehicle (MRAV) in the UK, and as the Gepanzertes TransportKraftfahrzeug (GTK) in Germany. In February 2001, the Netherlands signed a memorandum of understanding to
join the programme (the Dutch programme is called the Pantser Wiel Voertuig (PWV)). In December 2002, it
was announced that the vehicle would be called the Boxer. In July 2003, the UK Ministry of Defence announced it would withdraw from the programme.
An industrial group, ARTEC GmbH, consisting of Krauss-Maffei Wegmann (KMW) and Rheinmetall Landsysteme
from Germany, and Stork of the Netherlands, was the prime contractor for the programme. The programme
was managed by the European Armaments Agency, OCCAR (Organisation for Joint Armament Cooperation).
Stork PWV became part of Rheinmetall in March 2008. In 2006, the Dutch Parliament approved procurement
of 200 Boxer vehicles, whereas Germany approved the procurement of 272 vehicles. A production contract
was signed with ARTEC on 19 December 2006. In September 2009, the first deliveries of series production Boxer
vehicles were made to the German and Dutch Armies.
Source: http://www.army-technology.com/projects/mrav/
Also, some European countries have established several ad-hoc bilateral/multilateral bottom-up agreements intended to foster cooperation amongst them in the armament sector in general and the Land
armament sector in particular. Examples of these agreements include the so-called Nordic Defence Cooperation (NORDEFCO) (composed of Denmark, Finland, Iceland, Norway and Sweden) or the so-called
Visegrád Group (also called the Visegrád Four or V4) and composed of Czech Republic, Hungary, Poland
and Slovakia with interests in cooperation in different domains (including defence issues).
On a bilateral basis, Estonia and Finland have recently signed a defence cooperation framework document for 2012-2015. More importantly due to size considerations, France and the United Kingdom have
reinforced a bilateral cooperation agreement last February 2012 touching upon different issues including
Security and Defence18. In particular, this Treaty is intended to strengthen the operational bonds between
the Armed forces of France and the UK, by applying the principle of “Pooling & Sharing” for the procurement of defence materials and equipment, developing joint facilities, contributing to mutual access to
defence markets and ultimately increasing the technological and industrial cooperation between the two
countries. In the particular domain of Land defence, both countries stress their joint interest in developing a
40 mm CTA cannon that will equip armoured vehicle platforms, as well as a shared interest to strengthen
their bilateral cooperation on Counter-IED19, including a Joint action plan to be elaborated in order to
cover cooperative opportunities in the operations/capability/R&T domains. Also, and in the Research and
Technology domain, both countries have agreed to develop a joint “2025 Key Technologies” identification
plan by end of 2012 to light up their common strategic vision, as well as conduct a detailed comparison of
their common capability plans in four strategic areas, including Intelligence Surveillance & Reconnaissance, Command & Control Information Systems and Land Combat).
As far as the activities conducted within the EU framework, and despite some previous initiatives (i.e. the
POLARM group20), the most important development refers to the establishment of the European Defence
For a full description of the results of the British-French Summit see http://www.elysee.fr/president/lesactualites/declarations/2012/declaration-conjointe-de-mm-nicolas-sarkozy-et.13006.html
19 IED stands for Improvised Explosive Devices
20 POLARM was established as an only formal forum for discussion on armaments in 1995 as an initiative within the EU
Council, although its overall results have been blurred due to a lack of interest and consensus among member states.
18
21
perspective
Agency (EDA). The EDA focus on developing defence capabilities, promoting Defence Research and
Technology, promoting armaments co-operation and creating a competitive European Defence Equipment Market and strengthening the European Defence, Technological and Industrial Base
Table 2.5
The European Defence Agency (EDA)
The European Defence Agency (EDA) was established in 2004 as an agency of the European Council, where
its Steering Board meets at the level of Defence Ministers (with the only exception of Denmark). The EDA supports Member States’ efforts to improve European defence capabilities and it is regarded as a key facilitator in
developing the capabilities necessary to underpin the Common Security and Defence Policy (CSDP) of the
Union. EDA runs two different types of projects, that is to say, “opt-out” projects (all Member States participate
unless they choose not to), and the “opt-in” projects (formed by two or more Member States). The EDA covers
the full spectrum of capability development, from upstream Research & Technology (R&T) to Operational Deployment.
Source: EDA’s web site.
To bring this about, the EDA has launched a number of relevant initiatives in these areas that can be summarised as follows:
a.
The European Defence Equipment Market (EDEM): The so-called European Defence Equipment Market (EDEM), set up in November 2005 by the EU Defence Ministers, is intended to open up to cross border competition the share of the defence market traditionally excluded from Internal Market rules on
the basis of Article 346 TFEU, so to create an appropriate market size comparable to other major
global competitors (i.e. USA). For this purpose, the EDEM Strategy has implemented several instruments
such as the so-called Code of Conduct on Defence Procurement, the Code of Conduct on Offsets or
the Code of Best Practice in the Supply Chain, Security of Information and Security of Supply. Also, the
EDA has established the benchmark that at least 35% of the European Defence Equipment Procurement should be related to European collaborative procurement. In any case, and as already shown
before, this benchmark is yet far from being achieved.
b.
The European Defence Technological and Industrial Base (EDTIB): In 2007, the European Defence
Agency (EDA) Defence Ministers’ Steering Board agreed on a Strategy for the European Defence
Technological and Industrial Base (EDTIB). This Strategy recognises that a fully adequate DTIB is no
longer sustainable on a strictly national basis, so it needs to be more integrated, less duplicative and
more interdependent at European level in order to provide full political, military and economic benefits as well as economic ones (EDA, 2007). This EDITB Strategy stresses that Europe’s defence industry
should be firmly focused on the so-called three Cs, that is to say, Capability driven (i.e. capable of
meeting the operational requirements of the Armed Forces whilst sustaining European and national
operational sovereignty), Competent (i.e. able to exploit the best technologies) and globally Competitive (both within and outside Europe). In this sense, the EDA has developed several work lines in
order to ensure that critical European Land defence industrial capabilities are preserved or developed to meet current and future military requirements in terms of manufacturing key defence equipment and retaining appropriate European independence. Interestingly, the EDA has recently initiated
a process to review the EDTIB Strategy in order to ensure its continuous effectiveness21.
c.
The European Defence Research and Technology (EDRT): This strategy is focused on addressing the
R&T needs of the Common Security and Defence Policy from a collaborative perspective22. This strategy currently identifies 22 Research and Technology priorities, including “Soldiers Systems (incl. integration into Systems of Systems and NEC)”, “Counter-mine (land), gap-crossing and counter-mobility sys-
It is expected that the new Strategy will be presented later this year
In this regard, European Ministers of Defence agreed in November 2007 collective benchmarks to increase Defence
R&T spending to 2% of all defence expenditure and to bring European collaborative Defence R&T spending to a level of
20%.
21
22
22
perspective
tems”, “Ground Platform technologies (structure, mobility…) and mounted platform systems” or, finally,
“Uninhabited land systems”.
Finally, the EDA has undertaken a number of initiatives to encourage increased competition and fair opportunities for enterprises of the defence market, with an emphasis on the role of SMEs in government procedures or the facilitation of SMEs’ access to information. A good example of this is given by the so-called
“Guidelines for facilitating SMEs’ access to the defence market”, which provide non-binding recommendations for possible measures to be implemented by national authorities to support SMEs operating in the
defence market. Also, the EDA facilitates joint or harmonised acquisition of a wide range of defencerelated products and services23.
Meanwhile, the European Commission has adopted since December 2007 the so-called “Defence Package”', designed to set out a modern policy and legislative framework to improve competitiveness, introduce greater transparency and cut unnecessary red tape24 in the European defence equipment market.
This Defence Package has resulted in the Communication "Strategy for a Stronger and More Competitive
European defence Industry" (COM (2007) 764), which outlines recommendations to support the competitiveness of the defence sector, including the promotion of common standards and fostering greater levels
of coordination both within and between Member States. The Commission has developed the so-called
European Handbook on Defence Procurement in the area of standardisation, which now is part of the
EDA EDSIS system25.
Also, two important Directives have been adopted in 2009 with a view to facilitate the development of a
real European defence equipment internal market, that is to say, the “Directive 2009/43/EC on intra-EU
transfers of Defence products simplifying terms and conditions of transfers of defence-related products
within the Community” and the “Directive 2009/81/EC on the coordination of procedures for the award of
certain works contracts, supply contracts and service contracts awarded by contracting authorities or
entities in the fields of defence and security”. In any case, these Directives are subject to the existence of
the article 346 of the Treaty on the Functioning of the European Union.
Table 2.6
Brief explanation of Directives 2009/43/EC and 2009/81/EC
Directive 2009/43/EC is basically intended to simplify the terms and conditions of transfers of defence-related
products within the Community and hence to enhance cross-border trade, with the introduction of general
licences for intra-Community transfers, so individual licenses will thus become the exception. This would include
purchases by armed forces of other EU Member States and transfers to certified companies of components in
the context of industrial cooperation.
Meanwhile, Directive 2009/81/EC is intended to improve transparency and to promote greater intra- EU competition across Member States’ defence markets. This Directive sets Community procurement rules adapted to
the specificities of the defence/security sectors, providing special provisions for security of supply and security
of information. The impact assessment highlighted that the new rules set out in the proposal should lead to significantly lower administration costs for businesses and in particular SMEs. The rules apply to sensitive contracts
in the field of non-military security also, as well as to contracts that concern the procurement of military
equipment (i.e. arms, munitions and war material) and security equipment which is particularly sensitive and
has similar features to defence equipment.
Source: EU Commission
23 See EDA Electronic Bulletin Board (http://www.eda.europa.eu/ebbweb/). For instance, last 25th January 2012, three
Member States have launched the EU Battle Group Logistic Services Pilot Case, which covers joint procurement of basic
logistic services through the Agency acting as a Central Purchasing Body (prior information notice for the “Provision of
logistic support to the EU Battle Group 2012/2: fresh food, catering, including drinking water, and sales goods” (2012/S 16024383)).
24
For a further discussion on the European industrial policy aimed at the Defence sector please see
http://ec.europa.eu/enterprise/sectors/defence/defence-industrial-policy/index_en.htm
25 The European Defence Standards Information System (EDSIS) is a single portal for wider-ranging European defence
materiel standardization. For more information see http://www.eda.europa.eu/edsisweb/Introduction.aspx
23
perspective
Looking at the future, the Commission has set up recently in time a High Level Task Force on European
Defence Industries and Markets. This Task Force is expected to be jointly chaired by DG ENTR and DG
MARKT and will work closely with the European Defence Agency and the European External Action Service
with the aim of improving the competitiveness of Europe’s defence industries and reinforcing the EDTIB.
This Task Force is expected to have the following four main missions:

Ensure that the EU defence procurement directive and the intra-EU defence products'
transfer directive are transposed into member state legislation.

Create a debate in industry on determining the strategic areas where Europe needs to
keep an industrial base and thereby retain strategic autonomy, proposing concrete,
practical & complementary actions within its competence.

Exploit synergies between the security and defence industries, especially in the Research
& Innovation domain.

Ensure coherence on security of supply issues.
Finally, the adoption of the Ghent Framework developed in the informal EU Defence Ministerial in December 2010 under the Belgian Presidency has implied a renewed impetus to foster cooperation activities
within Europe in the defence sector under the so-called Pooling & Sharing concept (P&S) 26.
Table 2.7.
The Ghent Framework
The adoption of the Ghent Framework explores the feasibility of intensified EU cooperation and Pooling & Sharing (P&S) regarding military capabilities in areas such as training, logistics, medical, transport and communication. In this regard, the Ghent Framework reengages the debate on defence budgets in Europe by reckoning
that the answer to reduced national defence budgets is sought in creating better forms of cooperation, and
hence going beyond previous ad hoc and circumstantial arrangement that did not solve the strategic shortfalls of the EU at their roots. The framework aims at identifying and assessing member states’ military capabilities
according to three categories: i) capabilities to be maintained at the national level while at the same time
ensuring increased interoperability, ii) capabilities that offer potential for pooling and iii) capabilities that can
be considered for role- and task-sharing. In November 2011, EU Ministers of Defence endorsed a package of
new areas of Pooling & Sharing that EDA will coordinate and facilitate, including Intelligence Surveillance Reconnaissance (ISR), Smart Munitions and Training, and last 22nd March 2012 the EU defence ministers adopted
a political declaration at the EDA Steering Board on this issue.
Source: Faleg & Giovannini, 2012 and IKEI
The definition of P&S essentially relies upon three components: i) pooling of procurement of weapons and services, or
joint research facilities; ii) sharing through the partial or total integration of force structures such as training facilities, or
setting up joint units; and iii) specialisation.
26
24
3. The European land armament
sector: the supply perspective
3. The European land armament sector: the supply perspective
3.1. Position of the sector in the world context
There is very limited information on the position of the European producers within the world Land armament sector. In this regard, information provided by SIPRI on the main enterprises and groups engaged in
the Land armament sector at international level27 shows a number of remarkable comparative traits that
can be summarised as follows:

The main European producers of Land armament (in terms of total arm sales and including other possible products) include enterprises such as the UK BAE Systems and Chemring Group, the Italian Finmeccanica, the French Thales and Nexter or the German
Rheinmetall and Diehl. Meanwhile, the main American Land armament manufacturers
include General Dynamics (with a very active presence in Europe), SAIC, Oshkosh Truck,
Alliant Techsystems , Textron , Navistar , AM General , Esterline Technologies or Force Protection.

The largest share of identified EU enterprises and groups combine activities in the three
typical Land armament-related activities (Artillery, Military Vehicles and Small
Arms/Ammunition) with activities in other sectors (i.e. Electronics, Missiles, Ships, engines,
etc).

US enterprises are larger than their European counterparts, in the sense that whereas up
to six US enterprises had annual arm sales in 2010 over 2,000 US Million $, this is only the
case of four European enterprises. Also, the EU main enterprises produce an average of
four arms products compared with the main US enterprises’ average of two arms products. As a result of this, the larger US firms achieve greater economies of scale (larger
output over fewer products).

The EU Land armament manufacturers seem to be more defence-dependent with an
average defence share of 71% compared with the US average share of 59% (percentage of arms share of total shares). Meanwhile, in Europe there are four enterprises with a
defence-dependence of more than 90% of their total sales, whereas this is the case of
only one US enterprise.

In addition to European and American producers, it is possible to identify several competitors coming from other countries (Ecorys, 2010). Relevant examples include Mitsubishi
Heavy Industries from Japan, Indian Ordnance Factories (India), ST Engineering (Temasek) from Singapore, Rafael (Israel), Samsung (South Korea) or Uralvagonzavod (Rusia). Generally speaking, these competitors are much smaller than their US counterparts,
although relatively similar to the larger share of European manufacturers. Equally to the
European manufacturers, they also produce an average of four arms products, although
they have a lower defence-dependence (average defence share of 45%), with the only
exception of Israelian Rafael, whose arm-related sales amounted more than 90% of the
total sales.
Enterprises and groups presented include those who develop activities in three concrete sectors (this is Artillery, Military
Vehicles and Small Arms/Ammunition)
27
26
Table 3.1
Main enterprises and groups in the Land armament sector at world level, 2010
Company
Europe
BAE Systems
Finmeccanica
Thales
Rheinmetall
Krauss-Maffei Wegmann
Kongsberg Gruppen
Nexter
Diehl
Chemring Group
RUAG
Patria
Country
UK
Italy
France
Germany
Germany
Norway
France
Germany
UK
Switzerland
Finland
USA
General Dynamics
SAIC
Oshkosh Truck
Alliant Techsystems
Textron
Navistar
AM General
Esterline Technologies
Force Protection
Others
Mitsubishi Heavy Industries
Indian Ordnance Factories
ST Engineering (Temasek)
Rafael
Samsung
Uralvagonzavod
Japan
India
Singapore
Israel
South Korea
Rusia
Sectors
Arms sales
($US millions)
Arms share of
total sales (%)
Ac, A, El, Mi, MV, SA/A, Sh
Ac, A, El, Mi, MV, SA/A
A, El, Mi, MV, SA/A, Sh
A, El, MV, SA/A
MV
El, Mi, SA/A
A, MV, SA/A
Mi, SA/A
SA/A
Ac, A, Eng, SA/A
Ac, MV, SA/A
32,880
14,410
9,950
2,660
1,590
1,500
1,430
1,210
890
830
660
95
58
57
50
94
58
100
34
96
48
88
A, El, MV, SA/A, Sh
Ser, Comp (MV)
MV
SA/A
Ac, El, Eng, MV
MV
MV
Comp (A, Ac, SA/A, Sh)
MV
23,940
8,230
7,080
2,870
2,740
2,410
1,900
690
660
74
74
72
59
26
20
..
45
100
2,960
1,960
1,750
1,470
1,290
730
9
80
40
98
1
40
Ac, Mi, MV, Sh
A, SA/A
Ac, El, MV, SA/A, Sh
Ac, Mi, SA/A, Oth
A, El, Eng, MV, Sh
MV
Acronyms used for sectors: A = artillery; Ac = aircraft; El = electronics; Eng = engines; Mi = missiles; MV = military vehicles;
SA/A = small arms/ammunition; Ser = services; Sh = ships; Sp = space; Oth = other; Comp= components, services or anything else less than final systems in the sectors within the parentheses—used only for companies that do not produce final
systems
Source: SIPRI ‘s database.
3.2. General overview of the Land armament sector from an economic
perspective
According to the data provided by ASD (the AeroSpace and Defence Industries Association of Europe)28,
the European defence industry performed strongly in 2009 and 2010, despite the global recession resulting
from the financial meltdown. Concerning specifically the Land armament sector, the number of workers
was estimated in 113,000 in 2009 and 128,700 in 2010 (see Table 3.2). Moreover, the same source of information suggests that the revenues of the EU Land armament sector amounted to a total of 26.8 billion Euro
in 2009, and 29.8 billion Euro in 2010, showing a positive evolution in comparison to previous years. It is interesting to notice that according to these figures the European Land armament sector represents about
an 18% of the total Aerospace and Defence Industries.
28
ASD (AeroSpace and Defence Industries Association of Europe): http://www.asd-europe.org/site
27
Table 3.2
Turnover and employment in the European Aerospace and Defence Industries, 2009
and 2010.
2009
Turnover
(Billion EUR)
Total Aerospace and Defence Industries
Aeronautics (civil + military)
Space
Land Defence
Naval Defence
2010
Employment
154.7
100.4
8.8
26.8
18.7
Turnover
(Billion EUR)
696,000
468,500
31,400
113,000
82,000
Employment
162.9
106.6
9.4
29.8
16.9
704,200
458,400
33,800
128,700
83,200
Source: ASD ‘Facts and Figures Sheets’, 2009 and 2010. http://www.asdeurope.org/site/fileadmin/images/publications_thumbs/FF2010.pdf
According to ASD data, approximately half of the European Land armament sector’s revenues comes
from a very specialised and advanced supply of land systems with specialised versions, i.e. Main Battle
Tanks (MBT), armoured tracked and wheeled tracked vehicles, C-RAM (Counter Rocket, Artillery, and Mortar) and artillery systems, supply of turrets, advanced ammunition, optronics and logistics. Also, emerging
areas of interest include protection systems against mortar, rocket and artillery attacks. Meanwhile, the
other half of the European Land armament sector’s revenues is linked to electronics, including embedded
sensors for installation on platforms of Command & Control Navigation (C2N) systems, integration with
autonomous C4I Network Enabled Capability (NEC) involving a spectrum of sensors, optronics, communication and systems for application at soldier, tactical and strategic levels.
On the other hand, the Structural Business Statistics published by Eurostat provide statistical information on
the European “Manufacture of Weapons and Ammunitions” sector (NACE 29.6, Rev 1). According to this
source of information, this sector comprised a total of 1,282 enterprises, with a turnover of 15,477.3 million
Euro and a generated value added of 5,472 million Euro (data for 2008)29. Meanwhile, turnover per person
employed and the value added per person employed reached a total of 162.3 thousand Euro and 57.4
thousand Euro respectively, where all these figures have shown an upward trend in the time period 20042008. Finally, value added generated by the analysed sector reached almost 0.3% of the total value
added in manufacturing as a whole (see Table 3.3).
Table 3.3
“Manufacture of Weapons and Ammunitions” sector (NACE Rev 1 29.6), Structural profile, EU-27, 2004 to 2008
Variables
Number of enterprises
Turnover (Million Euro)
Value Added (Million Euro)
Employment (thousand people)
Turnover per person employed (thousand Euro)
Value Added per person employed (thousand Euro)
Share of value added in manufacturing total (%)
2004
2005
2006
1,329
12,641.5
4,255.7
105.1
120.4
40.5
0.27
1,291
13,300.0
4,490.0
99.5
133.8
45.2
0.28
1,297
14,401.7
4,686.8
97.3
148.0
48.2
0.27
2007
1,348
15,187.7
5,347.6
96.3
157.9
55.6
0.29
2008
1,282
15,477.3
5,472.0
96.1
162.3
57.4
0.28
Data for 2008 are estimated
Source: Eurostat, Structural Business Statistics (SBS)
From a country perspective, data for the year 2008 shows that the most important Member States in terms
of turnover were the United Kingdom, Germany and France (3,840.5, 3,016.9 and 2,646.2 million Euro, respectively), followed by Italy and Sweden (1,586.6 and 1,070.5 million Euro, respectively), Poland and Spain
(844.3 and 726.5 million Euro, respectively). Meanwhile, the Member States that obtained the highest value
added were UK, Germany and France (1,458.2, 1,166.9 and 955.4 million Euro, respectively or 26.8%, 21.4%
and 17.5% of the total European value added generated by the sector), followed by Italy, Sweden, Spain
29
Latest available year.
28
and Poland (497.8, 338.6, 249.7 and 184.0 million Euro, respectively or 9.1%, 6.2%, 4.6% and 3.4% of the total
European value added generated by the sector, also respectively)30.
Finally, the available data on labour productivity shows important differences amongst “old” and “new”
Member States, in the sense that “old” have the highest productivity values. In any case, the “Manufacture of Weapons and Ammunitions” sector is always a small sector within the national manufacturing context.
Table 3.4
Main economic indicators of the “Manufacture of Weapons and Ammunitions” sector,
by EU countries, 2008
Number of
enterprises
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
33
24
55
14
159
81
68
168
132
13
1
2
2
39
7
45
75
21
26
23
13
45
104
140
Turnover
(Million EUR)
417.5
147.8
209.8
33.4
3,016.9
104.1
726.5
2,646.2
1,586.6
9.3
n.a.
3.3
n.a.
30.2
n.a.
262.6
844.3
56.3
92.2
5.6
70.2
306.8
1,070.5
3,840.5
Value added
at factor cost
(Million EUR)
167.6
61.1
82.0
14.0
1,166.9
45.9
249.7
955.4
497.8
1.9
n.a.
0.4
n.a.
8.9
n.a.
81.4
184.0
18.3
24.2
23.6
19.4
73.1
338.6
1,458.2
Apparent labour proShare (%) of
ductivity (Gross value
sector value
added per working
added/total
person, thousand Euros) manufacturing
93.2
4.7
18.3
69.9
81.8
20.8
72.3
92.3
78.8
45.1
n.a.
3.9
n.a.
14.4
n.a.
59.3
25.2
30.9
3.1
n.a
12.7
71.1
83.5
92.4
0.3
1.3
0.1
0.2
0.3
0.3
0.2
0.4
0.2
0.1
n.a.
0.1
n.a.
0.3
n.a.
0.2
0.3
0.1
0.2
0.3
0.2
0.2
0.7
0.7
Notes: Czech Republic, Greece and Romania refer to 2007 data. / Lithuania: turnover, value added and apparent
labour productivity refer to 2006 data. / France and UK, apparent labour productivity, 2007 data.
These Eurostat figures are sometimes in contradiction with information coming from national sources (see national
reports included in the annex of this report). For instance, the estimated 2008 turnover of the French Land armament
sector was 4.16 billion euros (data provided by the French employers’ association GICAT). Meanwhile, the Spanish 2010
turnover for the sector was of 583.71 million euros (735.8 billion euros in 2008) (data provided by the Spanish employers’
association TEDAE), where these figures are relatively in line with the figures provided by the National Institute of Statistics
(turnover of 713.3 millions euros in 2008). Meanwhile, and in Sweden, the Swedish employers’ association SOFF suggests
that the estimated turnover of the Swedish land armament sector was approximately 2.31 billion euros in 2010.
30
29
Graph 3.1
30
Main contributing Member States to EU-27 added value in the “Manufacture of
Weapons and Ammunitions”, 2008 (%)
26,8
21,4
25
17,5
20
15
9,1
10
11
6,2
4,6
3,4
Spain
Poland
5
0
United
Germany
France
Italy
Sweden
Others
Kingdom
Source: Eurostat, Structural Business Statistics (SBS).
On the other hand, and concerning latest available data for the “Manufacture of weapons and ammunition” sector (NACE Rev 2, 25.4), in 2010 the main European Member States in terms of turnover generated
by the sector were the UK, Germany and France (2,685.4, 2,486.2 and 2,190.1 million Euro, respectively),
followed by Italy, Sweden, Belgium and Spain (1,645.9, 691.1, 332.1 and 313.5 million Euro, also respectively). Meanwhile, data concerning the “Manufacture of military fighting vehicles” sector (NACE Rev 2,
30.4) shows that France was the European countries with the highest turnover (1,058.2 million Euro) in 2010,
followed by Germany (642.7 million Euro) and the UK (598.6 million Euro) (see Graph 3.2).
Table 3.5
Main economic indicators of the “Manufacture of weapons and ammunition” sector for a selection of EU Member States, 2010
Number of enterprises
Belgium
Bulgaria
Germany
Greece
Spain
France
Cyprus
Italy
Hungary
Austria
Poland
Portugal
Slovenia
Finland
Sweden
United Kingdom
Turnover
(Million EUR)
28
23
141
69
54
162
5
245
13
48
39
9
20
25
85
126
332.1
226.9
2,486.2
97.1
313.5
2,190.1
16.7
1,645.9
15.1
247.7
196.1
45.1
29.9
83.6
691.1
2,685.4
Data refers to (NACE Rev 2 25.4). / Data for Greece refers to year 2008, and Italy to year 2009.
30
Graph 3.2
1.200
Turnover (Million Euro) of the “Manufacture of military fighting vehicles” sector for
a selection of EU Member States, 2010
1.058,2
1.000
800
642,7
598,6
600
266,7
400
200
0
France
Germany
United Kingdom
Poland
Data refers to (NACE Rev 2 30.4). / Data for UK refers to year 2009
3.3. Main Groups and Enterprises.
The EU Land armament sector has the capability for producing the whole range of products needed by
European armies ranging from the basic items of equipment to complex sub-systems and systems (TNO,
2009; ASD, 2011).
In this regard, the European Land armament sector is composed of three main type of enterprises, that is
to say, i) a few multinational companies operating in other defence-related fields (i.e. air or sea) or in civilrelated products, ii) some nationally based prime land system integrators and, finally, iii) many Small and
Medium Enterprises (SMEs), either highly specialised in niche markets and/or involved as suppliers to these
large final integrators.
Examples of major large European manufacturers include the German companies “Krauss-Maffei Wegmann”, “Rheinmetall” and “Diehl”, the UK “BAE Systems”, the French “Nexter” and “Renault Defense
Trucks” companies, the Italian “IVECO Defence Vehicles” and “OTO Melara” companies, the Swedish
“Saab” company or the Finnish “Patria” company, as well as the US-based company “General Dynamics
Europe”. Meanwhile, enterprises more specialised in Land armament-related electronics include the
French “Thales” and “Safran” companies, the Italian Finmeccanica’s Selex Sistemi Integrati and Selex Galileo companies or the Spanish “Indra Systemas” company, without forgetting of course the role played by
EADS’s Cassidian. Next table provides some quantitative information on the main European enterprises
involved in Land armament activities.
31
Table 3.6
Rank
Main European Land armament firms/groups, 2010 (*)
Company
2
BAE Systems
7
EADS (including
Cassidian)
Finmeccanica
8
11
16
S
28
31
45
52
55
63
74
75
77
84
96
Country
UK
Sectors
A Ac El MV
Mi SA/A Sh
Ac El Mi Sp
TransEuropean
Italy
A Ac El MV
Mi SA/A
Thales
France
A El MV Mi
SA/A Sh
Safran
France
El
MBDA (BAE Systems, UK/ TransMi
EADS, trans- European/ European
Finmeccanica, Italy)
Saab
Sweden Ac El Mi
Rheinmetall
Germany A El MV
SA/A
Navantia
Spain
Sh
Krauss-Maffei Wegmann Germany MV
Nexter
France
A MV SA/A
Diehl
Germany Mi SA/A
Chemring Group
UK
SA/A
Ultra Electronics
UK
El
RUAG
SwitzerA Ac Eng
land
SA/A
Indra
Spain
El
Patria
Finland
Ac MV
SA/A
Arms sales Total sales
(US$ m)
(US$ m)
Arms sales
Total Profit Total emas share of
(US$ m) ployment
total sales (%)
32,880
34,609
95
1,966
98,200
16,360
60,599
27
732
121,690
14,410
24,762
58
738
75,200
9,950
17,384
57
60
63,730
4,800
3,710
14,252
3,709
34
100
673
219
54,260
10,010
2,780
2,660
3,390
5,283
82
50
63
230
12,540
19,980
2,010
1,590
1,430
1,210
890
880
830
2,102
1,693
1,425
3,609
923
1,097
1,722
96
94
100
34
96
80
48
-61
391
217
29
103
102
88
5,230
….
2,700
13,570
4,280
4,150
7,720
780
660
3387
747
23
88
249
5
28,610
3,400
Acronyms used for sectors: A = artillery; Ac = aircraft; El = electronics; Eng = engines; Mi = missiles; MV = military vehicles; SA/A
= small arms/ammunition; Ser = services; Sh = ships; Sp = space; Oth = other; Comp( ) = components, services or anything
else less than final systems in the sectors within the parentheses—used only for companies that do not produce final systems
An S denotes a subsidiary company.
(*) Enterprises and groups presented include those who develop activities in three concrete sectors (this is Artillery, Military
Vehicles and Small Arms/Ammunition) plus those enterprises that belong to ELDIG (European Land Defence Industry Group)
Source: SIPRI ‘s database
This section presents individual information on the main groups and enterprises operating in the Land armament sector in Europe. In this regard, a first group of enterprises belonging to the so-called ELDIG
group31 will be presented. Subsequently, individual information on some additional important European
groups and enterprises operating in the Land armament sector will be also presented. Thus, and as far as
the main groups and enterprises belonging to the ELDIG group, they are the following ones (in alphabetical order):
31 ELDIG (European Land Defence Industry Group) represents the interests of the main European Land defence groups
and enterprises. It formally operates under the umbrella of ASD (The AeroSpace and Defence Industries Association of
Europe), the employers’ association representing the aeronautics, space, defence and security industries in Europe
32
BAE Systems plc (http://www.baesystems.com) is a British multinational defence, security and aerospace company
headquartered in London, United Kingdom. BAE Systems plc is among the world's largest military contractors, where
more than 95% of BAE Systems’ total sales are military related. BAE Systems plc has manufacturing locations in the UK,
the United States, Australia, India, Saudi Arabia and Sweden. In fact, BAE systems is present in all core military domains (sea, land, air and defence electronics). Focusing on land-defence products supplied by BAE Systems, the
business unit ‘Land and Armaments’ provides design, development, production, through-life support and upgrade of
armoured combat vehicles, tactical wheeled vehicles, artillery systems and munitions. Moreover, BAE Systems provides other land defence-related products/services such as systems integration and electronics (e.g. C4ISR), throughlife support, Engineering and Manufacturing, Technology and Innovation, Homeland Security and Information Technology. World-wide, it employs about 90,000 staff, of whom approximately 40,000 are based in the UK. Indeed, BAE
Systems is the UK’s largest manufacturing employer and employer of professional engineers, employing 18,000 engineers.
Cassidian (http://www.cassidian.com) is the Defence and security subsidiary of the EADS (European Aeronautic Defence and Space Company) Group, and a major provider of global security solutions, lead system integration and
joint systems. Cassidian's headquarters are located in Unterschleissheim (Germany), although the company has different offices located across Europe (Finland, France, Germany, Italy, Romania, Spain, UK), America (USA, Canada,
Mexico, Brasil) and Asia (India, Saudi Arabia and United Arab Emirates). Data available indicate that in 2009
Cassidian employed approximately 28,000 employees worldwide and achieved combined revenues of €5.4 billion.
The portfolio of Cassidian includes products related to Detection, Missiles (MBDA), Electronic Warfare, Mission Support
Systems, Engagement and Command, Protection & Surveillance, Command & Control, Intelligence, Mobile Hospital
Solutions, Radio & Accessories or Soldier Modernisation products
Diehl Defence Holding GmbH (www.diehl-defence.de) is a Corporate Division within the Diehl Group which concentrates all business activities in the fields of defence and security. The manufacturing locations of Diehl Defence are
mainly located in Germany (with headquarters in Überlingen) but there are also 27 sites in eight countries (including
Thailand, Turkey, United Arab Emirates, India or the United States). The main range of Land defence-related products
includes ammunition (i.e. medium and large calibre ammunition, bunker busters, etc), sensor and security systems
(i.e. active protection systems for armoured vehicles), system tracks/suspension components, customer support/training activities, vehicle maintenance and vehicle upgrade activities or components (infrared modules, ammunition fuzes, etc)
EXPAL (http://www.maxam.net/es/expal) is responsible of the ‘defence’ business unit of the Maxam Group, a global
organization with over 140 companies operating across the five continents, with industrial facilities in more than 40
countries. More precisely, EXPAL offers solutions for supporting and improving operational capabilities, including defence technological developments and protection of troops. EXPAL’s headquarters are located in Madrid, and
there are production centres in Spain, Denmark, Italy and Bulgaria. As a whole, EXPAL employs 600 professionals. The
range of products developed by EXPAL includes munitions (fuses, small arms ammunition, artillery, mortar system
ammunition), weapons systems (anti-tank training mines, surface control systems, mortar systems), energetics (demolition stores, propellants and propellant systems) and Systems and Technology applications
General Dynamics European Land Systems (GDELS) (http://www.gdels.com) belongs to the US General Dynamics
Corporation and conducts its business through 11 European manufacturing sites located in Spain, Germany, Austria,
and Switzerland (seven of them are located in Spain), with headquarters in Madrid. The group is the combination of
four entities (GDELS-Germany, GDELS-Mowag (Switzerland)), GDELS-Santa Bárbara Sistemas (Spain) and GDELS-Steyr
(Austria)) that were unified as a single business unit under one European parent company in 2003. The product portfolio of GDELS includes protected Wheeled Vehicles, Tracked Vehicles (both Infantry Fighting Vehicles and Light
Combat Vehicles), Mobile Military Bridge Systems, Artillery Systems, Arms and Ammunition (large/medium and small
calibre). GDELS has currently around 3,500 employees in Europe.
IVECO (http://www.iveco.com) is an Italian truck, bus, and diesel engine manufacturer, based in Turin and specialised in the design, manufacturing and marketing of a broad range of light, medium and heavy commercial vehicles,
off-road trucks, city and intercity buses and coaches as well as special vehicles for applications such as fire fighting,
off-road missions, defence and civil protection. In this sense, IVECO Defence Vehicles is dedicated to delivering innovative automotive and protection solutions to meet the needs of defence customers worldwide. It is based in Bolzano, Northern Italy, and offers a wide range of multi-role vehicles, light multi-role vehicles (LMVs), medium-protected
vehicles (MPVs), MOTS, tactical trucks and armoured vehicles. In addition to its logistic and protected vehicle range,
IVECO also manufactures two families of wheeled armoured vehicles, the Centauro family and the Puma family.
33
Krauss-Maffei Wegmann GmbH & Co KG (http://www.kmweg.de) is a defence company based in Munich (Germany) but with locations in Germany, Brazil, Greece, the Netherlands, Singapore, the USA and Turkey. The enterprise’s product port-folio includes tracked vehicles (such as the ‘Leopard’ in its different versions/models), wheeled
vehicles (such as the ‘Dingo’ in different versions/models), artillery (i.e. the PzH 2000 self propelled howitzer), armament systems, bridge layers, training and simulation (such as driving simulators), services, protection equipment and
extended services. The company nowadays leads the European market for highly protected wheeled and tracked
vehicles.
Marshall Land Systems (MLS) (http://www.marshall-ls.com), headquartered in Cambridge (UK), is part of the Marshall
Group, a large (£750M) family owned independent group of companies with nearly 4,500 employees and involved in
the automotive, aerospace and land systems areas. As part of the Marshall Group of Companies, Marshall Land Systems (MLS) brings together in one grouping; Marshall Specialist Vehicles (MSV), Marshall Vehicle Engineering (MVE),
Marshall SDG (MSDG) and Marshall Fleet Solutions (MFS). Products and services provided by Marshall Land Systems
include protected workspaces, vehicle engineering, capability development, fleet solutions, capability support, consultancy, equipment regeneration, laboratories, load beds and flat racks, medical systems, fleet solutions, military
shelters, project/programme management, regeneration, shelter based systems, unmanned ground vehicles (UGVs),
and different vehicle systems
MBDA (http://www.mbda-systems.com/) is a missile developer and manufacturer with operations in France, Britain,
Germany, Italy, Spain and the United States. In 2010, the company had over 10,000 employees and a turnover of
€2.8 bn. The three shareholders of MBDA include BAE Systems (37.5%), EADS (37.5%) and Finmeccanica (25%). MBDA
works with over 90 armed forces worldwide. MBDA produces in the field of Land armament a number of surface-toair and anti-tank missiles as well as several ground based air defence systems
Navantia (http://www.navantia.es/) is a Spanish public company primarily specialised in the design and construction
of hi-tech military vessels and civil vessels, although Navantia also has a line of production around FABA Systems and
specialised in the integration of complex high-tech combat systems, not only in different navy vessels but in other
fields (for instance, FABA Systems has an increasingly significant presence in the Spanish Army). Also, the company
builds several medium calibre howitzers under license. According to the latest available data, Navantia had 5,200
workers on its payroll in 2010, whereas around 320 workers are involved in FABA Systems, with a turnover of around
150 million euros
Nexter Group (http://www.nexter-group.fr) is a French government-owned weapons manufacturer and the lead
partner of the French army. According to 2010 data, Nexter Group had 2,700 employees, and sales reached €1.1
billion, with 9 production sites in France, offices in Canada, Spain, Thailand, Saudi Arabia and United Arab Emirates,
and with presence in more than 100 countries. The group distinguishes several business lines, that is to say, Systems
(weapons & turrets, artillery, armoured vehicles, etc), Ammunition (tank and artillery ammunition, protection, pyrotechnics, etc), Electronics (e.g. instrumentation control & sensors), Mechanics (periscopes, diascopes, etc), NBC (Collective and individual protection, decontamination, etc), Shelters/Structures (shelters, tools, integration systems) and,
finally, Virtual Training stystems. The NEXTER group is formed by different subsidiaries (Nexter Systems, Nexter Munitions,
Nexter Electronics, Nexter Mechanics, Nexter Training, NBC-Sys, Optsys, and Euro-Shelter), each of them specialised in
different market/products
Oto Melara S.p.A. (http://www.otomelara.it) is an Italian defence company with factories in Brescia and La Spezia,
and additional facilities in Spain and the USA. The company produces a wide range of state-of-the-art land armament products and technologies including turret land-defence systems, conventional and guided ammunition,
combat vehicles, artillery, surveillance and battle management systems. Also, the Iveco Fiat - Oto Melara consortium
(CIO), is the principal armoured vehicles provider of the Italian Army (Centauro, Ariete, Dardo, Puma, VBM), as well
as important actor in the export market. Oto Melara's defence operations are part of the Italian “Finmeccanica”
consortium (http://www.finmeccanica.it), with operations in seven sectors (Aeronautics, Helicopters, Space, Defence
and Security Electronics, Defence Systems (Oto Melara belongs to this), Energy and Transportation). Examples of additional enterprises belonging to Finmeccanica includes DRS Technologies, SELEX Galileo, SELEX Elsag or SELEX Sistemi
Integrati.
Patria Oyj (http://www.patria.fi/) is a Finnish company which produces a wide range of defence, security, aviation
and aerospace technology. The company is owned by the state of Finland (73.2%) and the European Aeronautic
Defence and Space Company (EADS N.V.) (26.8%). According to 2010 data, net sales went up to € 564 million,
whereas it had approximately 3,400 employees. Its main land-defence products include vehicles and mortar systems
(i.e. the Patria AMV vehicles or the Patria Nemo), as well as the development and integration of systems for command and control and situational awareness. Patria is also active in the provision of life cycle support services for
these vehicles and provides ammunition products
34
Rheinmetall Defence (http://www.rheinmetall-defence.com) is an automotive supplier and a defence technology
producer. The defence business has got a management structure organised around three divisions (i.e. Combat Systems, Electronic Solutions and Wheeled Vehicles). The company offers an extensive array of military products and
technologies that include Combat Systems (armoured tracked vehicles, NBC protection systems, turret systems and
weapon stations, medium and large calibre weapons and ammunition, self-defence systems, propellants and powder), Electronic Solutions (i.e. soldier systems, fire control units, sensors, land simulation) and, finally, Wheeled Vehicles
(Logistical and tactical vehicles). Rheinmetall Defence operates at international level, with a broad network of
branch offices and company representatives in Europe, North America, Asia, Australia and Africa, although major
manufacturing facilities concentrated in Germany and Switzerland (the company is headquartered in Düsseldorf). In
2011 the total turnover of the company reached 4.45 billionn euro, where the defence division reached a total of 2.1
billion euros.
Saab AB (http://www.saabgroup.com/en/Land/) is a Swedish aerospace and defence company, whose headquarters are in Stockholm (Sweden). Saab has around 13,000 employees worldwide, and annual sales amount to around
SEK 24 billion. Major important markets for Saab include Europe, South Africa, Australia and the US. With regard to
products/services related to ground forces, Saab offers C4I systems (Command, Control, Communication, Computers and Intelligence), Force Protection, ISTAR (sensors for Intelligence, Surveillance, Target Acquisition, and Reconnaissance), Training and Simulation services, Ground Based Air Defence, Weapon Systems (from anti-tank weapons, missile and mortar systems to integrated combat systems and network enabling solutions), as well as Support
Solutions and Services. Saab also provides products/services related to Civil Security, in areas such as Critical Infrastructure Protection, Emergency Response, and Guard and Event.
Thales (http://www.thalesgroup.com) is a French company delivering information systems and services for the aerospace, defence, transportation and security markets. Thales has operations in more than 50 countries. It currently has
approx 65,000 employees all over the world. Through its ‘defence’ division, Thales designs and delivers systems for all
four environments: air, land, sea and space. Thales ranks first in Europe and second worldwide in systems for land
forces (including large-scale cooperative fighting systems and area control systems, electronic warfare, dedicated
systems for surveillance, reconnaissance, command, control and combat (C4ISR products and solutions), defence
communications and optronics, vehicle and soldier systems, weapon systems and munitions (mortar systems, precision-guided munitions and munitronics) and key equipment). Thales is now partially state-owned by the French State
(Thales' major shareholders are the French state, 27.0%, and Dassault Aviation, 25.9%)
SAGEM (http://www.sagem-ds.com/) is currently part of the Safran Group (http://www.safran-group.com/), a French
conglomerate which resulted from a merger between the propulsion and aerospace equipment group Snecma and
the defence conglomerate Sagem in 2005. The Safran Group is currently organized within three branches that correspond to its three core businesses, that is to say, Aerospace Propulsion, Aircraft Equipment and Defense – Security.
Operating worldwide, the Group has nearly 55,000 employees (42,780 employees in Europe). Specifically on the Defence-Security branch, the Safran Group has got two main companies, that is to say, Sagem and Morpho. Within the
‘land’ section of defence, Sagem offers products for soldier modernization, Portable optronics, Drones, Tactical information systems (e.g. digitization kit for infantry combat vehicles), Navigation and guidance for artillery or, finally,
Sights/fire control systems.
Other relevant enterprises related to the Land armament sector but not belonging to the ELDIG Group
include the following ones:
Bumar sp. z o.o. (http://www.bumar.com/en/) is a Polish leading supplier and exporter of armaments and military
equipment. Bumar is the dominant entity of the state-owned Bumar Group, which consists of 24 manufacturing plus
two trading defence sector companies. All the Bumar Group companies are located in Poland, and the group
employs a total of over 11,000 people. It was formed in 2002 as a result of the adoption of the Strategy for the
Structural Transformation of the Defence Sector Capacity 2002-2005 by the Polish Government, where Bumar sp. z
o.o. was appointed as the integrator of the newly formed Bumar Group. The market activities of the Bumar Group
are concentrated around four product groups, namely Ammunition (shooting ammunition, artillery and missiles,);
Soldier (individual equipment and armament of the soldiers); Electronics and IT (commandment systems, radars,
sensors, anticraft and anti-missiles systems); and Land (wheel, caterpillar patforms, military vehicles, tanks, special
vehicles, technical backup vehicles, bridges). Bumar also supplies civil industry products.
35
Chemring Group (http://www.chemring.co.uk) is a UK producer of countermeasures for protecting air, sea and landbased platforms from threats. The company is headquartered in Fareham (UK), with manufacturing locations in USA
and Europe (UK, Belgium, France, Germany, Italy, Norway and Spain). The Group, structured around 17 companies,
had a total revenue in 2010 of £597.1 million. The Group distinguishes 4 divisions, this is, pyrotechnics (safety systems,
military training, screening, signalling and illumination applications), counter-IED (vehicle-mounted Ground
Penetrating Radar detection systems, advanced technologies in other IED detectors and C-IED Electronic
Countermeasures, high reliability detonators, etc.), munitions (energetic materials, components and subsystems),
and countermeasures (advanced expendable countermeasures and countermeasure suites for protecting
air/sea/land platforms)
The Hellenic Vehicle Industy S.A (ELBO S.A) (http://www.elvo.gr) is a Greek vehicle manufacturer based in
Thessaloniki. ELVO S.A. manufactures both wheeled and armoured military vehicles that cover all the needs of the
Hellenic Armed Forces, as well as Busses and Trucks for the needs of the Civil Market. The production program of
ELBO S.A. includes products for military purposes, such as both wheeled and armoured military vehicles, and special
purpose vehicles, but it also includes buses and trucks for the needs of the Civil Market. Moreover, ELVO S.A.
cooperates with well-known international companies (MERCEDES, OSHKOSH, etc). In 2009, the company had 441
employees.
Indra Sistemas, SA (http://www.indracompany.com/en) is a Spanish information technology and defence systems
company, with headquarters in Madrid. Indra offers solutions and services for 9 different sectors, including the socalled Security and Defence sectors. The company operates in more than 110 countries and it has offices in 30
countries in Europe, Africa, Middle East, Latin America, United States and Asia-Pacific. Concerning specifically the
‘Security and Defence’ industry, Indra provides products/services related to Security (security technology and
solutions for public and private organizations), Command and Control (C4I, C3I and C2I Command, Control,
Communications and Intelligence Systems, Battlefield Management System, etc), Electronic Defense (intelligence,
surveillance, alert, defence, and countermeasure systems for all types of sea, land and air platforms), Radars
(identification Friend or Foe systems), Unmanned Plataforms, CBRN programs (Chemical, Biological, Radiological and
Nuclear), etc
Panhard General Defence (http://www.panhard.fr/) is a French manufacturer of light tactical and military vehicles. Its
current incarnation was formed by the acquisition of Panhard by Auverland in 2005 (Auverland purchased Panhard,
but the fame of Panhard being greater, it was decided to retain the name). Since January 2006, the activities of the
two firms have been combined to form the Panhard General Defense company which enables it to offer a full range
of combat and support vehicles. Panhard manufactures a range of 4WD vehicules for civilian and military safety,
logistics, and immediate tactical deployment for different purposes such as close support, combat support, close
combat, intelligence, and weapons system.
Renault Trucks Defence (http://www.renault-trucks-defense.com/) is a French truck manufacturer. Originally part of
Renault, it has been owned by Volvo Group since 2001. Renault Trucks Defence division is wholly owned by Renault
Trucks and is based in Versailles (France). Renault Trucks Defence designs and manufactures defence vehicles
(armoured, tactical and logistic vehicles; strategic high mobility solutions; complete systems (armaments, command
posts, NRBC, repairing equipments, etc.); and special equipments upon customers’ requirements). Also, Renault
Trucks Defence provides full lifecycle support to these vehicles.
Ruag (http://www.ruag.com/en/Group/Group_Home) is a Swiss technology company. RUAG employs around 7,800
employees in total, of which 5,000 are in Switzerland and production facilities in other countries such as (Germany,
Austria, Sweden, Hungary and the USA). RUAG Holding AG's sole shareholder is the Swiss Confederation, and it is a
strategic partner to the Swiss Armed Forces. RUAG focuses on two market segments: Aerospace (space and
aviation) and Defence (security and defence technology). The group turnover is divided evenly between civil and
military applications. Within the ‘Defence’ market segment, the “RUAG Defence” division develops and produces
heavy weapon systems and armoured vehicles, ballistic protection systems, and mobile command posts.
Meanwhile, the “RUAG Ammotec” division specializes in small-calibre ammunition for the military and government
agencies, as well as high-quality pyrotechnic products for military and civil markets.
Ultra Electronics (http://www.ultra-electronics.com/) is a UK based defence, security, transport and energy company
specialised in electronics and structured around three main divisions (Aircraft & Vehicle Systems, Information & Power
Systems and Tactical & Sonar Systems) and six main segments. The revenue of the Aircraft & Vehicle division was in
2011 of £166.1m, that gave employment to 1,042 employees. Within the vehicle segment, the company develops
defence vehicle electronics including human-machine interface equipment to control remote weapons stations,
complete control and interface solutions or local situational awareness and vetronic systems, as well as C4ISTAR
systems and equipment
36
Wojskowe Zakłady Mechaniczne (WZM) (http://wzms.pl/en/) is a leading Polish company which produces miliitary
vehicles, primarily for the Polish Army. In 2010, WZMS reported record sales of 650 million zloty. WZMS is the leading
company within the Wojskowe Przedsiebiorstwa Remontowo-Produkcyjne (WPRP), a Polish group of 11 state-owned
defence Polish companies related to military equipment. With regard to the products manufactured, WZM produces
the armoured modular vehicle 8x8 Rosomak, technological tools and instruments, stands of testing, special
equipment and devices, and spare parts, as well as repairing and and upgrading activities.
3.4. Main subsectors and products included in sector
Following the classification suggested by the European Land Industry Group (ELDIG)32, the European Land
armament sector includes nine main segments of activity, that is to say:
– Vehicles
– Soldier Systems
– Sensors for C4I (Command, Control, Communication, Computers and Intelligence)
– Weapons and ammunition
– Protection equipment and systems
– C4I equipment and systems
– Logistic and support equipment and services
– Simulation and training equipment
– Complex and joint systems
A brief explanation of each one of these segments is provided next:
a)
Vehicles
Europe has a very strong technological and market position in the vehicles sector, well reflected in existing
European capabilities in vehicle technologies and Research & technology (R&T). This activity segment is
characterised by the existence of several major manufacturers, spread all around Europe, as well as by a
worldwide strong competition due to the relatively lower technological barriers to entry. Relevant European firms in this domain include Krauss-Maffei Wegmann and Rheinmetall in Germany; Nexter, Renault
Trucks Defense and Panhard General Defense in France; Patria in Finland; Oto Melara (Finmeccanica
Group) and Iveco in Italy; Bumar and Wojskowe Zaklady Mechaniczne (WZM) in Poland; BAE Land Systems
in the United Kingdom, ELBO in Greece or the US General Dynamics European Land Systems, headquartered in Spain but with activities in other European countries.
European manufacturers are involved in the production of different types of vehicles such as Combat
vehicles (i.e. tanks), specific vehicles for combat support (ISTAR33, demining, CBRN34, etc), Multi-role vehicles (adaptable with different variants of weapon or electronic systems) and, finally, Logistic vehicles (used
for the transport of goods and troops, and usually based on ruggedised civil vehicles)35. In all these subsegments of activity, European industry remains competitive in international markets.
32
33
34
35
ELDIG is a body of the AeroSpace & Defence industries association of Europe (ASD)
ISTAR stands for Intelligence, Surveillance, Target Acquisition, Recognition.
CBRN stands for Chemical, Biological, Radiological, Nuclear
The costs of all these subsegments of vehicles may range from 200 KEuro to 8 MEuro per vehicle.
37
b)
Soldier Systems
The “Soldier Systems” Industrial Segment manufactures systems or subsystems that equip infantry soldiers.
These soldier systems include five main subsegments, that is to say, C4I36 instruments (they provide access
to battlefield information and communications between individuals, units and (sub)systems), lethality instruments (basically weapons, sighting systems and associated accessories), mobility instruments (e.g.
navigational aids help inform soldiers of where they and their comrades and/or enemies are in the battle
space), survivability instruments (e.g. protective clothing for different attacks, body armours, etc) and,
finally, sustainability instruments (e.g. instruments that maintain a soldier's fighting capability for as long as
possible such as novel power sources or weapon sights).
European manufacturers remain competitive in this segment due to continuous R&T and innovation efforts
in the five areas described before, although strong competition exists worldwide due to relatively lower
technological barriers of entry. In Europe, there are several on-going soldier modernisation programmes. A
good example of this type of systems is given by the Warrior21® program developed by CASSIDIAN or the
French FELIN soldier modernization program developed by Sagem (in partnership with EADS, Sagem has
also been selected for the Swiss soldier modernization program IMESS).
c)
Sensors for C4I (Command, Control, Communication, Computers and Intelligence)
This industrial segment is mainly engaged with the manufacturing of sensors that provide the military user
with information for different purposes (e.g. protection, surveillance, detection, recognition, identification,
intelligence, firing, etc), including instruments to make this basic information easily understandable). There
are two main technologies within the sector, this is, Radio Frequency sensors (including radars) and optronics. The technologies are usually shared between air, naval and land sectors but customised to specificities, where these technologies have also important applications in the civil domain. The sector is primarily
dominated by large companies operating at European level (most of the large land defence sensor providers are also system providers), although there are also small and medium enterprises (SMEs) working on
high technology-level niche markets.
d)
Weapons and ammunition
This industrial segment is specialised in the development and production of sub-systems and/or components to be integrated on various platforms or as stand alone weapons and ammunition products. The
sector as a whole is very varied and spans across families of small, medium and large calibre ammunition
and systems as well as hand arms, grenades, pyrotechnics and demilitarisation of obsolete munitions or,
finally, missiles (MBDA as the integrated European land missile company). In Europe there are approximately 10 main enterprises active in the weapons and ammunition sector (i.e. BAE Systems, Chemring
Group, GDELS, Krauss-Maffei Wegmann, Nexter, Diehl Defence, Otomelara, Patria, Beretta, Heckler&Koch,
FN Herstal, Walther, etc), usually in both domains and with a high technological level. There is a fierce
international competition level amongst small calibres producers (usually considered as a commodity that
many, but not all, EU Member States procure worldwide), whereas competition is relatively lower in the
remaining product portfolio. Just to give some examples, there is international competition in land missile
sector coming from USA and Israel, whereas in the large calibre (≥ 90mm) sector, all guns for both direct
and indirect fire in land and naval applications are of European origin37. Intelligent ammunition is a rapidly
developing sector and at the moment it is the only sector in which the USA is strongly competitive versus
Europe.
C4I stands for Command, Control, Communications, Computers and Intelligence.
Calibres in this group are set to a large extent by international agreements which impose stringent restrictions on the
design.
36
37
38
e)
Protection equipment and systems
This industrial segment is primarily focused on the development and production of materials and systems
for protecting (in a wide sense) personnel and/or equipments (vehicles, materials, buildings and camps,
etc) from very different threats such as bullets, fragments, IED/EODs38, CBRN, etc) and related to different
methods (jammers, electronic warfare, pyrotechnics, decoys, stealth technologies, etc). The European
segment is composed of many SMEs specialised in niche segments (i.e. IABG, GEKE Technologie, FAUN
GmbH, Kärcher Futuretech GmbH ), although there are also several large companies in the segment (i.e.
Nexter, Diehl Defence, Otomalera, etc). This segment is characterised by a medium/high level of competition in Europe, depending on different areas and products, where many products and applications of this
segment can be also used in for civil purposes.
f)
C4I equipment and systems
There a few European companies active in this field, where these companies usually operate in the “complex and joint systems” industrial segment to be later described. This sector can be described as very technology-based sector and it is primarily concerned with combat system networks and obtaining information
superiority in the battle ground. Examples of enterprises involved in this segment include Thales, Saab, Selex
Sistemi Integrati (Finmeccanica Group) or Ultra Electronics.
g)
Logistic and support equipment and services
This industrial segment provides support services focused on defence related equipment (i.e. maintenance
and support activity, other services, etc). This segment has got a strong dual orientation towards both civil
and military markets. Interestingly, European national authorities are increasingly open to outsourcing some
of the classical logistic and service activities (i.e. transport, health and medicine, fuel and catering, etc)39,
whereas in the UK and USA it is a relatively common practice to outsource these activities through Public
Private Partnerships40. Meanwhile, contractors are currently made responsible both for the supply of the
equipment and its maintenance throughout its operational life repairing and maintenance activities, usually for cost reasons41. A good example of this is given by the German company Heeresinstandsetzungslogistik GmbH (HIL). In France, available data suggest that outsourcing expenses have increased from 592
million euros in 2001 to 1,695 million euros in 2008 (Cour des Comptes, 2010). Competition in Europe is low
because maintenance, repair and engineering services are restricted to the companies that have produced the equipment (i.e. Krauss-Maffei Wegmann, Diehl, Patria, etc), so the industry is mainly segmented.
Finally, there are important business opportunities linked to the modernization and increasing the sustainability and product life of the existing weapons systems and vehicles in use (TEDAE, 2010).
IED/EOD stands for Improvised Explosive Devices/ Explosive Ordnance Disposal
In France, outsourcing expenses have increased from €592 million in 2001 to €1.695 million in 2008 (Cour des Comptes,
2010).
40 In the UK there are a number of very important enterprises and groups specialised in the provision of specialised defence-related services such as Serco Group (http://www.serco.com/) or Babcock International Group
(http://www.babcock.co.uk/).
41 For instance, and increasingly enough, manufacturers’ maintenance human teams are shifted to the operation scenarios (i.e. Afghanistan, Balkans, etc) in order to take care and keep the existing equipments operative and in good
order.
38
39
39
Table 3.7.
The German Heeresinstandsetzungslogistik GmbH (HIL) company
The German Heeresinstandsetzungslogistik GmbH (HIL) company was born in February 2005 to meet the requirements of maintenance of the Bundeswehr machines, at least for the following eight years. It is a collaboration between the federal government, that holds 49% of the shares, and the HIL Industrieholding GmbH, that
holds 51% of the shares. The HIL Industrieholding GmbH is in equal possession of Industriewerke Saar (IWS), a
company of the group VA-System of the Diehl Stiftung & Co. KG, Rheinmetall Landsysteme (RLS) and KraussMaffei Wegmann (KMW). In any case, it is important to stress that this company is currently under question by
the German Federal Government, so it is not clear its future viability in the coming years.
Source: Küchle, 2007
h)
Simulation and training equipment
This industrial segment is composed of several European companies that are capable of providing simulation and training military systems that reproduce military situations or military equipment to prepare soldiers
for their behaviour in certain situations or the use of armament/vehicle systems. This industrial segment is
characterised by a high level of competition but coupled also with some cooperation amongst manufacturers. Dual use products are present in this sector. Examples of companies involved in this industrial segment include, for instance, large manufacturers such as Nexter or Diehl Defence or small very specialised
niche market SMEs (i.e. Antycip Simulation).
i)
Complex and joint systems
A complex and joint system (i.e. a System of System (SoS)) can be defined as a set of systems characterised by several traits such as being cooperative (main objective is a coherent global working), autonomous (every system is designed to work alone), geographically distributed (not physically linked), asynchronous mode of development (existing, improved, designed systems) and, finally, generating an emergent behaviour (new functions created due to cooperation). A SoS obviously includes the eight other
segments described before. In Europe there are a few companies which already operate using the SoS
approach, since these companies have to master industrial alliance, transverse management, parallel
programmes, R&T, prototyping, development and experimentation, Battle Labs for testing and evaluation.
This sector is very technology intensive.
3.5. Main qualitative characteristics of the European land armament sector
Generally speaking, the EU Land armament sector is characterised by a number of traits that can be
summarised around the following main points:
Table 3.8
•
•
•
•
•
•
•
•
•
Main qualitative characteristics of the European Land Armament sector
Specialisation of the most relevant enterprises in defence-related activities.
Fragmented production capacities in the EU Land armament sector.
Positive profit levels of the Land armament enterprises.
Key role of internationalisation and external trade activities of the European Land armament sector to
overcome small national markets.
Increasing concentration of the European Land armament industry in the last twenty years.
An increasing trend towards cooperation activities amongst European Land armament enterprises.
A whole restructuring process of the Eastern European Land armament Industry since the nineties and
linked to the dissolution of the Warsaw Treaty.
The particular ownership structure of the Land armament sector in some EU Member States
The high dependence of certain regions on Land armament activities.
40
3.5.1.
Specialisation of main sector enterprises in defence-related activities
One of the main characteristics of the defence industries in general relates to the fact that, often, they
actually produce dual use goods and technologies, i.e. products and technologies which have both defence and civilian related applications (TNO, 2009), though sometimes this potential use can be limited by
confidentiality restrictions or by being too expensive for the open market. In this sense, European land
armament enterprises seem to be much more oriented towards defence-related activities exclusively.
Taking as a reference the 17 main European Land armament firms/groups in year 2010, the largest majority
of them obtained more than 80% of their total sales from defence-related activities (that is to say, 11 enterprises/groups), where in two cases (i.e Nexter and MBDA) all their sales came from arm-related activities. By way of contrast, only in four cases (EADS, Safran, RUAG and Indra), arms-related sales represented
less than 50% of the total sales.
Only some concrete enterprises (i.e. Krauss-Maffei Wegmann, Nexter, Chemring Group) have a particular
specialisation in specific Land armament related activities (armoured vehicles, artillery, ammunition,
weapons), whereas other enterprises tend to combine these Land armament activities with other defence-related activities (i.e. aeronautics and space, electronics, services, missiles, etc). Finally, SMEs integrated in the supply chains of main prime Land defence contractors usually have a smaller specialisation
in defence-related activities.
Table 3.9
Percentage of total sales obtained from arm sales amongst the main European Land
armament firms/groups, 2010
More than 80%
BAE Systems
MBDA
Saab
Navantia
50-80%
Finmeccanica
Thales
Rheinmetall
Diehl
Less than 50%
EADS (including Cassidian)
Safran
RUAG
Indra
Nexter
Chemring Group
Ultra Electronics
Patria
Source: SIPRI YearBook 2011
3.5.2.
Fragmented production capacities
Despite the existing consolidation efforts amongst the EU Land armament manufacturers, the sector is still
characterised by the presence of nationally based prime land system integrators. This situation is explained
by several reasons such as the desire of national Member States to keep national sovereignty and autonomy in defence-related issues or the relatively lower entry costs, lower development costs and larger production runs in comparison to other defence-related sectors (i.e. aerospace and/or naval). This situation
results in fragmented production capacities in the land armament sector amongst a large number of EU
countries as well as the presence of a relatively large number of small national manufacturers, especially in
comparison to the US main Land armament counterpart firms (i.e. General Dynamics, SAIC, Oshkosh Truck,
Alliant Techsystems).
Thus, and compared to the USA Land armament sector, the EU has ‘too many’ smaller nationally based
prime integrators producing the same type of products (TNO, 2009; Hartley, 2011)42. For instance, in Europe
there are 6 and 12 manufacturers of 8X8 and 4X4 Armoured Infantry Fighting Vehicles (AFVs), respectively.
Also, and in comparison with the USA, there are five manufacturers of main battle tanks in comparison to
one in the USA, there are up to sixteen European manufacturers of Armoured Infantry Fighting Vehicles
42
This importance of the national element within enterprises has been stressed by several interviewed experts.
41
(AFVs) in comparison to three in the USA or, finally, there are five manufacturers of 155mm howitzers in
comparison to one in the USA. A similar result is shown by a recent study carried out by the EDA on the
Precision Guided Ammunition (PGA) sector, which shows that there are several PGA products and ongoing development programs within the EU, where these capabilities are dispersed around various EU
Member States43.
Interestingly also, the EU firms produce an average of four arms products compared with the US average
of two arms products, and US large Land armament enterprises have larger arm sales than their EU counterparts. As a result, the US firms are achieving greater economies of scale (larger output over fewer products).
This persisting lack of Europeanization of the industry (combined with a limited cooperation at EU level
between enterprises) results in a number of undesired side effects from an aggregated European perspective in terms of unnecessary duplication of products, production structures and research and development
efforts, shorter production runs (partially compensated by export activities), excess capacity as well as a
lack of standardisation of military equipments (in the sense that each manufacturer pursues its own technology lines). Obviously enough, all these elements result in avoidable additional costs for the manufacturers, especially in comparison to the US Land armament industry (Hartley, 2011).
The continued commitment of national governments44 to retain an independent industrial and technological capability in the Land armament industry is often suggested as one of the main reasons behind this
presence of fragmented production capacities. However, it is important to recognise that some EU Member States (e.g. Sweden, Germany, United Kingdom) are moving from a biased sourcing strategy towards
a more open and competitive procurement strategy seeking less ‘tailored’ products with specifications set
from the start and with less/no bias towards national sourcing.
For more information see http://www.eda.europa.eu/news/12-0307/roadmap_and_implementation_plan_on_precision_guided_ammunition
44 This situation is even exacerbated by the existing public ownership of several key Land defence manufacturers in
several EU Member States (see a next section on this issue)
43
42
Table 3.10.
National Defence Industrial Strategies of the three big defence markets (UK, France and
Germany)
According to the existing national strategy papers (the 2006 German Defence White Paper, the 2012 British
Government’s White Paper National Security Through Technology or the 2008 French White Paper on Defence
and National Security), all the three countries stress their will to keep their strong and leading position in their
key defence industry sectors and technologies. Thus, France and UK explicitly state in their defence white papers to nationally retain certain key technologies (i.e. nuclear arms, ammunition), and exclude them from foreign competition, where Germany’s defence industry policy puts emphasis on maintaining a national industrial
base. At the same time all countries mention that in certain areas where specific capabilities cannot be mastered on the national level, procurement policies must also include the options for more openness and cooperation at European level.
However, the existing financial and public budgetary constraints are putting this model under added pressure.
Thus, a recent statement given by the German Minister of Defence last 27th May 2012 opens the possibility to
purchase products from foreign manufacturers under the conditions that these systems are of high quality,
available on the market within a short time period and are less expensive than German products. Also, the British government is adopting an open procurement principle as the chosen method for maximising value for
money (VFM), in the sense that British companies will no longer have priority for MoD/government contracts,
stressing the purchasing of “off-the-shelf” equipment and open procurement methods seeking less ‘tailored’
products with specifications set from the start and with less/no bias towards UK sourcing.
Interestingly also, the UK Armoured Fighting Vehicles (AFV) Sector Strategy presented in 2009 suggests that the
UK will operate as an ‘intelligent’ customer in the global AFV market, especially within the EU and NATO. In
other words, it accepted that it was not necessary to retain industrial capabilities in the UK in order to achieve
appropriate operational sovereignty. Also, the AFV strategy suggests that there is no absolute requirement to
manufacture all of the constituent parts of an AFV in the UK, although it recognised the need to retain an onshore (UK) capability to i) understand and manage the structural integrity of the vehicles and ii) to repair and
regenerate battle damaged or operationally time-expired vehicles. This has clear implications for the remaining manufacturing base in the UK which has been on a declining path for some time.
Finally, France has become slightly more liberal, but access to the home market remains quite closed throughout the supply chain.
Source: TNO, 2009 and national contributions.
A good example of this is given by the recent awarding by the British MoD of the first phase of a £4bn contract to build the British Army’s next generation of tanks (Future Rapid Effect System/FRES) to the UK subsidiary of the US company General Dynamics. As a result, BAE Systems announced the closure of its Leicester and Leeds sites, while it was also thought that this development threatened the future of the firm's factory in Newcastle, involving the possible further loss of 600 jobs. General Dynamics UK Limited won the contract for an initial order of 580 vehicles on the proviso that 80% of the manufacture will be completed in the
UK, with 70 per cent of the supply chain made up of UK-based companies. This contract is expected to
create 200 new jobs at the company's plant in Newbridge, South Wales, while a further 250 existing jobs will
also be safeguarded there.
3.5.3.
Positive profit levels of the ent enterprises
The main European enterprises/groups involved in Land armament activities have shown in the period
2008-2010 mostly positive profitable results. Thus, just focusing on the 2010 results, all the identified enterprises showed positive results, being the only exception to this the case of the Spanish Navantia. The existence of several public contracts still running in time, together with a good export behaviour of enterprises,
explain this positive recent economic evolution and the availability of (still) full order books. However, it is
not clear the evolution of this indicator in the coming years, due to the current economic crisis situation
and the cuts in public expenditure expenses45.
In September 2011, BAE Systems began consultation with unions and workers over plans to cut nearly 3,000 jobs, mostly
in the company's military aircraft division
45
43
Table 3.11
Total profits of main European Land armament firms/groups, 2008-2010 (US$ m))
Company
BAE Systems
EADS (including Cassidian)
Finmeccanica
Thales
Safran
MBDA
Saab
Rheinmetall
Navantia
Nexter
Diehl
Chemring Group
Ultra Electronics
RUAG
Indra
Patria
2008
3,250
2,302
996
952
375
206
-37
198
-82
…
145
21
76
3
47
266
3
2009
-70
-1,060
997
178
522
330
91
-72
-115
211
196
30
109
122
-98
272
24
2010
1,966
732
738
60
673
219
63
230
-61
391
217
29
103
102
88
249
5
Source: SIPRI, the arms industry database, several years
3.5.4.
Key role of internationalisation and external trade activities
Existing excess capacities beyond domestic demand make the large industrial players in the EU Land armament sector particularly dependent on export activities so to achieve viable economic output scales
and longer production runs that compensate the limited size of national markets46. In this regard, the European Land armament sector has a number of important export success stories, for instance, the German
Leopard tank or the sales of Thales communications and optronics products to the Middle East and AsiaPacific region. Public governments strongly support these export activities as a way of offsetting the fall in
domestic demand.
The analysis of existing foreign trade data confirms this heavy reliance of European manufacturers on international markets. Thus, and according to data available for the period 2005-2010 on exports and imports of armoured vehicles, artillery and total arms in general by country and provided by SIPRI (Stockholm
international Peace Research Institute)47, the total exports of armoured vehicles and artillery together of
the EU-27 countries reached a value of 7,941 million US$ in this time period, whereas imports had a value of
4,501 million US$, resulting into a positive trade balance of 3,440 million US$. Both EU-15 and EU-12 country
groups show a positive trade balance in armoured vehicles and artillery products. Concerning the trade
balance for the total of arms (which also includes other products such as aircraft, air defence systems,
ships, engines, sensors, etc), it can be observed that the result for the EU-15 is positive in comparison to a
negative result for the EU-12.
For example, it is estimated that 55,000 of UK-based jobs are sustained solely on the strength of defence exports
(http://www.telegraph.co.uk/finance/newsbysector/industry/defence/8244152/UK-defence-industry-in-numbers.html).
47 SIPRI (Stockholm international Peace Research Institute) http://www.sipri.org
46
44
Table 3.12
Arms trade in the EU-27. Exports, Imports and Trade Balance by country. Total for the period
2005-2010 (US$ Million)
Exports
Armoured
Vehicles
Trade balance
(exports- imports)
Imports
Total Arms
Armoured
Vehicles
Artillery
Total Arms
Armoured
Vehicles
715
96
198
54
15,113
n.a.
5
36
3,661
10,492
3,518
n.a.
n.a.
n.a.
0
88
n.a.
4,674
239
598
133
46
n.a.
33
295
2,978
5,970
121
5
20
142
55
11
8
1,545
1,052
13
25
0
3
12
8
7
0
237
10
135
125
31
16
1
88
31
306
0
0
0
0
3
9
3
123
3
11
160
12
0
3
0
0
0
141
0
0
1
3
1
0
21
0
0
511
488
790
583
1,008
124
55
5,328
1,926
336
1,426
58
138
196
10
508
18
949
884
2,423
1,958
876
87
18
607
391
2,544
32
60
36
-142
3,869
n.a.
-8
-1,509
-1,047
100
231
n.a.
n.a.
n.a.
-8
81
n.a.
78
92
406
-125
-29
n.a.
-1
62
496
-255
17
11
15
0
410
n.a.
-3
-123
12
77
21
n.a.
n.a.
n.a.
0
0
n.a.
-122
0
0
-1
-2
n.a.
15
-14
27
748
204
-392
-592
-529
14,105
n.a.
-50
-5,292
1,735
10,156
2,092
n.a.
n.a.
n.a.
-10
-420
n.a.
3,725
-645
-1,825
-1,825
-830
n.a.
15
-312
2,587
3,426
1515
47,883
3,766
466
18,516
1,866
42
1,059
241
28
5,724
511
1,557
48,942
4,007
494
24,240
2,377
Source: SIPRI Arms Transfers Database. http://armstrade.sipri.org/armstrade/page/values.php
1,049
14
1,063
29,367
-4,665
24,702
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
153
65
56
0
3,924
n.a.
0
36
5
113
256
n.a.
n.a.
n.a.
0
88
n.a.
315
102
541
0
2
n.a.
0
150
527
51
Total EU-15
Total EU- 12
Total EU-27
5,632
752
6,384
Artillery
17
11
15
0
413
n.a.
0
0
15
88
181
n.a.
n.a.
n.a.
0
0
n.a.
19
0
0
0
1
n.a.
15
7
27
748
Artillery
Total Arms
Figures are SIPRI Trend Indicator Values (TIVs) expressed in US$ m. at constant (1990) prices.
Figures may not add up due to the conventions of rounding.
Exports and Trade Balance Data for EU-12 and EU-27 do not include Estonia, Cyprus, Latvia, Lithuania, Malta or Slovenia.
With regard to data by country, the member States with the largest national markets also have the best
exporting performance. Thus, Germany is the best performer, followed by countries such as Sweden, Poland, Italy or France, all of them with positive trade balances and good cover ratios for the 2005-2010 period). On the contrary, Ireland, Greece, Portugal, Spain or Romania are characterised by negative trade
balances. Likewise, it is interesting to comment on the United Kingdom, with a negative trade balance
concerning armoured vehicles but very well positioned concerning the artillery subsector. Alternatively,
Poland, Austria or Finland have a good trade balance concerning armoured vehicles, but have no external trade registered for artillery products (Poland and Austria) or a negative one (i.e. Finland).
It is interesting also to stress the key role that extra-EU markets play for the EU Land armament sector as a
whole. Just to give the French example, France exports approximately a 51% of its land armament production to Asia, 22% within Europe and 12% in the Middle East, whereas the remaining percentage (approximately a 16%) is sold in France48. In this regard, data provided by Eurostat shows that, for the whole of the
48
Data obtained from the national French report.
45
EU-27, the extra-EU trade balance for the arms and ammunition sector has always been positive since
2001, with a high cover ratio (exports over imports). In this regard, it can be said that the EU-27 is selfsufficient regarding arms and ammunition provision, with a large part of the production being sold out of
Europe.
Main non-EU markets for the European sector include the South East Asia, India, Middle East countries,
South America (especially Brasil), Australia or South Africa. To give some examples, the Polish Bumar group
has recently signed in January 2012 a contract for the supply of 204 WZT-3 vehicles to India for a total
value of 275 Million USD, where this contract has been one of the largest one in the Polish land defence
industry for many years (Likowski, 2012). Meanwhile, Nexter has decided to establish a subsidiary in the key
market of India (Nexter India), in 2012 in order to deepen the cooperation with local authorities and companies. In the case of the German Rheinmetall company, approximately one-third of the turnover goes to
the German market (German army), one-third goes to European exports and one-third to non European
countries.
Table 3.13
EU-27 Extra Community Trade of Arms and Ammunition (891 SITC Code). 2001-2010 (Eur
Million)
Export
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
1,450.3
1,503.2
1,196.4
1,319.7
1,472.5
1,534.0
1,658.9
1,826.6
2,126.4
1,850.4
Import
770.3
1,364.0
934.3
533.9
335.7
384.4
913.2
906.7
932.5
1,186.3
Trade Balance
679.9
139.2
262.1
785.8
1,136.8
1,149.6
745.7
919.9
1,193.9
664.0
Cover ratio %
188.3
110.2
128.1
247.2
438.7
399.1
181.7
201.5
228.0
156.0
Source: Eurostat (Comext). Statistics on External Trade.
http://epp.eurostat.ec.europa.eu/portal/page/portal/external_trade/data/database
891 SITC Code includes: Armoured fighting vehicles and arms of war; Bombs, grenades, torpedoes, mines, missiles and
similar munitions of war, and parts thereof; cartridges and other ammunition and projectiles, and parts thereof, including
shot and cartridge wads; Non-military arms; Parts and accessories of articles of headings 891.12, 891.14 and subgroup
891.3.
Not surprisingly, some EU Member States national authorities have developed very active support measures to help national defence exporters in general and land armament exporters in particular to win business overseas. Relevant examples include, for instance, the UK Trade and Investment Defence and Security Organisation (UKTI DSO)49, the Swedish ‘Försvarsexportmyndigheten’ (FXM)50 or the French ‘Direction
Générale de l'Armement’ (DGA)51. In the case of Germany, every export of defence products is subject to
supervision by a political committee52. By way of contrast, the Polish and Spanish national reports stress the
need to improve the existing public support tools for promoting exporting activities of the national Land
armament sectors. In this regard, Spanish public authorities have recently approved a new mechanism to
support defence exports, according to the ‘Royal Decree on the Liberalization of Commerce and Particular Services’, of May 2012. More precisely, the legislation has been adapted so that the MoD can work as
an intermediary in procurement programmes between foreign countries (buyers) and Spanish companies
(providers).
For more information see http://www.ukti.gov.uk/es_es/defencesecurity.html?guid=none
For more information see: http://fxm.se/en/
51 For more information see: http://www.defense.gouv.fr/dga/international2/exportations. Also, and since 2008, the interministerial Commission to Support International Contracts (Commission interministérielle d'appui aux contrats internationaux, CIACI) has been created.
52 If there is a non-democratic government or the possibility of human rights abuse in the importing country or region, it is
likely that the political committee will not approve the export
49
50
46
In any case, this strong competitive position in international markets is currently challenged by a number of
elements:

First of all, the export market in Land armament products is getting more and more competitive both at home and abroad markets, with new emerging countries (i.e. India, Brazil, South Korea) specialised in less expensive products in addition to traditional ones (i.e.
the USA, Russia or Israel).

Second, military products are often “political” products, in the sense that export strategies are largely dependant on political decision-making, which adds an important risk
element in export strategies. For instance, the recent developments in Arab countries,
one of the strong weapon importing regions in the world, illustrates how volatile export
strategies can be. Also, European defence export agreements outside the EU are usually
subject to offsets agreements, very often including transfers of technology and Intellectual property rights, where this situation is less the case for the American manufacturers53.
These agreements imply a medium/large term risk for the European companies due to
the upgrading effects in competitors, at least for those countries with some industrial capabilities (i.e. India, etc).

Some of the leading enterprises within the European Land armament sector are starting
to develop new business models that allow them to work effectively across national borders. For instance, they are making acquisitions in other non-European markets, they are
establishing production & research centres in other countries inside and outside EU or
they are entering into alliances and partnerships with other non-European Land armament companies in order to have access to these foreign markets (Manchester Institute
of Innovation Research, 2008), specially as far as the difficult but highly attractive US market54 or other attractive markets (i.e. Brasil55). The best example in this regard is probably
the UK based multinational BAE Systems, who has got a clear strategy of expanding and
developing its global land systems business (in fact, BAE Systems is currently one of the
largest contractor of the US Department of Defence and its Land and Armaments division is currently headquartered in the United States). An open question refers to the future effects of all these developments in the European employment56.
This situation is probably explained by the incentives of enterprise to export and the size of the home market
In the particular US defence market case, existing trade arrangements (i.e. the US “Buy American Act”) make entry
into this market (the largest of the world) very difficult for foreign firms in general and for European firms in particular. Thus,
Americans only import around 2% of their defence needs from abroad (half from Europe), whereas Europe purchases
about 12% of the defence materials it needs from the USA (including GPS-related products). Also, the existing International Traffic in Arms Regulations (ITAR) regulations control the export and import of US defence-related articles and
services abroad.
55 Just to give an example, Iveco has recently signed an agreement with the Brazilian government to produce a new
platform of VBTP-MR. Interestingly, the Brazilian government wants the transfer not only of the products, but also of the
production process and of the technology.
56 For example, and according to recent media reports, BAE Systems is considering moving more of its defence equipment business overseas as it attempts to offset extensive cuts in defence spending in both the UK and the US, its two main
markets
(see
Daily
Telegraph,
(2012).
BAE
Systems
may
shift
Expertise
overseas,
12/2/2012,
http://www.telegraph.co.uk/news/uknews/defence/9077806/BAE-Systems-may-shift-expertise-overseas.html)
53
54
47
Table 3.14
The example of BAE Systems
BAE Systems acquired in 2005 the US United Defence Industries (UDI) company (the largest acquisition of a US
defence company by a non-US buyer for a value of $4,192 million)57. Subsequently in time, the group expanded with the acquisition of the US company Armor Holdings in 2007, a manufacturer of tactical wheeled
vehicles and a provider of vehicle and individual armour systems and survivability technologies. Meanwhile,
and in 2008, BAE Systems acquired Tenix Defence, a major Australian defence contractor, and making BAE
Systems Australia the country's largest defence contractor. In 2010, BAE Systems and the Indian company
Mahindra & Mahindra Limited did launch a joint venture (the so-called Defence Land Systems India Private
Limited) intended to produce several combat vehicles specially adapted to the Indian conditions
Source:
http://www.baesystems.com/

3.5.5.
Finally, the current difficulties in public spending and reduction in government contracts
are posing an additional difficulty for Land armament manufacturers to sell abroad, in
the sense that foreign states want to see that European manufacturers and their products are trusted by their domestic government (reference customer) before they buy
them.
Process of concentration of the sector in the last twenty years
The European Land armament sector large enterprises are identifying important incentives either to consolidate in larger groups or collaborate with each other. In this regard, the experience in the last two decades shows a non-stopping process of enterprise concentration and consolidation around larger groups
since mid 1990s onwards, both within and across borders and amongst large enterprises and SMEs. This
process has resulted in the emergence of several large European defence contractors, both at national
level (i.e. BAE Systems, Thales, Krauss-Maffei Wegmann) or at EU level (i.e MBDA) and intended to successfully achieve economies of scale so to cope with the new requirements of the industry.
It is possible to identify several factors behind this consolidation processes such as reduced public budgets
due to the ending of the Cold War; rapidly rising production costs of defence equipment and systems and
the increasing R&D and innovation costs; growing world competition from other European and nonEuropean manufacturers; need to upgrade and consolidate leading products in the world market; low
profit margins; changes in national defence requirements and priorities, etc. Meanwhile, and in the case
of suppliers, the need to have a minimum size to fulfil the increasing requirements derived from prime contractors has implied an additional stimulus towards concentration efforts (BIPE, 2007; Europe Economics,
2009; Hartley, 2011).
Examples of relevant past concentration efforts are presented next:

In the United Kingdom, and since mid nineties, the UK land sector has been reduced
from five prime contractors (Alvis; GKN Defence; Vickers Defence; Royal Ordnance Factories; United Defence Industries (UDI)) to one prime, namely, BAE Systems Land and Armaments, so to become the dominant UK defence company with a monopoly in certain
sectors including armoured vehicles58. Meanwhile, BAE retains sizeable interests in Sweden through its interests in the armoured vehicle maker Hägglunds& Söner and the artillery producer AB Bofors, both acquired before the 2000s and now part of BAE Systems.
In September 2000 United Defense Industries (UDI) purchased Bofors Weapon Systems from Saab (the tube artillery
interests), while Saab retained the missile interests. In 2005 BAE Systems purchased UDI and re-organised all its land systems businesses into BAE Systems Land and Armaments. As part of acquisition Bofors Defence was renamed BAE Systems
Bofors.
58 It is interesting to stress also that in 1997 the British company Alvis plc acquired the Swedish Hägglunds Vehicle AB
company to form Alvis Hägglunds AB. Alvis expanded its military vehicle business in 1998 with the purchase of GKN's
armoured vehicle division in 1998 and Vickers Defence in 2002 to form Alvis Vickers. In 2004 BAE Systems acquired Alvis
Vickers and merged it with its RO Defence ordnance division to form BAE Systems Land Systems.
57
48

In 1999, the defence activities of Krauss-Maffei AG and the Wegmann & Co. GmbH
joined under the roof of Krauss-Maffei Wegmann GmbH & Co KG59.

In 2000, Saab acquired the defence group Celsius. By acquiring Celsius, Saab brought a
large part of Swedish defence industry history together and created Scandinavia’s
dominant company in the field. Meanwhile, and in 2006, Saab acquired Ericsson Microwave Systems, which further strengthened Saabs’ position as one of the major companies in the Swedish Land armament sector

In 2001, Renault V.I. joined the Volvo Group, becoming a business area within the Volvo
Group and renamed Renault Trucks (Renault Trucks Defense is a division of Renault
Trucks).

Panhard General Defence’s current incarnation was formed by the acquisition of Panhard by Auverland in 2005 (Auverland purchased Panhard, but the fame of Panhard being greater, it was decided to retain the name).

MBDA, the leading European missile developer and manufacturer was formed by a
merger of Aérospatiale-Matra Missiles (of EADS), Finmeccanica and Matra BAe Dynamics
in 2001. Subsequently in time, the German missile LFK (Lenkflugkörpersysteme GmbH)
company (an EADS subsidiary) joined MBDA in 2006.
Graph 3.3
MBDA historical process of formation
Source: http://www.mbda-systems.com/about-mbda/mbda-at-a-glance/european-missile-industry/
In other cases, large manufacturers acquire smaller but highly specialised niche market EU and non-EU
companies so to have access to new emerging key technologies and products. Examples include, for
instance:

BAE Systems has recently expanded its intelligence and security business with the purchases of the UK Detica Group in 2008 and the Danish cyber and intelligence company
ETI 2011.

Renault Trucks wholly acquired in 2006 Acmat (Ateliers de Construction Mécanique de
L'Atlantique), manufacturer of all terrain military vehicles since 1948.

The German company Rheinmetall seems particularly active in acquisition activities with
other enterprises. To give some recent examples, in 2007 acquired a 51% majority of
Chempro and majority stake in ADS Gesellschaft für Aktive Schutzsysteme, where the
participation in this company has even further increased up to 74% in 2011. Meanwhile,
The Wegmann Group did acquire in 2010 the 49% stake of Siemens in Krauss-Maffei Wegmann GmbH & Co. KG (KMW)
from Siemens AG. Accordingly, Wegmann is currently the sole shareholder of KMW.
59
49
and in 2008, Rheinmetall Defence took over Dutch vehicle maker Stork PWV B.V. from its
parent company Stork N.V. of Amsterdam. Also in the same year, Rheinmetall took over
Norway's Simrad Optronics ASA, specialised in components for remote control weapon
stations, electro-optical devices and weapon system upgrades for a global client base.
Finally, and in 2011, Rheinmetall has increased its stake in Verseidag Ballistic Protection
GmbH60 so to have a full control of the company.

Thales acquired in 2006 the Australian Defence Industries, a major manufacturer of military equipment such as smokeless gunpowder and the Bushmaster IMV.

In 2008, Finmeccanica purchased the US defence contractor DRS Technologies.

In 2010, Cassidian has acquired the UK-based Regency IT Consulting, strengthening its
cyber-security capabilities.

In 2012, Krauss-Maffei Wegmann GmbH & Co has taken over WFEL Ltd, based in Stockport (Cheshire, United Kingdom) and specialised in mobile bridging systems in both military and civil applications.
Obviously enough, these concentration strategies are different accordingly to enterprises. Thus, BAE has
made many large acquisitions in the US, Europe and other countries (i.e. Australia) in the last decade, so to
become one of the largest world actors in the sector, while at the same time has sold –off its non-defence
production (i.e. Rover car company) so to concentrate on the defence sector in general. Meanwhile,
Thales’ business has primarily grown through acquiring medium-sized companies and by expanding business through joint ventures, whereas Finmeccanica focuses on a strategy based on organic growth combined with international expansion activities, albeit several acquisitions.
It should not be forgotten also that non EU Land armament companies are also acquiring European enterprises, in part to facilitate growing their share of the EU procurement market. The best example is given
by the US company General Dynamics, which did acquire in the late nineties several technologically outstanding companies of the ground weapons and equipment industry so to create General Dynamics
European Land Systems (GDELS), currently comprising four entities (GDELS - Germany, GDELS - Mowag,
GDELS-Santa Bárbara Sistemas and GDELS-Steyr) that were unified as a single business unit under one
European parent company in 2003. Also, and in the field of cyber security and intelligence service companies, some US companies have acquired several EU enterprises (SIPRI, 2011).
Finally, there are also a number of examples of concentration attempts that have not been reached. Thus,
in 2009 there was an important debate in 2009 about a possible consolidation of the three main French
manufacturers of Land armament vehicles, that is to say, Renault Trucks Defense, Nexter and Panhard.
Also, there is an on-going discussion related to the introduction of Thales in the capital of Nexter. Meanwhile, the Finnish manufacturer Patria has shown in 2011 an interest in buying the Polish WZM company,
representing the biggest privatization in the history of Poland’s defence industry. However, this possibility
was not backed up by Bumar, the largest defence holding in Poland.
3.5.6.
Restructuring processes of the sector in Eastern Europe
The Eastern European defence industries in general and the Land armament sector in particular has experienced a dramatic restructuring effort since the early nineties onwards (BIPE, 2007; Europe Economics,
2009). In this regard, and before 1990, Eastern European Land armament industries were part of the military
strategy of the Warsaw Treaty, so the location of production and tasks of the individual countries and enterprises were defined in the frame of the Warsaw Treaty’s military strategy, resulting in a high level of
country specialisation in the production of products and systems and very often based on political reasons
rather than economic or market factors.
60
The company now has been renamed Rheinmetall Verseidag Ballistic Protection GmbH.
50
This situation did dramatically change after the early nineties with the collapse of the Warsaw Treaty and
the whole Soviet Union and the subsequent integration of these countries within NATO and the European
Union. Indeed, these changes resulted in a situation where production capacities were by far too large for
the diminished needs of the respective national defence structures, where this situation was reinforced by
shrinking defence budgets, massive loss of orders and lack of competitiveness of most of the EU-12 Land
armament industrial base and products. All these elements did result in an urgent need for restructuring of
the EU12 Land armament industry.
As a response to this situation, state authorities did take a number of measures, including the liquidation of
several enterprises, privatization of the industry and reconversion to civilian production or state subsides for
keeping the defence supplier-base in existence. Of course, this situation has led to important decreases in
production, massive lay-offs of the manpower and, subsequently, to social problems. Just to give some
figures, the Polish enterprises currently owned by the Bumar Group employed approximately 100,000 persons in the early 1990s, whereas currently they employ around 11,000 persons.
Some countries have also adopted in recent years a very active industrial policy in the field. The best example is given by the Polish authorities who, following the adoption of the “Strategy for Structural Transformation of the Defence Sector Capacity 2002-2005”, developed a restructuring plan based on the creation
of a large national holding around the newly formed Bumar Group. This strong industrial policy orientation
has been recently reinforced with the publication of the “Strategy of Consolidation and Support to Development of the Polish Defence industry in 2007-2012”, approved on August 2007 and structured around the
following three main points:

Ensure that the state security requirements in the sphere of armament, army equipment
and weapons are defined within the framework of the national security strategy and
take into account EU membership obligations.

Secure the participation of the national defence industry in EU and national R&D programs

Increase exports to the world markets and achieve a significant position in the future
European defence industry, based on a diversified supply of modern army equipment
and weapons61.
In this regard, one of the specialities of the Polish land armament industry refers to its ability to modernise
equipment manufactured in the former Soviet Union, en element that has become a very interesting niche
market by Polish companies (see Badowski, 2011).
Finally, the EU12 defence industry is becoming increasingly connected to EU15 industries in the last years,
usually based on cooperative production agreements based predominantly on the Western firms’ licenses.
Also, the EU12 defence supplier-base has entered the European defence supply chain, usually at its lower
end and based on the production of basic components based on cheaper labour. In any case, the restructuring process is not yet complete, and EU12 defence-related industries as a whole are not fully competitive in a European setting (PWC Polska et al, 2009).
3.5.7.
Collaborative activities between enterprises in the sector
In comparison to other military sector (i.e. the military aerospace sector), the European Land armament
sector is less active in the development of collaborative projects amongst enterprises both at national or
international level. The reason for these low levels of cooperation are a lower R&D intensiveness and a
lower level of technological barriers, where both elements result in lower budgetary pressures to engage in
large European or multinational development programs (Hartley, 2011). As a result of this, European coop-
Currently, the Polish Land armament sector is characterised by some authors (Kogan, 2008) as the strongest in Eastern
Europe.
61
51
eration in the Land armament industry is mainly focused on pre-competitive technology developments
(TNO, 2009).
In any case, and despite existing fragmentation of the EU Land armament industrial base, there is an increasing emphasis on cooperative programmes between existing enterprises, due partially to current public budget constraints and the need to face ever more costly and complex military programmes (i.e. in
terms of R&D costs).
In this regard, it is possible to identify several examples of collaborative projects amongst European land
armament enterprises are working together in several collaborative projects. Examples include, for instance:

Early in 1997, Giat Industries of France, Rheinmetall W&M of Germany and Royal Ordnance, UK, formed a joint venture company called RGR Armament GmbH based in Ratingen (Germany). RGR Armament GmbH was responsible for the development, marketing and eventual production of the 140 mm smoothbore gun and its associated ammunition (kinetic energy projectile and charge system) for the Future Tank Main Armament
(FTMA).

Nexter is working in collaboration with Thales and Sagem on the land-defence forces’
structural program, in the framework of the SOSI contract of SCORPION operation. This
program aims to modernise the GTIA (combined arms team) of land forces in a coherent
and optimized manner through a holistic approach. Within the SCORPION project, Nexter
has also created a task force of about sixty engineers, working in teams, to develop solutions concerning acquisition and life-cycle. Nexter also has a 50/50 joint venture with BAE
Systems called “CTA International” to develop and manufacture case telescoped
weapon systems and ammunition

The AMOS mortar system programmes are developed in co-operation between BAESystems Hägglunds and Patria’s 50% owned Patria Hägglunds.

The Italian IVECO and Oto Melara have established since 1985 a Consortium (Consorzio
IVECO OTOMELARA) on an equal participation 50/50 to design, develop and manufacture a new generation of military vehicles (MBTs, AFVs). Basically, Oto Melara designs and
produces the weapon system while IVECO designs and produces the hull and all the
automotive components. Within the consortium, Oto Melara has full responsibility for
tracked vehicles and IVECO for the wheeled ones.

Panhard and Sagem Défense Sécurité (SAFRAN Group) have together developed during
the late nineties a new, remotely-controlled self-defence turret, the WASP (Weapon under Armour for Self-Protection), equipped with a light machine gun coupled with an observation and infra-red sight.

Rheinmetall and Krauss-Maffei-Wegmann collaborate in the MBT Leopard II, where KMW
is the general contractor and Rheinmetall supplies very important components like the
120mm gun (MTU builds the engine). Also, Rheinmetall and Krauss-Maffei-Wegmann have
developed since 2001 the so-called AMPV (Armoured Multi Purpose Vehicle), specifically
designed for out-of-area operations, meeting the full range of requirements for mobility
and ruggedness. These two companies are currently developing in cooperation the
Puma tracked armoured infantry fighting vehicle (AIFV), under the so-called Projekt Systems and Management (PSM) joint venture. This venture is based in Kassel (Germany)
and both companies hold 50% of the shares.

The Donar 155-mm self-propelled howitzer has been jointly developed by Kraus-Maffei
Wegmann and GDELS.

Rheinmetall AG and MAN Nutzfahrzeuge AG have set up in 2010 a joint venture company called Rheinmetall MAN Military Vehicles GmbH (RMMV) and intended to supply
the world’s armed forces with complete solutions in the market for military wheeled vehicles, covering the entire range of armoured and unarmoured transport, command and
52
role-specific vehicles. Rheinmetall has a stake of 51% and MAN 49% in the new company,
which is headquartered in Munich.
However, it is also important to stress that some European companies are collaborating with other non-EU
companies. A good example of this is given by the so called “Defense Munitions International (DMI),
shared by the German Rheinmetall defence company and the American General Dynamics Ordnance
and Tactical Systems (GD-OTS). This company is located in the US and develops and sells 120-mm-kineticenergy and multi-purpose ammunition so to improve the international market access of both companies,
achieve synergies in production and realise joint developments.
3.5.8.
The particular ownership structure of the sector in some EU Member States
In some EU Member States and European countries, Land armament sector enterprises are still under (total
or partial) public ownership, which give them the right to appoint representatives of the board or the CEO
or a final decisive role (i.e. “golden share” mechanisms). Just to give some examples, the French Government wholly owns Nexter and 27.0% of Thales, the Italian government holds about 30% of Finmeccanica's
shares and the Spanish government holds 100% of Navantia. Other examples include the Finnish Patria
(where the government has got a 73.2% of shares), the Polish BUMAR Group (a state-owned company),
the Swiss RUAG Holding AG (whose sole shareholder is the Swiss Confederation) or the Greek ELVO company (currently 100% state owned after being partially privatised in 2000). Moreover, in the Italian case of
Finmeccanica Group, the Italian Government has got a veto power against changes in its ownership
structure (via a “Golden share” mechanism). However, this presence of public ownership enterprises in
these enterprises also co-exists with the availability of a large number of private enterprises (for instance,
the Italian IVECO Defence Vehicles company is owned by the Fiat group). By way of contrast, all defence
suppliers in Germany, the UK or Sweden are currently privately owned (although with important connections to the public sector), some of them quoting in the stock exchange market but other retaining a family
business structure (i.e. the German Krauss-Maffei Wegmann). Interestingly also, there are a number of examples where private equity funds and groups have also entered the sector (BIPE, 2007), such as the case
of the German MTU Friedrichshafen company62, which was bought in 2005 by the private equity group EQT
(Sweden) to DaimlerChrysler (Germany).
3.5.9.
Geographical concentration of the sector in some EU regions
The Land armament sector is particularly concentrated in a number of geographical agglomerations in
some concrete European regions highly specialised on Land armament activities and with a strong presence of local supply chains and networks, where this concentration is usually explained by historical and
strategic reasons. Examples of these geographical agglomerations in the European Union include the
following ones:
62

In Finland, Patria has got production facilities in Tampere, Hämeenlinna and Sastamala.

In France, Nexter produces from Versailles, Bourges, Tulle and Roanne, with other facilities
in Tarbes, Toulouse, Saint-Etienne and Rennes, amongst others. Meanwhile, Thales has
operations amongst others in Toulouse and Paris

In Germany, there are some specific geographical areas where LAS and other defence
production plants are concentrated: Hessen (KMW, Rheinmetall), Northern Germany (Atlas Elektronik, Rheinmetall Defence,) and South/South-West of Germany (Diehl, MTU,
Renk, KMW). In any case, most of the company headquarters and production sites are
located in West- and South-Germany.

In Italy, Oto Melara has production facilities in La Spezia and Brescia, as well as its headquarters in Rome. Meanwhile, the factory of IVECO Defence Vehicles is located in Bolzano.
This company manufactures diesel-engines for several sectors including military vehicles.
53

In Poland, Bumar has production units in Warwaw, Tarnow, Gliwice Wroclaw and the
Cracovia area. Recently in time (March 2012), there is an initiative to establish the first
Polish cluster dedicated to development of scientific work and information exchange
exclusively for the LAS sector. This cluster is to include the Warsaw Technical University, the
Military Academy of Technology and the Bumar National Defence Concern (PARP,
2012).

In Spain, Navantia has got Land-defence related activities located in Cadiz, whereas
General Dynamics has production facilities in Asturias, Seville or Granada.

In Sweden, the main cluster is probably around the city of Karlskoga, although there are
also important production facilities in Örnsköldsvik, Karlsborg and Örebro, as well as
around the cities of Stockholm, Linköping and Gothenburg.

In the United Kingdom, the production of armoured vehicles is concentrated in the
North/North East and Midlands, while the ammunition sub-sector is more widely dispersed. Meanwhile, BAE Systems has production units, amongst other places, in Newcastle, Abbeywood, Birtley, Bishopton, Farnborough, Filton, Glascoed, Radway Green, Ridsdale Range or Barrow-In- Furness63. Meanwhile, the Chemring Group has production facilities in Wiltshire, Derbyshire, Poole or Hampshire. Also, 57% of the UK weapons and
ammunition manufacturing jobs are located in three local authorities, e.g. Birtley, Glascoed, and Radway Green (Sissons, 2011).
Graph 3.4
Main Land armament industrial poles of employment
Main production centres
Production clusters
Source: Eurostrategies, 2009 and IKEI
This geographical spread has also significant employment implications in terms of dependency on land
armament activities. Just to give some data, BAE Systems is responsible for 80% of all manufacturing related jobs in Barrow-in Furness, 70% in the Ribble Valley and 40% in Portsmouth. Interestingly also, the Swedish report suggests that the fact that some of the major manufacturing facilities are not located in central
Interestingly, BAE Systems intends to move in the next 18 months all production capability related to the manufacture
of the Challenger 2, Warrior and Terrier armoured vehicles to Sweden, with serious and negative employment implications for the UK workers.
63
54
areas implies an added difficulty for enterprises to attract competent workers to these less attractive areas.
3.6. The role of SMEs and production chains in the sector
3.6.1.
The role of SMEs
SMEs play also a very significant role within the Land armament industry, usually as different tier-level subcontractors or as specialised product suppliers operating in niche markets. Thus, available Eurostat data
referred for year 2007 for the weapons and ammunition industry in six main EU Member States (i.e. Germany, France, Italy, Poland, Sweden and United Kingdom) shows that SMEs represent more than 89% of all
sector enterprises in all analysed countries (with a share of more than 95% in countries such as Sweden,
Italy or France), although the share of value added generated by SMEs is much lower, ranging from 9.9% in
the case of France to 24.1% in the case of Sweden (around 22% also in the cases of Italy and the United
Kingdom, much lower in the cases of Germany or Poland, ranging from 10% to 14%, respectively).
Table 3.15
Importance of SMEs in the manufacture of weapons and ammunition sector, 2007
SMEs
Number of
enterprises
Germany
France
Italy
Poland
Sweden
United Kingdom
144
181
135
64
104
144
Turnover
(milion €)
333,2
320,9
298,3
34,8
204,6
728,8
SMEs’ share (%)
Value added
(milion €)
Number of
enterprises
115,5
88,5
96,9
16
77,3
369,7
91,7
96,8
95,7
88,9
97,2
93,5
Turnover
11,8
12,1
23,2
6,6
21,8
16,0
Value added
10,7
9,9
22,2
14,1
24,1
22,5
Data refers to NACE Rev 1 29.6- Manufacture of weapons and ammunitions
Source: Eurostat, Structural Business Statistics
The previous data can be complemented with some additional information coming from additional
sources (Europe Economics, 2009; national reports):

In France, there are many specialised suppliers, where approximately 96.8 of the French
LAS companies are SMEs and are responsible of approximately 10% of the generated
value added by the whole sector.

In Italy, Land armament-related SMEs either act as subcontractors to larger companies or
operate in niche markets as specialised suppliers in logistic support, special equipment
and materials. Examples of relevant products supplied by Italian SMEs include, amongst
others, the production of residential modules (COGIM and CORIMEC), variable-size shelters (Garofoli), decontamination systems (Cristianini), bullet proof vests (Sistema Compositi), individual equipment such as rucksacks, safety glasses, knives and baionets, etc (Ferrino, Extrema Ratio). Generally speaking, Italian Land armament SMEs are larger than the
typical Italian SMEs, and the majority of them operate in both defence and civil markets
with a small minority focusing exclusively on military applications. The main weaknesses of
the Italian Land armament SMEs relate to their difficulties to have access to capital from
financial institutions for implementing large scale projects (i.e. in R&D). Also, they often
complain about the lack of information on the future military programs of the Italian Ministry of defence, as well as on the high cost of preparing bids for the Ministry. Finally, the
current Italian public debt cutting efforts are also negatively affecting sector SMEs.

In Spain, Spanish SMEs in the Land armament sector provide lots of specialized small
components to main contractors. Normally, these SMEs have a “mixed production”, that
55
is, they are not exclusively devoted to defence components, but they also work for other
industrial sectors. They are also responsible of a great part of the technology innovation
in the sector.
3.6.2.

In Sweden, the Swedish Security and Defence industry trade association (SOFF) has 61
members, of which 48 are small and medium-sized enterprises (SMEs). These SMEs act
primarily as suppliers (subcontractors) to larger enterprises, although accordingly to interviewed experts, and in addition to the SOFF members, there are around 1,000 Swedish
SMEs involved in defence subcontracting activities. Meanwhile, there is also a relatively
minor share of SMEs or selling directly to end users and specialised in “niche” products.

In the United Kingdom, SMEs are quite active actors in the defence industry either as
prime contractors or subcontractors in the supply chain. For example, an estimated 42%
of UK Ministry of Defence (MoD) contracts were placed directly with SMEs, representing
some £953m or 13.2% by contract value, while many more contribute to MoD’s Defence
and Security programmes as subcontractors (UK Ministry of Defence, 2012). Specifically,
land armament-related SMEs tend to operate in both civil and defence markets, where
they operate both as subcontractors to other defence firms and as direct contractors to
the UK defence ministry. Significantly, the 2012 White Paper National Security Through
Technology seeks to improve SMEs’ access to and participation in MoD contacts by, inter
alia, streamlining its procurement and payment processes, reforming the framework
agreement for technical support (FATS) arrangements, reducing its reporting and administration burden, providing expert advice to help them export, etc, so to ensure that 25%
of contracts are placed with SMEs (Morrison, 2012).
Production chains in the European Land armament sector
Hundreds of European small and medium sized companies are engaged in the Land armament production, which constitute the supplier base of the large enterprises and groups. In this regard, supply chains
are increasingly regarded as key elements for the prime contractors’ ability to compete in world markets
since the competitiveness of some final products are highly dependant on the performance of critical
subsystems.
The figure below presents a simplified description of a tiered organisation64 of the European Land armament sector. In these tiered structures, prime contractors and lead system Land armament integrators (i.e.
Nexter, Krauss-Maffei-Wegmann, BAE Systems, Oto Melara, etc) produce complete land weapon systems
and are at the top of the pyramid with a large market power with respect to downstream suppliers. Most
of these prime contractors are located in the old Member States, although there are a number of EU-12
prime contractors, although they are smaller than their EU-15 counterparts (PWC Polska et al, 2009). These
prime contractors rely on many external suppliers, especially those systems which consist of many hightech electronic devices and are built as modular stations.
The most typical situation includes an interlinking web of suppliers and relationships throughout the supply chain, where
many suppliers operate concurrently at several levels of the supply chains for different defence contractors and on
different projects (BIPE, 2008).
64
56
Graph 3.5
The Land armament sector’s tiered organisation
Source: BIPE, 2008
Tier 1 contractors produce complete sub-systems or major components, often on a risk-sharing basis with
prime contractors. Usually, these enterprises (including SMEs) are large in size and they are either specialised systems producers (i.e. electronics) or producers of complete sub-systems or major components. Examples of these Tier 1 suppliers include the Groupe Safran (France) for tactical information and navigation
systems, Indra (Spain) in electronics, ETYEM (Italy) for protection equipment and systems, Renk AG (Germany) for gear boxes, ESW-GmbH (Germany) for stabilizing systems, Rolls Royce for motors/engines or ZFFriedrichshafen (Germany) for guidance systems. In the new EU Member States, there are also examples
such as Radwar in Poland (part of the Bumar group).
Subsequently, Tier 2 contractors produce components and supply services in different domains (electrical
& electronic equipment, mechanical engineering, metal working, casts & moulds, etc), as well as a variety
of services. Usually, these Tier 2 contractors are either small and medium enterprises (SME) or subsidiaries of
the major defence producers, and they are not always listed as defence producers since they often produce dual-use goods or services. Finally, Tier 3 contractors are commodity suppliers or suppliers of generalist services (communications, externalised training, etc), as well as capacity contractors. They are mostly
small and medium enterprises that supply dual-use products. These enterprises are particularly exposed to
economic downturns and tougher financial market conditions (TNO, 2009).
57
Table 3.16
Main categories of existing defence suppliers in the new EU Member States
Categories
The Niche
Competitor
The Aspiring
Prime
The
Intermediary
The Flexible
High-Tech
Company
The Logistics
Service
Provider
The Low Cost
Company
Main Characteristics
• This type of enterprise is often a SME, but may be also a large defence company. It
provides systems and products in a small number of related taxonomy fields and, on
occasion, may serve as lead system integrator. They may be state owned or fully private
but, as a rule, there is no foreign ownership of company shares. They are particularly
involved in R&D activities in order to pursue a ‘first to market’ strategy and preserve their
competitive edge, and they have a recognised position in foreign markets, including EU-15
ones. As a rule, there are numerous potential customers for the company’s products and
services. Examples of enterprises include Arcus Co (Bulgaria), Arsenal JSC (Bulgaria) or the
Przemysłowy Instytut Telekomunikacji S.A. (Poland)
• These enterprises act as primes, providing systems and products in a small number of
related taxonomy fields. They are considered as ‘national champions’ and enjoy privileged
relations with the national defence establishment. They are usually state-owned, but
examples of private companies are also available, and they provide products and/or
services that are innovative on the national market (but not necessarily on the global
market). In this regard, products are sometimes also sold outside EU to developing
countries. Examples of this type of enterprises include the Polish Bumar- Łabędy and
RADWAR SA
• Typically, this is a private medium, small or even micro company that, as an exception, may
have foreign participation in its ownership structure. The “intermediary” is heavily
dependent on the national defence environment, and can survive only as long as the
defence establishment continues to invest in defence capabilities related to its area of
expertise and maintains important specifics in its operational processes and the respective
requirement. These enterprises can serve as primes that are critically dependent on the
delivery of systems and sub-systems by other primes, or they may also be sub-contracted by
other primes for the delivery of key technological expertise and/or know-how. An example
of this type of enterprises refers to Samel 90 Plc (Bulgaria)
• This is usually a medium-size or slightly larger company, usually private and attracts foreign
capital. They usually act as Tier 1 or Tier 2 contractors, or both, and provide sub-systems,
systems and products in several related technology fields. There are numerous potential
customers for the company’s products and services both in the military and the civil
domain. They invest considerable resources in R&D. An example of this type of company is
WB Electronics (Poland)
• These enterprises, actively involved also in civilian activities, are exclusively oriented in their
defence business towards the needs of national security and defence forces. They can be
of any size, and they do not rely on R&D. They rely on the advantages of geographical
proximity, language and cultural compatibility, combined with competitive costs
• These enterprises’ strategy is primarily based on costs, and they primarily supply commodity
products and services or functions as part of the supply chains of primes, at tiers 2 and 3.
They are oriented towards foreign markets, with only occasional sales to the country’s
defence forces. The companies are usually private, often partially or fully owned by foreign
companies. Obviously enough, the strategies of these enterprises do not rely on R&D,
although they are introducing quality management systems
Source: PWC Polska, 2009
Unfortunately enough, not much it is known about Land armament industry supply chains. In any case, a
major study conducted some years ago showed the complexity of the supply chain for the UK Warrior AFV,
in the sense that the study identified over 200 first tier suppliers (selling directly to the final assembler), although approximately 10 suppliers accounted for over 70% of the value of purchases and the top 42 suppliers accounted for 85%-90% of total purchases. Subsequently, the first level suppliers used an average of
18 suppliers (second tier) whilst these second tier firms had an average of 7 third tier suppliers (Hartley,
1997). Meanwhile, the German Leopard II tank on its own combines the efforts of approximately supplying
1,500 companies (Küchle 2007). Land armament sector supply chains seem to be defined to a greater
extent along national boundaries in comparison to other defence sectors (i.e. aerospace and electronics).
Complementing the previous information, the European Defence Agency has recently conducted a study
on the existing defence suppliers in the new EU Member States. In this sense, this report provides a typology
of these suppliers around the following six main categories:
58
Supply chains are characterised in the last years by a number of emerging trends that can be summarised
as follows (TNO, 2009; Europe Economics, 2009):

National Ministries of Defence are moving towards more ‘partnering contracts’, in the
sense that they prefer to contract with one prime contractor who then takes full responsibility for the development and delivery of the equipment accordingly to some previously defined time, costs and quality specifications. In this regard, systems integration is
likely to become an even more important competence in the future as prime contractors will have greater freedom to organise the whole production process, including the
extent to which they use SMEs in the development process, reinforcing the negotiating
power of these primer contractors in relation to their suppliers.

Having in mind the experiences in other defence-related sectors (i.e. military aeronautics), Land armament prime contractors and tier 1 suppliers are trying to rationalise and
simplify their supplier base in order to reduce the number of the suppliers with whom they
directly interact. At the same time, Land armament prime contractors and tier 1 suppliers
are establishing tougher conditions (in terms of quality assurance mechanisms and higher
technological demands) to their subcontractors.

Subcontracting activities are increasingly based on the so-called “risk-sharing partner”
concept, whereby the development costs of new systems or equipments is distributed
across the prime contractor and its “partners”. Under this system, prime contractors delegate the responsibility for conceptualising, designing, developing and producing the
new system, as well as the responsibility for financing the development costs, where
these costs are paid back by the prime contractor to the risk-sharing partners as sales are
fulfilled (the partnership implies also a commercial “risk sharing” and financial burden
also for the supplier) (BIPE, 2007).

Both current and expected difficulties in public national budgets are resulting in additional pressures on the large Land armament companies to reduce costs, where this
pressure is “passed on” to the whole supply value chain. These cost pressures are forcing
sector defence enterprises (both prime contractors and Tier 1/Tier 2 suppliers) to seek
sources of inputs from lower cost countries, either within the new Member States or from
other non-EU Member States, and therefore increasing international competition on traditional national suppliers.

European national authorities are increasingly open to outsourcing to the private sector
some of the classical logistic and service activities (i.e. transport, repair activities, health
and medicine, fuel and catering, etc). This trend is also reinforcing the role and freedom
of prime contractors to develop the equipments and products, including the extent to
which they use SMEs in the development process (Manchester Institute of Innovation Research, 2008).
Finally, some EU Member States have developed a number of interesting initiatives to foster existing supply
chains in the Land armament sector. A good example of this is given by the UK SC21 (21st Century Supply
Chains) Initiative. This initiative was launched in 2006 by the UK sectoral employer association ADS in order
to improve the performance of suppliers and supply chains in the UK aerospace, defence and security
industries. The SC21 programme is a key industry venture and is overseen, governed and managed by ADS
on behalf of UK industry. In March 2011, over 580 companies had signed up to SC21, with about 100 companies joining the programme every year.
59
3.7. Research and Development and Innovation activities in the European
Land armament sector
3.7.1.
Importance of R&D activities
The defence sector as a whole is a very research-oriented sector due to the key importance of technological development in the performance of the military and the need to design and manufacture high
quality products that are globally competitive. Certainly, technological development has an enormous
impact on defence systems, as there is a clear correlation between an Army’s technology level and its
effectiveness (Spanish Ministry of Defence, 2010). Also, these R&D activities result in many innovations and
technologies with a “civil” use.
Accordingly to information provided by the Aerospace and Defence Industries Association of Europe
(ASD), the European Land armament sector devotes approximately a 6% of its total sector sales to R&D
activities (data provided for 2005), well above the European manufacturing sector. This situation is also
confirmed by data provided by Eurostat showing that the “Manufacture of Weapons and Ammunitions”
sector is relatively more active in the R&D domain than the manufacturing sector as a whole for a selection of EU Member States where information is available (i.e. Germany, Slovakia, Spain, Poland, Czech
Republic or Bulgaria) (data for the year 2007).
Graph 3.6
Knowledge intensity in “Manufacture of Weapons and Ammunitions” and total
manufacturing: Share of R&D expenditure in value added, selection of countries,
2007
4,5
Germany
9,6
0,7
Slov akia
9
2,5
Spain
7,3
0,5
Poland
6
2,5
Czech Republic
0,3
Bulgaria
0
4,1
2,3
2
4
6
Manufacture of Weapons and Ammunitions
8
10
12
Total Manufacturing
In any case, the Land armament sector shows a less research orientation in comparison to other defencerelated sectors such as military electronics, aerospace or naval industries, which devote between 10% and
14% of their total sales to R&D activities (Eurostrategies, 2009)65. Not surprisingly, most EU public authorities
have actively supported R&D in this industry. For example, The Spanish government did launch in 2010 the
so-called Strategy of Defence Technologies and Innovation, an intended to facilitate the strategic prioritisation of technological capabilities and the planning required (Spanish Ministry of Defence, 2011). Also,
In any case, it is important to have in mind that some enterprises are involved in different defence subsectors (i.e. the
UK BAE Systems involved in aerospace as well as land and sea systems), so it is likely that this type of enterprises are also
applying aerospace technologies to their land systems.
65
60
the UK MoD published in 2006 its Defence Technology Strategy (DTS) which set out its R&D priorities for the
next 20 years (UK Ministry of Defence, 2006).
Meanwhile, and from an individual enterprise perspective, the available information shows a very strong
effort in R&D activities in some of the leading European Land armament manufacturers. In this regard, the
innovation strategy of these large enterprises is primarily focused on achieving technology leadership
rather than being technology followers as a way to assure the long-term competitiveness of enterprises,
especially in international markets (i.e. companies have to invest in R&D in order to be competitive on an
international basis). It is important to stress that it usually takes a long time period since a product is conceived and developed until it is finally placed on the market, which redounds in a high risk for companies.
Also, it is important to stress that when it comes to major R&D programmes (e.g. the development of new
system platforms), very few companies have the possibility to take on the financial risk themselves, which
often results in cooperative approaches with the public sector (“public-private partnerships”) (Eurodefense
España, 2008). Interestingly also, companies that are engaged in R&D activities need security of supply, i.e.
long term public contracts, and security of information, i.e. that no information about the products are
leaked.
Table 3.17
R&D ranking of main EU companies in Land armament related activities according to
R&D/Net Sales ratio in 2010.
Company
Finmeccanica
Diehl
EADS
Ultra Electronics
Rheinmetall
Thales
SAAB
SAFRAN
Nexter
Chemring
MBDA
BAE Systems
Patria
R&D Investment
2010 (€m)
1,967.00
251.50
3,084.00
46.36
214.00
655.70
133.39
540.00
35.60
15.52
14.94
317.45
6.40
R&D/Net Sales Ratio
2010 (%)
11.6
9.2
6.7
5.6
5.4
5.0
4.9
4.9
4.0
2.2
1.8
1.3
1.1
2009 (%)
11.7
10.9
6.7
5.3
5.8
5.2
4.8
5.9
4.3
1.8
1.7
1.1
1.9
R&D per Employee
2010 (€K)
26.2
19.0
25.3
11.6
10.7
10.3
10.7
10.1
13.2
3.9
5.8
3.3
1.9
2009 (€K)
26.6
19.5
24.1
10.2
9.8
10.3
10.1
11.4
9.8
3.2
4.4
2.9
3.1
Source: The 2011 EU Industrial R&D Investment Scoreboard (http://iri.jrc.es/research/docs/2011/vol_II_3.xls)
Interestingly also, there are examples of collaborative activities between Land armament sector companies and universities. A good example is given by Finmeccanica, who has built up devised cooperation
agreement on projects with more than 20 Italian universities (Parma, Turin, Puglia, Liguria, etc).
3.7.2.
Current R&D and Innovation approaches within the sector
Current innovation approaches within the European Land armament sector are intended to improve the
effectiveness and efficiency of operations, improve the survivability of personnel and equipment and
minimise possible collateral damages. In this regard, Land military requirements are likely to emphasise four
main fields, that is to say (Manchester Institute of Innovation Research, 2008):

Synergy, networking and interoperability (allowing land forces –often from different countries under coalition operations- to operate as a network with aerial/naval assets and
other armed forces in joint overseas operations, as well as with non-military civilian actors),
61

Agility, versatility and mobility (the ability to achieve rapidity of reaction and deployment
and also the ability to reconfigure for optimum force size and balance and move quickly
at the tactical level),

Selectivity (meaning a wide range of capabilities and the means to ensure an informed
and appropriate choice at each stage of the operation so to deliver military effects in a
more discriminate way) and, finally,

Sustainability (emphasising logistic support and theatre access), placing an emphasis on
capabilities that enhance command, information, engagement, protection, deployment
and sustainment.
Examples of new technologies being applied by Land armament European enterprises include new intelligent munitions technologies, the development of lightweight armour protection systems and protection
technologies (i.e. against mines, IEDs66 and guided ammunition), the development of technologically
complex armoured vehicles with network enabled capabilities and equipments for intelligence (e.g. scanning of information, surveillance and data analysis), logistics, robotics/unmanned ground vehicles, new
materials, vetronics and propulsion systems, mechanics, soldier and material protection systems, multiplatform integrated systems or modern field medicine (TNO, 2009).
The European Land Industry Group (ELDIG)67 has identified a number of main future expectations within
the nine segments of activity of the European Land armament sector that are expected to guide future
R&D efforts in the sector and therefore result in new products and services:
Table 3.18.
Future expectations per Land armament segment from ELDIG/ASD’s point of view
Segment
Vehicles
Soldier Systems
Sensors for C4I
(Command, Control, Communication, Computers
and Intelligence)
66
67
Future expectations per segment
• Controlling of maintenance and supply costs
• Support and upgrade platforms and rapidly insert new technologies
• In addition to the internal networking of electronic sub-systems (vetronics), need to
network externally with other vehicles inside a combat unit, not only for
communication purposes, but for intelligence and information management
purposes as well
• Intelligent convoying and UGVs (unmmaned ground vehicles), with a
correspondingly reduced risk to military personnel and an expanded range of
capabilities.
• Interactions between UGVs and the future soldier systems.
• Developments in protection technologies, allowing modular levels of protection
and use of different assets,
• Environmental protection, energy economy, full life recycling and antipollution
standards;
• Provide as many capabilities as possible but maintain the weight at manageable
levels.
• Minimise physical parameters and power demand of the subsystems without
sacrificing operational capabilities
• Extend battery lives and power requirements for handheld gadgets.
• Increase data connectivity and avoid limitations imposed by short-range wireless
communications, especially bandwidth challenge soldier modernisation in areas of
dense vegetation or tall buildings reduce the range of radios.
• Human Machine Interfaces to allow enhanced decision making.
• Facilitate the use of extensive and optimised use of sensors to produce quick and
more efficient effects (longer range, higher rate of accuracy, fewer false alarms,
insensitivity to the external environment, quicker reaction time, lower weight, more
intelligence) using expensive firing equipment in a scarce way
• Enable these sensors to be included in any system, regardless of whether they are
used at national or European level (interconnectivity)
Improvised Explosive Devices
ELDIG is a body of the AeroSpace & Defence industries association of Europe (ASD)
62
Segment
Weapons and
ammunition
Protection equipment and systems
•
•
•
•
•
•
C4I equipment and
systems
•
•
•
•
•
Logistic and support equipment
and services
Simulation and
training equipment
Complex and joint
systems
•
•
•
•
•
•
•
•
Smart (intelligent) ammunition and penetrators
Innovative types of ammunition so to enable multiple forms of engagement.
Emergence of new calibres driven by new scenarios and capability requirements
Co-operative development and acquisitions in large calibre systems
Reduction of the probability of being shot by reducing target signature (hide) and
misleading enemy systems (jammers and other Electronic Warfare, pyrotechnics,
decoys and application of stealth technologies)
Increase protection against bullets, fragments, IED/EODs (Explosive Ordnance
Disposal), snipers and CBRN
Collaborative approaches to ground combat through the “association” of mission
systems to form a system of systems (Network Enabled Capabilities) (NEC).
Land combat architecture platforms around an infrastructure of exchange and
interoperability between different national armies
Development of common standards and the interoperability between different
national systems.
Evolution of the Battlefield Management System to integrate into it all the functions
of the Command, Navigation, Surveillance, Combat and Auto-protection
platforms.
Extension of the traditional capacities of the combat systems in the field of
multisystems land platforms, mastering of network tactical technologies.
Increasing role of logistic support and supply so to maximize the availability of the
forces and their equipment as well as to keep the costs reasonably low in view of
current international (global) mobility needs.
Outsourcing of logistics and services (maintenance of equipments, etc)
Ability to deliver services in difficult conditions
Increasing need to train national soldiers to co-operate amongst them in
multinational units
Training simulations and e-learning
Unified European Battle Laboratories
The SoS role needs a whole range of skills covering the understanding of
technologies, sub-systems as well the global system and parallel processing of new
and existing programmes.
Definition, management and adoption of standards, shared by the community of
SoS, especially at the interface between systems, sub-systems or components
developed by different and sometimes competitive companies.
Source: ASD, 2001.
According to several experts’ opinions, in the future, a strong Land armament Industrial base will be dependant on a number of elements such as its capacity not only to generate new and disruptive technologies but also to build open innovation models for defence technology development, to create strong and
sustainable networks of partnerships with suppliers of technological and industrial capabilities located
everywhere in the world, and, finally, to generate new and innovative packages of outsourcing and services, new business models and innovative private financing mechanisms to meet customer requirements.
Interestingly also, some of the consulted experts identify a higher role by manufacturers in proposing new
products and ideas to the clients (armies) that it was the case twenty years ago.
In any case, it is becoming clear that there is and will continue to be an increasing use of electronics in
complex Land weapons systems, which may imply additional incentives for land sector firms to either
merge with or acquire electronics capabilities (Hartley, 2011). Also, some experts suggest of the progressive
blurring of the boundaries between the defence and the civilian security equipments and technologies,
which will be mainly based on a common platform of core technologies (Manchester Institute of Innovation Research, 2008; TNO, 2009). Moreover, other experts reckon that in the near future the most revolutionary or disruptive technological advances for military capabilities will come from R&D and innovation
developed in the civil sector, which will further encourage progressive convergence of civil and military
R&D (Ministerio Español de Defensa, 2010), although subject to the fact that military parts have to be
treated very confidentially and are too expensive for the open market. This blurring process is resulting in
the opening-up of the Land armament sector to new actors and enterprises specialised in civilian products
with a possible military use (Real Instituto Elcano, 2011).
63
3.7.3.
Co-operation in R&D activities at European level
The European Land armament sector is little active in the development of R&D collaborative projects
amongst enterprises at international level, where European cooperation in this industry is mainly focused
on pre-competitive technology developments (TNO, 2009).
In this regard, almost all R&D in the defence domain is organised at a national level. Just to give some
data, approximately a 12% of the total R&T68 public expenditure carried out by EU EDA Members is done
on an European Collaborative basis (in the sense that at least two EU Member States Ministries of Defence
participate), whereas the benchmark established by the EDA’s Ministerial Steering Board is of 20%. Not
surprisingly, the European defence Technological and Industrial Base (EDTIB) strategy paper calls for more,
better and more cooperative spending on defence R&T as a key tool for strengthening the EDTIB (EDA,
2007).However, the currently existing 7th Framework Programme or the proposed “Horizon 2020 - The
Framework Programme for Research and Innovation” only include security-related strategic elements, with
no reference to defence-related issues, an issue that it is negatively regarded by the European land armament sector in general (military R&D is not eligible for public EU research funding).
Graph 3.7
European Collaborative R&T as a Percentage of Total R&T, 2006-2010
25
20,0
20
16,6
13,1
15
12,8
9,6
10
11,8
5
0
2006
2007
2008
2009
2010
Benchmark
Source: European Defence Agency, 2011.
In any case, it is possible to identify several collaborative activities between Member States. The European
Land Defence Industry Group (ELDIG) has recently identified several key R&D subjects for European cooperation support before market development at national or multinational level. This selection has been
made according to the political / industrial ability to run successful projects. ELDIG recommends that these
key priorities are supported at European level via two main ways, that is to say:

Through pre-competitive research on critical topics to maintain European Land armament Industries on the leading edge for future National or European programs (Technological superiority and security of supply)

By harmonisation of regulations and standards to enhance competition, increase security
of supply and favour interoperability during operations carried out by European forces,
Research and Technology (R&T) is a subset of R&D (expenditure for basic research, applied research and technology
demonstration for defence purposes).
68
64
Table 3.19.
Key R&D subjects suggested by ELDIG for proposed European cooperation in the Land
armament sector
Segment
Vehicles
Unmanned
Ground Vehicles
(UGV) & Intelligent
Convoying
Soldier Systems
Standardisation of
interfaces & critical functionalities
Sensors for C41
Sensors networks
Weapons and
ammunition
Precision guided
ammunition
Protection
equipment and
systems
Direct Physical
threat protection
Hide and mislead
C41
Identification
Logistic and
support equipment and services
Maintenance
support & services
Training and
simulation
European battlelabs
UGVs bring new operational capabilities and reduce the exposure of
soldiers during dangerous missions such as observation and scouting for
infantry operations (asymmetric conflicts and peace keeping). The UGV
challenge lays mainly in the operational ability to move and localise in a
complex environment without needing permanent soldier control. Technologies for UGVs will also enable the introduction of intelligent convoying. Intelligent convoying is a capability whereby many different vehicles
(perhaps up to 50 or more) are coordinated via few platforms that are
critically positioned within the convoy. These lead platforms as well as
the convoy structure are intelligently re-configured to minimise threat
and enhance survivability. In essence, intelligent convoying will enhance
survivability by (i) reducing the crew numbers and (ii) enabling an “intelligent” (re)allocation of personnel within the convoy during a mission in
order to mitigate against threats and/or attacks
Soldier Systems modernisation programmes will be ongoing across NATO
and its allies for the foreseeable future. They are driven not only by the
endeavour for superiority but by the challenges of asymmetric warfare
and the rapid development in the information- sensor- and communication domains
Awareness is a prominent factor of the operation's success. Lots of sensor
technologies (optical to radars and UAVs = Unmanned Aerial Vehicles)
have been developed and are in operational use in all European nations. A goal for national and European operations is to get the appropriate information from these sensors for the right person at the right time.
Sensor networking from the front line to the command centre and from
ground to air is a key issue if vertical and horizontal interoperability is to
be achieved.
In order to reduce collateral damage, precision guided ammunition is a
must for modern operations where military forces and civil populations
are often very close. Due to the extremely stringent environment, precision guidance technologies are critical.
Loss of European soldiers during any conflict is not accepted by society
any more and is amplified by the media. Direct physical protection or
indirect protection by means of hide and mislead technology is now one
of the highest priorities.
Identification is the last phase before use of weapons. In modern scenarios such as urban conflict the front line may be a complex mix of friends
and enemies and of both regular troops and civilians. Reliable identification equipment and systems dramatically improve the operational efficiency of weapon systems
All European nations are currently modernising their maintenance and
support organisations in order to improve operational efficiency and to
reduce cost. In-depth exchanges of information on this topic will be
beneficial for each European nation (sharing best practice) and will
pave the way to better interoperability. European military operations are
still in the infancy stage but they will become more common in the future
given the increase in European foreign affairs and they will benefit from
this interoperability
Battlelabs are key tools when defining headquarters doctrine. Building a
European tool using existing national ones will enable the recently
formed EUMS (European Military Staff) to develop doctrines that are
tailored to European military operations.
Source: ASD, 2001.
65
4. The European land armament sector
from an employment perspective
4. The European land armament sector from an employment
perspective
4.1. General Overview of the sector from an Employment Perspective
To start with, it is difficult to give an estimation of the total employment available in the whole European
Land Armament sector. Thus, the AeroSpace and Defence Industries Association of Europe (ASD) suggests
that the employment reaches a total of 128.7 thousand direct jobs in 2010, although these figures are a bit
lower in the case of Eurostat (96.1 thousand direct jobs in 2008) through applying a more restrictive sector
definition.
It is important to underline that In addition to the sector’s direct employment, an important quantity of
indirect employment exists due to multiplier effects, which account for secondary employment generated
in other sectors associated with the activity of the own land armament industry. Diverse studies for the
whole aerospace and defence sector69 evaluate this employment multiplier effect between 2.2 and 2.4
indirect jobs per direct job in the industry. If an intermediate ratio (2.3) is applied to the mentioned figures
of direct employment in the European land armament sector, the result reflects a range from approximately 220,000 to 300,000 additional jobs which are somehow dependent on the activity of the sector.
These figures show the important dimension of the sector activity in the European economic activity.
Going into detail, and according to estimations by Eurostat’s Structural Business Statistics, the EU-27 “Manufacture of weapons and ammunition” sector (NACE Rev1 29.6) (code which includes also the manufacture of tanks and other fighting vehicles) provided employment to 96.1 thousand people in 2008. From a
time dynamic perspective since the year 2001 onwards, the available information shows that the EU-27
sector employment has experienced a clear downsizing trend. Thus, and if in 2001 there were approximately 125.8 thousand people in the sector, in 2008 this figure was the previously commented 96.1 thousand people, which means that in the period nearly 1 job out of 4 has been lost in the European Land
armament sector. However, the following graph shows that this negative evolution has been particularly
the case in the new Member States (EU-12), whereas the situation in the “old” member States (EU-15) has
been positive. Thus, the EU-12 sector employment has experienced a dramatic reduction from 72.1 thousand people in 2001 to 33.4 thousand people in 2008 (-53%, or 1 job out of 2), whereas EU-15 sector employment has experienced a positive upward trend from 53.8 thousand people in 2001 to 62.7 thousand
people in 2008 (+17%, although it is worth stressing that in the last years the employment has shown a flatter evolution (see Graph 4.1)70. The need to adapt the employment structure to the real productive requirements (liquidation of unnecessary indirect or white-collar positions) as well as the need to rapidly
integrate technical progress in the manufacturing processes are behind this dramatic evolution of employment in the new Member States.
The Aerospace and Defense Industry in the U.S. A financial and economic impact study. Deloitte 2012; The economic
contribution of BAE Systems to the UK in 2009 , Oxford Economics 2011
70 This information is also confirmed by data coming from national sources, in the sense that after dramatic employment
reductions since the end of the Cold War, employment in most of the EU-15 Member States has experienced a more
sustained evolution in the last 10 years, although the occupational profile of the workforce between workers and engineers has changed for the benefit of the last group in most cases. The sustained demand of land armament products,
partially due to the more internationalised profile of companies, explains this positive development
69
67
perspective
Graph 4.1
140
Recent evolution of employment in the European Land Armament Sector, EU27,
EU 15 and EU12, 2001-2008 (thousands of people)
125,8
117,5
120
110,6
105,1
99,5
97,3
62,1
60,8
61,7
62,5
62,7
43
38,7
35,6
33,8
33,4
2004
2005
2006
2007
2008
100
80
72,1
60
40
63,3
55,1
53,8
54,2
55,5
2001
2002
2003
96,3
96,1
20
0
EU-15
EU-12
UE-27
Data refers to (NACE Rev 1 29.6, Manufacture of weapons and ammunition).
This negative evolution of the EU-27 sector employment is better reflected when comparing the sector with
the evolution of the whole EU-27 manufacturing sector. In this regard, and taking as a landmark the employment data for year 2001 (value=100), it is possible to identify that the evolution of the EU 27 “Manufacture of weapons and ammunition” sector employment has experienced a much more severe decline that
the total manufacturing employment, which in any case has also experienced a decline in the analysed
period 2001-2008 (see Graph 4.2).
Graph 4.2
Trends in employment in the EU-27: comparison of total manufacturing and the
manufacture of weapons and ammunition (Index for 2001=100), distinction between new and old Member States
130
115,4
120
110
100
100
100,7
96,7
87,9
93,4
90
116,2
116,5
103,1
96,6
95,6
93,9
93,3
83,5
79,1
76,5
87,9
80
114,7
113
77,3
93,7
76,5
92,6
76,4
70
59,6
60
53,7
49,4
50
46,8
46,4
2007
2008
40
2001
2002
2003
2004
Weapons and ammunition-EU 27
2005
2006
Total Manufacturing
From a country perspective, in 2008 the United Kingdom had the highest number of persons employed in
the Land armament sector, with a total of 17.8 thousand people (which means 18.2% of the total of per-
68
perspective
sons employed in the EU-27). After the UK, the most important countries in terms of number of persons employed were Germany and Bulgaria (14.3 and 13.0 thousand, respectively), followed by France, Romania
and Poland (see Graph 4.3).
Graph 4.3.
Number of persons working in the European Land Armament Sector, by main Member States, 2008
Total numbers
20.000
17.781
14.267
15.000
13.029
9.716
10.000
7.720
7.298
6.318
5.000
4.481
4.053
3.452
Czech
Sw eden
Spain
0
United Germany Bulgaria
France
Romania Poland
Italy
Kingdom
Republic
In %
20
18,2
15
14,6
13,4
10,0
10
7,9
7,5
9,7
6,5
4,6
5
4,2
3,5
0
United Germany Bulgaria France Romania Poland
Kingdom
Italy
Czech Sw eden
Republic
Spain
Rest of
M ember
States
Data for United Kingdom, France, Romania and Czech republic refer to year 2007.
Meanwhile, from a time perspective, it is interesting to see the different evolution of employment in some
selected EU Member States in the time period 2001-2008. This difference is particularly striking when comparing the situation of the most relevant old and new Member States. Thus, and whereas the evolution of
employment in the most important old Member States (Germany, France, Italy, Spain, Sweden or the
United Kingdom) has been generally speaking positive in the analysed time period (specially consistent in
Germany and the UK, and with a reversion in the last few years in Italy and Spain), in the case of the selected new Member States (Bulgaria, Poland, Romania) the evolution of employment shows a dramatic
downward trend, where this seems particularly the case of Bulgaria and specially Romania, whereas in the
case of Poland the employment is experiencing an slight recovery since 2004 onwards.
69
perspective
Graph 4.4.
Trends in the Land armament sector’s employment in some selected EU Member
States (Index for 2001=100)
Selected Old Member States
150
140
130
120
110
100
90
80
2001
2002
Germany
2003
Spain
2004
2005
2006
France
Italy
Sweden
2007
2008
United Kingdom
Selected New Member States
100
80
60
40
20
0
2001
2002
2003
Bulgaria
2004
2005
Poland
2006
2007
2008
Romania
In addition to this, and according to the new NACE sector classification, there is also information available
from Eurostat for the year 2010 at subsector level. On the one hand, for the subsector of “Manufacture of
weapons and ammunition” (NACE Rev 2 25.4), the Table 4.1 shows a selection of countries among which
Bulgaria has the greatest number of persons employed (13,351 persons in total), followed by United Kingdom and Germany (12,160 and 11,430 people). On the contrary, some of the countries with the lowest
numbers of employees in the analysed sector include Slovenia (27) and Cyprus (29).
70
perspective
Table 4.1.
Employment in the “Manufacture of weapons and ammunition” sector for a selection of EU Member States, 2010
Number of persons employed
Belgium
Bulgaria
Germany
Greece
Spain
Cyprus
Italy
Hungary
Austria
Poland
Portugal
Slovenia
Finland
Sweden
United Kingdom
1,685
13,351
11,430
2,373
1,296
29
7,243
344
993
6,088
468
27
422
2,574
12,160
Data refers to (NACE Rev 2 25.4)
Data for Greece refers to year 2008, data for Italy and Poland refer to 2009
Interestingly also, concerning the subsector of “Manufacture of military fighting vehicles” (NACE Rev 2
30.4), available information for the year 2010 shows that in Germany there were 3,489 persons employed
working in that sector, whereas in Poland and in the UK there were 1,703 and 1,550 persons respectively
(see Table 4.2).
Table 4.2.
Employment in the “Manufacture of military fighting vehicles” sector for a selection of EU Member States, 2010
Number of persons employed
Germany
Poland
United Kingdom
3,489
1,703
1,550
Data refers to NACE Rev 2 30.4
Data for UK refers to year 2009
The previous data coming from European sources can be complemented with information provided by
own national sources71. In this regard:

In France, and according to estimations provided by the French Industrial Federation for
Land Armament (GICAT), the French Land armament sector has got approximately
20,000 direct employees, whereas it is possible to identify a relatively similar number of
employees in the supply chain and other related services. All in all, the French land armament sector would employ between 40,000 and 50,000 employees.

In Germany, Küchle gives an estimation that 7,000 employees are working for the leading
system manufacturers, whereas 13,000 people are employed by the large suppliers
(Küchle, 2007).

In Italy, estimations collected amongst experts suggest that the there are approximately
1,600-1,700 people directly employed in the Italian Land armament sector, whereas the
figure increases to 4,000 people if indirect employment is also taken into account.
Very often, there are important differences between the data on employment depending on the source of information.
71
71
perspective

In Poland, and according to information obtained from the Central Statistical Office,
employment in the Polish weapons and ammunition sector reached 5,500 people in
2009, whereas the previous year it amounted to 6,800 individuals.

In Spain, the Spanish employers association TEDAE stresses that the Spanish Land armament sector employed a total of 2,777 persons in 2010 (approximately a 14% of the whole
Spanish defence employment, out of which 2,130 were working in the ‘Armament, missiles and ammunition’ sector and the remaining 647 were employed in the terrestrial platforms.

In Sweden, and according to data provided by the Swedish Security and Defence Industry (SOFF), the Swedish Land armament sector gave direct employment in 2010 to an estimated figure of 3,700 persons.

In the United Kingdom, information coming from the British Labour Force Survey suggests
that the total direct employment in the British Land armament sector in 2011 was approximately 13.7 thounsand people, where most of the employment is located in the
manufacture of weapons and armaments (12.2 thousand people). However, these figures are likely to be higher due to the extensive use of supply chains and the presence of
companies whose product portfolio is more varied, but which are also suppliers to the
land armament sector. In this regard, estimations for the UK defence as a whole suggest
that for every job created in the defence industry, 1.8 jobs are created elsewhere in the
economy (Oxford Economics, 2011)72.
4.2. Main Employment Patterns in the sector
4.2.1.
Employment patterns: Gender, age, levels of education and main occupations
This section is interested in presenting some information on the main employment patterns of the European
Land Armament sector (LAS). From a methodological perspective, this section is based on the information
provided by Eurostat’s Labour Force Survey73, for two main relevant sectors, that is to say, the “Manufacture of weapons and ammunition” (NACE REV 2 25.4) and the “Manufacture of military fighting vehicles”
(NACE Rev 2 30.4)74, as well as the comparison of these two sectors with the total manufacturing sector.
In this regard, the current subsection presents information on gender, age, level of education and occupations, always referred to the whole EU-27 and for the average 2008-2010 figures.
Estimations from the USA suggest an average employment multiplier of 2.36 for the US defence industry as a whole,
where this multiplier effect is slightly higher (2.96) for the manufacturing of Military Land vehicles (Deloitte, 2012).
73 The information obtained from the Labour Force Survey of Eurostat has to be analysed with great care for a number of
reasons:
• The info is based on a representative but small sample of households. This means that there is an inevitably a margin of error surrounding the figures reported, specially if the industry being examined itself is relatively small or if job
figures are broken down further in terms of their characteristics (sex, age, education)
• Definitions used for occupations may vary according to national conventions, which leave scope for differences
between countries
• Disaggregated information for detailed economic sectors is not available for all EU countries.
In any case, The Labour Force Survey (LFS) has a number of strong points that deserve their use, such as its up-to-date
nature or the possibility to compare on an homogeneous basis all EU countries.
74 The limited size of the samples impedes the information to be disaggregated by Member States. Also, it is not possible
to present data on time evolution patterns due to the changes in the definition of the sector accordingly to the new
NACE Rev 2 used since 2008 onwards.
72
72
perspective
a)
Gender considerations
According to the available data provided by the Eurostat’s Labour Force Survey, both European LAS (the
manufacture of weapons and ammunition and the manufacture of military fighting vehicles) can be defined as male-dominated sectors. Thus, up to 69.8% and 89.8% of the manufacture of weapons/ammunition sector and the manufacture of military fighting vehicles workforce are men, where this
figures are in line (higher in the case of the manufacture of military fighting vehicles) with the average for
the total European manufacturing sector (70.1%)75. Meanwhile, data from the United Kingdom shows that
up to a 73% of the whole working population in the Land Armament sector are male.
Interestingly, some enterprises have set up special measures in order to foster the hiring of women within
the sector. Thus, the French Nexter group has created the so-called “Next’Elles” working group, intended
to increase the presence of women within the group (in 2011, only 18% of the employees were women).
Graph 4.5.
Percentage of male employment in the Land Armament sector, average 20082010
EU 27
89,8
100
69,8
80
70,1
60
40
20
0
Manufacture of weapons
Manufacture of military
and ammunitions
fighting v ehicles
Total manufacturing
Manufacture of weapons and ammunition (NACE REV 2 25.4)
Manufacture of military fighting vehicles (NACE Rev 2 30.4)
Source: Eurostat’s Labour Force Survey
b)
Age considerations
From an age perspective, the most relevant characteristic of the European LAS refers to the very small
presence of young people less than 24 years old, in the sense that only 3.3% and 3.0% of the workforce in
the manufacture of weapons/ammunition sector and the manufacture of military fighting vehicles are
younger than 25 years old, much less than the 8.6% in the case of the total European manufacturing sector. Meanwhile, the sector shows a presence of older workers (older than 55) very much in line with the
European manufacturing (around 12.4%), although this presence is higher in the case of the manufacture
of weapons/ammunition sector (16.6%).
75 Interestingly enough, individual evidence collected from other land defence related enterprises like BAE Systems
confirms this strong presence of men within its workforce (indeed, approximately an 80% of the BAE workforce in the UK
are men) (information obtained from Geoeconomics and Oxford Economics, 2011).
73
perspective
Graph 4.6.
Distribution of employment by age groups in the Land Armament sector, average 2008-2010
EU 27
100%
16,6
80%
12,4
12,4
84,6
79,0
55+
60%
80,1
40%
25-54
15-24
20%
3,3
3,0
8,6
Manufact ure of w eapons and
Manufact ure of milit ary
Tot al manufact uring
ammunit ions
fight ing v ehicles
0%
These results are also confirmed by other sources of information. Thus, average age of those working in the
British LAS is 46 in 2001, which is slightly older than the general average for the economy as a whole (information obtained from the UK Labour Force Survey Statistics). Meanwhile, the average age in both Italian
Oto Melara and Iveco companies is 40-45 years, very much in line with the average age of the German
KMW workforce (42.5 years old). By way of contrast, the presence of older workers is more acute in countries such as Poland or Spain (for instance, it is estimated that the average age in the Spanish company
‘GDELS-Santa Bárbara Sistemas’ is 52 years).
These figures reflect the existence of a certain ageing problem within the European LAS, in the sense that a
significant percentage of the workforce is expected to retire in the coming 10-15 years, resulting in significant skills and competence deficits. In order to overcome this situation, the incorporation of new young
people in the sector is key for the future sustainability of the European defence industrial and technological base.
In this regard, most relevant enterprises and countries are making important efforts to be attractive so to
enrol highly qualified young individuals (engineers, technicians, welders, etc). In Germany, it is suggested
that young engineers and technicians are interested in jobs in the sector because of high specialized
work, new technologies and good incomes, although unclear future prospects of the defence-related
activities compared to other manufacturing activities (i.e. aerospace) may result in difficulties to attract
new young people to the sector. In the case of Poland, it is suggested that unattractive level of remuneration offered to new workers adds an added difficulty to the recruitment process whereas, in Spain, enterprises seem to be currently very reluctant to take on new employees due to the current economic crisis
and the demand reduction. Some interviewed experts also suggest that some companies are sending
high qualified personal up to six months into areas of war (i.e. Afghanistan) to secure service and maintenance, which results in added barrier for attracting new people into the sector.
c)
Levels of education
Concerning the level of education of the European LAS sector workforce, the available data shows that it
is characterised by higher levels of qualification and education than the manufacturing average. Thus, the
high-tech and innovative products manufactured in the Land armament sector require expert staff to
carry out very precise, meticulous, and sophisticated tasks for the production of extremely specialised and
complex products.
Just to give some data, only 15.5% and 4.5% of the workforce within the manufacture of weapons/ammunition and the manufacture of military fighting vehicles has got primary educational levels, re-
74
perspective
spectively, much lower than the 24.7% corresponding to the European manufacturing average. By way of
contrast, the presence of people with tertiary education levels is higher in the manufacture of weapons/ammunition sector and the manufacture of military fighting vehicles (23.3% and 41.9%, respectively),
higher in both cases than the EU manufacturing average of 18.9%. These data allow defining the European
LAS as a highly-skilled sector, particularly in the case of the manufacture of military fighting vehicles.
Graph 4.7.
Distribution of employment by level of education in the Land Armament sector,
average 2008-2010
EU 27
100%
80%
18,9
23,3
41,9
60%
40%
56,3
61,2
Secondary
Primary
53,6
20%
0%
Tertiary
15,5
Manufacture of weapons and
ammunitions
4,5
Manufacture of military fighting
vehicles
24,7
Total manufacturing
Examples of specialised skills required within the LAS include, amongst others, high level knowledge and
skills in advanced manufacturing and engineering (systems, quality, integrated logistics support, software
development, database, testing and integration, mechanical, electrical, advanced materials/composites); design; systems integration; test architecture/simulation; programme and proposal management; software development; contracts/subcontract and supply chain management; finance/pricing/cost engineering; ICTs, etc (Taylor and Campbell, 2011).
Interestingly also, and due to the high level of specialisation required and the search for high-added value
products, some skill needs are not fulfilled by general education programs, which require important efforts
in additional (in-house) training. For instance, the German KMW company, in close cooperation with the
skills and vocational training centre of the Bavarian Industry - BBW) developed in 2009 training courses for
their employees to keep and strengthen skills and new competences. See also the comprehensive strategy of BAE Systems in the skill domain.
Table 4.3.
BAE Systems’ Skills 2020 Strategy
The Skills 2020 is an integrated skills and education strategy that will touch every part of BAE Systems over the
next 10 years. The strategy is BAE Systems answer to ensure the company has the right skills to remain competitive and operate successfully up until 2020, and beyond. The programme was launched in 2010, following a
review by the Institute of Manufacturing at Cambridge University, which identified the key skills and challenges
that BAE Systems and its peer group will need and face throughout the next decade. BAE Systems invests £79
million annually in its Skills 2020 strategy to address existing and future workforce issues. Activities conducted
include partnership work with 30 UK universities to ensure maintenance of leading edge capabilities and technologies, multi-skilling, re-skilling and upskilling activities of the company’s workforce, or participation of young
people in apprenticeship programmes and graduate training schemes (in fact, the BAE Systems Advanced
Apprenticeship Programme is one of the largest such schemes in the UK).
Source: BAE Systems
75
perspective
d)
Distribution of occupations
The relatively high presence of skilled and highly skilled workforce within the European LAS is also confirmed by the information provided by Eurostat’s European Labour Force Survey on the main existing occupations within the sector. Thus, data show that skilled workers and professionals/technicians represent
the bulk of the workforce in the European LAS. The higher profile of occupations in the subsector of military
fighting vehicles is again patent.
In the case of the manufacture of weapons/ammunition sector, up to 35.8% and 28.8% of the workforce
correspond to skilled workers and professional/technicians, respectively, whereas in the case of the manufacture of military fighting vehicles sector, the dominant group corresponds to professionals and technicians and followed by skilled workers (43.0% and 25.2%, respectively). By means of comparison, and taking
as a reference the whole EU manufacturing sector, the presence of skilled workers and professional/technicians is lower (31.6% and 20.7%, respectively).
Graph 4.8.
Distribution of employment by occupational groups in the Land Armament sector, average 2008-2010
EU 27
100%
6,5
80%
28,8
60%
9,0
40%
11,8
7,1
20,7
43,0
7,3
10,2
31,6
35,8
14,6
0%
Professionals and
technicians
Clerks, office and
serv ice workers
Skilled workers
23,3
Plant, machine
operators - assemblers
Elementary
occupations
25,2
20%
Managers
5,3
12,7
0,0
7,1
Weapons and
Military fighting
Total Manufacturing
ammunition
v ehicles
Manufacture of weapons and ammunition (NACE REV 2 25.4); Manufacture of military fighting vehicles (NACE Rev 2 30.4)
This information is also confirmed by other studies (i.e. Eurostrategies, 2009) which corroborate that the
employment in the LAS (equally to other segments of the defence industries) is highly skilled and specialised, and characterised by a higher proportion of engineers and scientists and higher levels of qualification
than for industry as a whole. Just to give some examples, at Germany’s Krauss-Maffei Wegmann, 25% of
the workforce consists of development engineers, due to the importance of R&D within the company’s
activities. In the case of the Italian IVECO defence company, up to 38% of the workforce are technicians
(including engineers). Meanwhile, in the case of BAE Systems, up to 43% of the company employment in
the UK is employed either as engineers or have some engineering backgrounds/competencies, and nearly
a fifth are (nonexecutive) other professionals, in areas such as finance, ICTs and business development.
Overall, 70% of UK employees at BAE Systems are either engineers, senior executives/managers or other
professionals (Geoeconomics and Oxford Economics, 2011). Interestingly also, and in order to overcome
the existing labour shortages in STEM (Sciene, Technology, Engineering and Mathematics) graduates within
the United Kingdom, BAE Systems is attracting a great number of engineers from abroad.
76
perspective
Graph 4.9
18,8%
BAE Systems Employment by Skills split
Admin,Clerical and secretarial
1,0%
29,7%
Other (including apprentices
and tradesmen)
Senior executives and managers
Engineer-related
7,9%
42,6%
Other professional
Source: Geoeconomics and Oxford Economics, 2011.
Some authors suggest that this remarkable presence of highly skilled occupational groups (especially researchers and engineers involved in R&D activities) is also probably explained by the fragmented nature of
the sector and the subsequent duplication of programmes and R&D activities (Eurostrategies, 2009). Finally, most of the interviewed experts reckon that in the last twenty years there has been a change in the
professional mix with a reduction of the number of employees and an increase in the number of new engineers and technicians.
4.2.2.
Social Dialogue in the sector
The qualitative information coming from interviews with experts (even if limited) suggests that, generally
speaking, existing social dialogue practices within the European Land armament sector can be regarded
as long-standing and well developed in nearly all countries, and especially in comparison to other economic sectors.
For instance, in the case of Poland, it is possible to identify the so-called “Trilateral team for social and
economic issues in the conditions of restructuring of LAS entities and LAS capacity”, composed of representatives of workers, employers and the Polish government. This Team meets several times a year to discuss and negotiate different issues related to the implementation of the defence directive and related
fears, the consolidation and restructuring of the Bumar group or the issue of multi-year programming contracts, in addition to traditional social dialogue issues such as pay or working time. In Italy, and in the case
of Oto Melara, consulted national experts reckon that social dialogue practices are more fluid and better
in comparison to other companies of the Finmeccanica Group, where this social dialogue is perceived as
a strong point for the sector. In Spain, it is suggested that trade unions’ influence was essential during the
privatisation process of ‘Santa Bárbara Sistemas’, where the selection of GDELS depended on its promise
to keep employment levels and working conditions.
By way of contrast, there is no LAS-related social dialogue at sectoral level in the United Kingdom, although interviewed experts suggest that the degree of information sharing and consultation at company
level (workplace) is extensive and growing. In this regard, UNITE (the biggest trade union in the UK which
represents defence/LAS workers), is currently working towards creating a more formal social dialogue arrangements in the defence industry (including the Land armament sector).
One of the typical topics related to social dialogue practices relates to the issue of “Anticipation of skills
changes”. In this regard, it is interesting to stress the French experience, well reflected in the so-called
“Gestion Prévisionnelle de l’Emploi et des Compétences” (GPEC) agreements (these agreements are
compulsory for all French companies with over 300 employees). For instance, Nexter has recently agreed
in its GPEC agreement to increase the proportion of employees over 55 years via the fostering of part-time
practices. Furthermore, it was agreed that 5% of Nexter’s traineeships will be allocated to unemployed
seniors.
77
perspective
4.2.3.
Qualitative changes in the sector’s employment in the last two decades
The LAS sector, equally to other defence-related sector, is experiencing in the last two decades a number
of trends within the skills domain that can be summarised as follows (BIPE, 2007; Eurostrategies, 2009):
Table 4.4.

There is an ongoing shift from manual workers to professionals and technicians of various
types, as well as to engineers and specialists, where skilled workers nevertheless remain in
high demand, for instance in the case of machine operators (as opposed to traditional
unskilled blue collar workers). The previous situation is resulting in an increased average
competency level required by the LAS at the recruitment stage.

Due to the re-organisation of production in tiered structures and the consequent externalisation of activities, there is a reduction in the existing hierarchical levels within companies, which in turn results in a higher emphasis on teamwork structures and the polyvalence of the workforce, as well as on the management of several areas such as procurement, subcontracting or logistics.
Impact of context changes on skill needs in the Land armament sector
Context changes
Reorganisation of production in a tiered
structure and externalisation of activities
Improvement in production and efficiency
Increased internationalisation of operations
Increased emphasis on upgrading and
modernisation of existing equipments
Technical and technological progress
Consequences for employment and skills needs
• Reduction in the existing hierarchical levels and shift towards matrix
type organisations ==> emphasis on teamwork structures and the
polyvalence of the workforce
• Emphasis on areas such as procurement, subcontracting or
logistics.
• Marketing and sales
• Cost and quality control skills.
• Internationally-oriented competencies such as language skills,
communication, ability to deal with intercultural environments, etc
• Increased demand of geographically mobile workforce.
• Systems integration, ability to integrate onto the platforms’ critical
subsystems, including electronic architecture, sensors and
integrated survivability solutions.
• Skills relating to the repair and overhaul of AFVs onshore
• increasing need of expert skills for the production, maintenance
and handling of new materials and technologies (composites,
robotics, ICTs and computer skills, numerical control machines,
cold-forming processes, energy efficiency, introduction of
electronics, etc.)
Source: Eurostrategies, 2009 and IKEI

The need to improve productivity and efficiency levels is resulting in an increased attention towards elements related to, for instance, cost and quality control skills, and for all
layers of the organisation.

The internationalisation strategies of most prime contractors lead to the emergence of a
new set of internationally-oriented competencies such as language skills, communication, ability to deal with intercultural environments, etc. Also, and as a result of existing
and future restructuring and consolidation processes, there is an expected increased
demand of geographically mobile workforce.

The increasing emphasis placed on upgrading and modernisation of existing equipments
imply that skills to upgrade, maintain and manage military capability on a through life
basis will become increasingly important. Examples of such relevant skills may include systems integration, ability to integrate onto the platforms’ critical subsystems, including
electronic architecture, sensors and integrated survivability solutions. Moreover, skills relating to the repair and overhaul of AFVs onshore will become also vital.
78
perspective

Changes related to technological progress are resulting in an increasing need of expert
skills for the production, maintenance and handling of new materials and technologies
(composites, robotics, ICTs and computer skills, energy efficiency, introduction of electronics, etc)
Interestingly also, and anticipating negative employment impacts of the reduction in public defence
budgets, the United Kingdom has launched a number of initiatives with the explicit aim of retaining and
redeploying highly skilled advanced manufacturing workers who may lose their jobs. To this end, last October 2010 it was announced the formation of the so-called “Skills and Jobs Retention Group (SJRG”), basically intended to ensure that possible redundant high value skills in the defence sector may be effectively retained and redeployed in other advanced manufacturing sectors (i.e. civil aerospace, automotive, energy and marine, etc) (Department for Industry, Innovation and Skills/BIS, 2010).
Also, and since 2011, a new national web based system called “Talent Retention Solution (TRS)” has been
launched in order to help match skilled employees facing redundancy to UK companies in growing sectors of advanced manufacturing and engineering which are recruiting. TRS is financed by enterprises and
supported by trade unions (i.e. UNITE, Prospect), and it puts skilled individuals looking for work and companies searching for new employees in direct contact with each other through the web-based programme
‘CWeb’ (Department for Industry, Innovation and Skills/BIS, 2011).
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5. Country specific information on the Land
armament sector
5. Country specific information on the Land armament sector
5.1. Introduction
This chapter is interested in presenting a summary of the present situation of the Land armament sector in
seven main EU Member States, that is to say, France, Germany, Italy, Poland, Spain, Sweden and The
United Kingdom. Detailed information per country can be obtained in the Annexes of this report.
5.2. France
Mapping of the National Land Armament Sector
Macroeconomic vision
• The French land defence sector has a turnover of 17,5 billion euros and provides over 20.000 direct jobs in France (data
2011). Furthermore, the French armament industry exports equipment for the value €4 billion.
• The French state remains the main client and a vital player when it comes to decision-making in the French land
armament industry. France uses around 0.4% of its GDP for land defence expenses.
• Drastic public saving measures are underway in France, so the government is seeking €5 billion savings in defence
activities over the next three years. Enterprises fear that that these reductions will significantly affect equipment
purchases.
Groups and Enterprises
• Main French LAS company is Thales. Thales has a turnover of over 7.5 billion euros of which around 2 billion euros come
from LAS activities. Thales is partly owned by the French state. There seems to be a current consolidation process of
French land armament sector around Thales
• Another main LAS system integrator is Nexter (turnover of 792 million euros in LAS activities). GIAT-Industry and Nexter are
100% owned by the French state. The company Safran makes 2 billion euros in defence sector in total, of which only
around 200 million euros come from LAS activities. Safran owns SAGEM, which produces military electronics.
• Other relevant manufacturers of armoured vehicles include Renault TD (189 million euros turnover) and Panhard
(turnover of 113 million euros). Panhard is currently a French manufacturer of light tactical and military vehicles.
Products and value chain
• The portfolio within the French LAS is large but also specialised along three product lines, that is to say, Armoured vehicles
(with a €700 million turnover in 2010, largely Nexter and Panhard); Weapons, artillery and ammunition (with a turnover of
€550 million in 2010 made mostly by Nexter, TDA and SNPE) and, finally; Equipment and terrestrial systems (turnover of
over €6,5 billion made mostly by Cassidian, Thales and Sagem Defense).
• External supply of services and maintenance activities represent growing markets for the French LAS sector, since armies
are increasingly concentrating on core competences of the army (direct battle, security, etc).
Markets
• Current French stagnated LAS markets are compensated by strong exporting activities to third countries, especially to
countries in Asia, Middle East and Europe. The French land armament companies are exporting nearly half of their
production (€2.1 billion of the turnover is related to export from a total of €5 billion). India as an emerging market.
• There are strong signs that the big players such as Thales adapt to a multipolar world by accepting offset deals and
developing regional headquarters.
• The French government is fully committed to promote the export rate of the French LAS.
• French LAS companies are rarely involved in dual use products.
Technology and innovation
• R&D activities play a key role in the French LAS sector. Increasing role played by electronics in the sector. Specific R&D
for the military sector is very important, but innovations often are created by other industries and are adapted to the LAS
Employment issues within the National Land Armament Sector
• The French LAS has got approximately 20,000 direct employees and at least the same number of employees in the
supply chain and other related services.
• Sector employment is characterised by being both highly skilled and very specialised, with a higher proportion of
engineers and scientists and very important efforts to train employees. Presence of an ageing working population.
• The industry expects stability on employment with slightly reduction. The labour force is only slowly renewed, temporary
and subcontracted company are increasingly involved in all areas
Qualitative characterisation and perspectives of the National LAS
• Main strengths of the French LAS sector include the existence of a well developed sector, with multiple niches and
submarkets as well as the strong involvement of the French state in the sector. Meanwhile, one of the main risks includes
the increasing competition at international level
81
5.3. Germany
• In 2010 the estimated German defence industry turnover amounts to 16 billion euro. There are no official statistics on the
turnover of the German LAS sector. The German Association of the Defence and Security Industry (BDSV) estimates in
October 2012 that more than 200.000 workers (in total - including companies of the supply chain) are employed in this
branch and producing a turnover of around 22 bn Euros.
• Until 2014 the Ministry of Defence is supposed to save about 8.4 billion euro, including large savings and changes in the
procurement of the Bundeswehr. Also, the future German procurement strategy will include the possibility to purchase
products from foreign manufacturers under pre-conditions (i.e. systems are of high quality, available on short term and
are cheaper than German products
• The German LAS companies comprise System manufacturers (i.e. Kraus-Maffei Wegmann and Rheinmetall AG); Supplier
and component manufacturers (i.e. Diehl Defence GmbH, ESW GmbH, MTU GmbH, Renk AG, Zahnradfabrik
Friedrichshafen AG, ThyssenKrupp AG (with B+V Industrietechnik) and others); Weapons and ammunition industry (i.e.
Rheinmetall Waffe Munition GmbH, Diehl BGT Defence GmbH & Co. KG, Junghans Microtec GmbH, Heckler & Koch
GmbH, MBDA Deutschland GmbH); Protection systems and support vehicles (IABG mbH, TADANO FAUN GmbH, Iveco
Magirus AG, Kärcher Futuretech GmbH among others).
• Approximately 2,500 companies are involved in building armoured vehicles as part of the supply chain. The Leopard II
tank on its own combines the efforts of approximately 1,500 companies.
• Main geographical areas where LAS production plants are located in West- and South-Germany: important production
centres include Hessen, Northern Germany and South/South West of Germany.
• The LAS in Germany is very diversified, including armoured vehicles and tanks, infantry weapons, engines and aircraft
technologies, production of missiles and ammunition, electronic systems and service activities.
• “Dual-Use” products are not as important as it often is considered.
Markets
• Exporting activities play a key role in the German LAS industry, due to the high level and reliability of German LAS
products. For instance, the turnover of KMW and Rheinmetall depends from 60% to 70% on their exporting activities.
• German land armament products are in service by armies all around the world. Success stories include the Leopard
tanks, the armoured personal carrier Fuchs, the Rheinmetall 120 mm gun or the small arms from Heckler & Koch
• The leading role in technology and armoured vehicles provide German companies quite a good advantage in
comparison to other international competitors.
• 20% of the Rheinmetall staff is engaged with R&D activities. 25- 30% of the total staff at KMW is involved in R&D activities.
• Available estimations suggest that 7,000 employees are working for the leading German LAS system manufacturers and
13,000 for the large suppliers
• The announced savings on the defence budget in the next five years and the framework of structural reforms of the
Bundeswehr – may threaten a large number of jobs in the German defence industry, unless exporting activities
compensate reductions within the national markets.
• The German LAS industry is facing more and more labour shortages in the future because of the demographic trend in
Germany, the positive economic situation in Germany (the internal competition to get and keep skilled worker inside the
industry will grow), success in exports and increasing cohorts of elderly people.
• The character of jobs in the German LAS industry is becoming more high skilled and specialized in the last ten years.
• The German land armament industry offers a wide range of system capabilities, and has efficiency advantages in
comparison to enterprises from other countries.
• German companies have to face a reduction of chain operated vehicles in the next 10 years. A loss of knowledge and
innovation capabilities is recognized as prospective danger.
82
5.4. Italy
• Lack of detailed information on the Italian LAS
• Main Italian LAS companies have orders for the next years due to programmes approved in previous years.
• Main Italian enterprises in the sector include OtoMelara (part of the Finmeccanica Group) and IVECO Defence Vehicles.
OtoMelara is presently world leader in the design and production of small and medium calibre naval guns., Iveco
Defence Vehicles is a private company, owned by the multinational Group Fiat Industrial S.p.A. Both of them are
grouped under the CIO Consortium.
• The national LAS is concentrated in several particular geographical areas, including La Spezia, Brescia, Bolzano and
Rome
• The product portfolio of the Italian LAS is very wide.
• Otomelara portfolio of products ranges from naval guns to ammunition, from artillery guns and armoured vehicles to
antiaircraft systems. Iveco is trying a diversification of products into the civil domain
• The provision of defence-related services is an increasing important market for the Land armament sector.
• 75% of the production value comes from third suppliers, usually (but not always SMEs)
Markets
• Italian national companies have a stable market for their products and services, with some international success stories
such as the innovative wheeled vehicle called Lince, the 8x8 Wheeled Armoured Combat Vehicle Centauro or the light
armoured vehicle Puma. For instance, Lince has been exported in 11 foreign countries (almost 3,600 produced vehicles
and 4,000 ordered vehicles).
• Strong emphasis on R&D. For instance, Otomelara devotes 10% of the revenues in R&D activities.
• Finmeccanica has built up devised cooperation agreement on projects with more than 20 Italian universities (Parma and
Turin, Universities in Puglia and in Liguria, plus other Universities).
• The number of employees directly involved in the Italian LAS may be estimated in 1,600-1,700 people, and 4,000 people if
indirect employment is also taking into account. Employment in the Italian LAS has decreased in the first half of the
nineties, but after that it has remained more or less stable due to existing orders. The average age now is 40-45 years.
• The majority of the Italian LAS employment is composed by technical workers and engineers. Also, there is a low level of
employment turnover and a high level of employment loyalty in the Italian LAS, where the existing social dialogue is
higher than in other metalworking industries.
• The Italian LAS shows a strong connection between Army and companies, with a strong R&D orientation and important
presence in export activities. Meanwhile, the sector does not have a clear strategy related to what are the products and
equipments to develop in the coming years
• Likely reduction in investments in defence, counterbalanced by demand coming from other sectors such as security and
Civil Protection
• From the Italian perspective, likely integration of the Land defence model in Europe in the coming 5-10 years around the
French, German and Italian major players. Open question about the role that Italian players can develop in this new
scenario.
83
5.5. Poland
• The value of production sold in the manufacturing of weapons and ammunition sector in 2010 reached 281 million EUR.
• The financial and economic crisis has significantly affected LAS industries, with the reduction in the Polish MoD budget to
acquire LAS products. This results in fewer purchases and even the mighty withdrawal of already signed contracts.
• Along the last decade, the Polish LAS has undergone a restructuring process. In the period 2007-2012 the Polish
government followed a “Strategy of consolidation and support to development of the polish defence industry” which led
to the strengthening of the national capital group Bumar sp.z o.o., which acquired the LAS state-owned entities and was
internally reorganised as the largest group in the LAS. Meanwhile, some companies within the Public Industrial
Development Agency SA were either sold (some were bought by private national or foreign companies) or were closed.
• 130 different companies operate in the Polish LAS. The business fabric is mainly state-owned, but there are also a few
private companies, mainly SMEs which cooperate by supplying components.
• The state-owned business group BUMAR sp. Z o.o. leads the LAS. It is supervised by the Ministry of State Treasury. The
group is sub-divided into four divisions: ammunition, soldier, electronics and land.
• There are other state-owned enterprises and R&D entities. Some enterprises are associated under a capital group of the
Industrial Development Agency, others are managed by the Ministry of State Treasury or the MoD, etc.
• There are two main categories of specialisation: 1) products (e.g. radiolocation and communications system, Rosomak
transporter) and modernisation services for foreign markets, and 2) services for the domestic market to modernise
equipment for NATO standards. This last category includes Military Renovation and Manufacturing Companies (WPRP).
• SMEs constitute a key element of the Polish LAS, and they normally act as subcontractors for large companies.
Competition among suppliers is very high.
Markets
• The share of exports over Polish LAS sales has decreased over the last years, probably due to the lack of strategic
management in LAS companies and the lack of state instruments to support export activities. Authorities should better
support Polish LAS industries in exporting markets.
• The Polish government has stopped buying products of low-quality or for which there is no real demand. This has
positively influenced products’ modernisation and technological level, and has increased R&D expenditure.
• Public funding is the main source of financing of R&D activities. The Bumar group is the leader of R&D activities (in 2009 it
spent approx. 45 M Eur on R&D).
• Currently, there are approx. 10,000 workers employed in the Bumar Group. It is expected that around 1,600 employees
will leave the company under the ‘voluntary employment termination’ scheme. Negative employment forecasts are
mainly due to: declining level of orders by the MoD and exports, advancing automation and new business requirements.
• Ageing of Polish LAS workforce is noticeable; new young workers are not employed. Also, there is a lack of competences
or high qualifications with regard to the new requirements of the sector (e.g. higher technological levels).
• The consolidation of Bumar group creates a single and strong player on the market. Some experts estimate that its
strength protects Polish subcontractors (SMEs) from foreign companies with their own supply channels.
• There is fierce competition from large foreign enterprise, with higher financial and technological capacities.
• With the new EU legislation, leading to market opening, Polish LAS companies should stop focusing on domestic buyers
and receive more support from Polish authorities to export.
84
5.6. Spain
• Total turnover of the Spanish LAS decreased from 735.77 million Euros in 2008 to 424.4 millions of Euros in 2010.
• Since 2009, drastic reduction in Spanish defence budgets (decrease by almost 70% of the Spanish public investment in
defence between 2008 and 2011. Subsequent negative impact on companies’ capacities. Current defence demand
predominantly related to the maintenance and modernization of already acquired products and materials.
• Limited number of major companies acting as main contractors (nevertheless small compared to their international
counterparts). Largest Spanish LAS manufacturer in is GDELS-Santa Bárbara Sistemas (part of the European Group
GDELS). GDELS-SBS produces armoured vehicles, weapons and systems, and artillery and ammunition (defence sales
reached 310 million Euros in 2010. Other relevant Spanish LAS companies include IVECO España and UROVESA
(manufacturers of military fighting vehicles), and EXPAL (manufacturer of military ammunition and explosives).
• Presence of a large group of small-scale suppliers.
• Important competitive advantages in some niche markets. Progressive specialisation in a number of critical industries
• SMEs are the basic industrial fabric of the LAS sector. They provide specialized small components to main contractors.
• The provision of defence-related services is becoming increasingly important. As well as this, the new scenario is focused
on equipment sustainability rather than acquisition of new weapon systems.
Markets
• There is not any institutional platform to support LAS companies’ exports. A common claim among industry
representatives is the demand for support from the Spanish Government to help them access international markets.
• Traditionally, Spanish R&D efforts in the defence sector have been mainly supported by Public Administrations.
Unfavourable current economic conditions raise fears of a reduction in innovation capabilities of the defence industry.
• Polemic issue concerning public credits provided by the Ministry of Industry to defence companies to support R&D in the
sector, to be reimbursed when the Spanish MoD would pay to the industries for the pre-agreed products. Current debt of
the MoD to enterprises of 26,000 million Euros. Gloomy prospects to satisfy this debt.
• In 2010 the ‘Armament, missiles and ammunition’ sector employed a total of 2,130 persons, whereas the ‘terrestrial platforms’ sector employed 647. No current hiring of new employees, resulting into the ageing of the workforce.
• The LAS workforce is highly qualified and specialised. It is estimated that there is a good training supply, adapted to the
needs of the sector.
• Scale problems and weaker industrial capabilities of the Spanish LAS, derived from its smaller dimension and stronger
dependence on National Public Authorities.
• The decline in demand and the limited size of Spanish defence companies have serious implications for the
technological development of the industry, affecting the ability to cooperate with other countries or companies.
• The sector lacks an established and coordinated cooperation structure between Spanish defence industries and Public
Authorities. Need to reform the current public acquisitions processes (e.g. by introducing ‘Public Private Partnerships’).
• The following business opportunities have been detected in the Spanish LAS, basically the sustainability of the equipment
purchased and the modernization of the weapons systems and vehicles in use; The security market is an appealing
market with growing prospects; Important opportunities derived from export and internationalisation activities, despite
increasing competition in international markets.
85
5.7. Sweden
• The estimated turnover of the LAS is some SEK 19.6 billion. Swedish defence industry as a whole grew in the period 20042008, but since 2009 it has stabilised. The economic and financial crisis has not affected the Swedish LAS to any great
extent, since product cycles are long and companies had full order books before the outbreak of the crisis.
• The Swedish defence industry has gone through a major restructuring process since the end of the 1980´s, from being
domestically orientated to being export orientated; and from being state-owned to being completely privatised.
Moreover, the sector has been opened up for competition.
• One of the major companies in the Swedish LAS is the SAAB Group, specialised in command systems and support
weapons. The British based group BAE Systems is another major player (it owns the former Swedish companies Hägglunds&Söner, specialised in military vehicles, and AB Bofors, specialised in weapon systems). A third major player is
NAMMO, which is specialised in ammunition and has a joint Finnish and Norwegian ownership.
Markets
• The Swedish Government has actively worked to enhance the Swedish LAS reputation abroad in order to keep the
competences of the industry. Export of Military Products and Services is important for the Swedish LAS.
• Of the total sale of Military Products and Services some SEK 13.7 billion was exported abroad (2010 data). The biggest
region for export of Military Products and Services is other European countries.
• All main companies have their own self-financed R&D programmes. As well as this, the Swedish Defence Materials
Administration allocates funds and pays companies to finance R&D. Major R&D programmes must be supported by
governmental means due to high risks and long product cycles.
• The Swedish Government has recently changed its defence acquisition policies in favour of market based solutions. This
can have negative consequences on the Swedish LAS, which may lose a major customer as well as R&D funds.
• The total number of employees in the Swedish security and defence industry was around 30,000 in 2010. Experts’
estimations for the LAS sector speculate the number of employees to be approx. 5,000.
• The Swedish LAS has an ageing problem: a large portion of the employees are soon about to retire. The sector is also
characterised by highly skilled workers.
• The Swedish LAS has a number of strengths: the technical level is extremely high, and the product base is very broad (so
the sector does not depend on one or a few products). Moreover, the industry builds very costeffective products, and it
is very good at finding practical solutions to problems.
• According to EU policies, all countries should open up their defence sectors and purchases for open competition.
Swedish experts complain that Sweden has carried out this process thoroughly, but other European states have not, so
markets’ situation is unbalanced (if other countries protect their own industries, disadvantages for Swedish LAS emerge).
• One of the threats for the Swedish LAS is the lack of a Swedish Defence Industry Strategy. This means that the
government does not articulate what R&D they will support, so companies lack this assurance.
• The major opportunity for the Swedish LAS is to increase its market shares (i.e. exports) in both Europe and in emerging
economies (e.g. Brazil and India). The Swedish LAS would need more State support for this.
• The future of the Swedish LAS depends to a large extent on how the rest of the European countries act. The near future
will, probably, result in mergers and in fewer employees in total.
86
5.8. United Kingdom
• The UK defence industry generates over £35bn per year to the UK economy76.
• As part of the 2005 “Defence Industrial Strategy” (DIS), the 2009 “Armoured Fighting Vehicles (AFV) Sector Strategy”
established that there is no absolute requirement to manufacture all AFVs within the UK, and it just recognised the need
to retain an onshore capability to repair and overhaul AFVs . Clear implications for the AFVs UK manufacturing base.The
UK weapons and munitions sector is quite strong, and it is expected to remain stable in the near future. The 2005 DIS
strategy sekks to retain many strategic capabilities in this domain.
• The White Paper “National Security through Technology” adopted the open procurement principle, so British companies
will no longer have priority for government contracts (the UK will buy off-the-self).
• The UK defence industry as a whole comprises about 9,000 defence companies, including a large number of SMEs.
• The UK defence industry is dominated by BAE Systems, Bristish-owned. BAE Systems Land and Armament deals with the
LAS sector, employing about 3,000 people in the UK. Meanwhile, the weapons and munitions sector marketplace is highly
fragmented. Important players include BAE Systems, MBDA (UK) Ltd, Thales, Chemring (munitions) and Rolex (weapons).
• The armoured vehicles subsector is highly specialised. In contrast, the munitions sub-sector has a more varied portfolio.
• Important business opportunities derived from equipment refurbishment/upgrading and capability enhancement
activities.
• SMEs are quite active actors in the defence industry either as prime contractors or subcontractors in the supply chain. In
2011, an estimated 42% of MoD contracts were placed directly with SMEs. Typically, SMEs operate as niche suppliers.
Markets
• In 2011 UK retained its place as the world's second largest exporter of defence and security equipment. UK's most
important non-EU markets are the Middle East, the Far East, the US and India. Exports are seen as counterbalance against
the fall in domestic demand. Successive UK governments have actively supported the outward orientation of the
defence industry, through export subsidies and a dedicated government sales organisation.
• The UK defence industry’s total R&D investment in 2010 amounted to £1.66bn. The defence industry is one of the most
R&D intensive sectors in the UK, and successive governments have actively supported R&D in this industry.
• The LAS, with some government support, has been quite active in R&D and has been part of the so-called technology
trees which typically comprise large organisations, SMEs, research technology organisations (RTOs) and/or Universities.
• The UK LAS employs between 2,000-3,000 in the armoured vehicles sector, and about 10,000 in the weapons and
ammunition sector). Budget cuts in the AFVs are having negative employment implications for workers in the sector
• The defence industry requires high-tech specialised skills. The LAS sector has a long-standing tradition of investing in
training and skills development. Both industry and trade unions have raised serious concerns about the consequences for
employment and skills stemming from the decrease in major defence orders and the open procurement practices.
• The UK LAS industry is concerned about its future prospects within an environment of severe budget cuts and growing
international competition, together with British policies’ focus on open procurement and off-the-shelf purchasing and
coming to an end of several military operations (i.e. in Afghanistan).
• Experts underline the need for the UK to develop a new defence industrial strategy with clear long-term objectives, so
that the industry maintains its confidence in the domestic market. A good example of this is given by the Munitions
Acquisition Supply Solution (MASS) programme, a 15-year programme which secures national UK supply.
76
Data from ADS (UK AeroSpace, Defence & Security Industries), published in its website in May 2012.
87
6. Industrial Outlook of the European land
armament sector
6. Industrial Outlook of the European land armament sector
6.1. Main Strengths and Weaknesses of the European Land Armament
Sector
6.1.1.
Strengths of the European Land armament sector
The main strengths of the European Land Armament sector can be summarised as follows77:
1.
Key role of Land armament in the current and future European military operations. Despite the
impact of air and naval power in modern warfare, current and near term future European military operations are mainly performed by land forces often as part of a European or multinational
missions. This means that there is a strong need for new and/or improved land armament technologies, equipments and systems for Euopean Land forces and soldiers, where this need is expected to continue in the coming years.
2.
Commitment of European governments (both at national and at European level), to keep an independent and sovereign European Land armament capability. The information provided in this
report has stressed the commitment of the national and supranational European authorities to
keep a sovereign and comprehensive autonomy in defence–related capabilities in general and
in Land armament capabilities in particular. This is a particular strong point for the sector that
guarantees its activities in the coming years.
3.
Comprehensive portfolio of Land armament products. Europe is specialised in the production of a
whole range of highly competitive products, from low added-value to high value products. Examples include main battle tanks (MBTs), armoured tracked and wheeled tracked fighting vehicles, tactical and logistical trucks, large calibre guns, turrets, advanced ammunition and weapons, optronics, protection equipments and systems such as C-RAM78, soldier systems, sensors for
C4I (Command, Control, Communication, Computers and Intelligence), C4I equipment and systems, simulation and training equipment or logistic and support equipment and services.
4.
Strong historical tradition of the Land Armament sector in Europe. A close analysis of the main
European Land armament enterprises shows that these enterprises have a long historical tradition
that goes back in some cases to the XIX century and is deeply rooted to the country where the
enterprise is located. This strong tradition redounds in a robust and solid knowledge base in
Europe, well reflected in the existence of a large network of agents involved in the sector which
positively contribute to its competitiveness. Notwithstanding this, these strong historical backgrounds can also result in additional difficulties to cooperate amongst enterprises, as these national/enterprise cultures are very different to be changed in short time periods.
5.
Presence of a well sustained and profitable manufacturing fabric, from world leaders to subcontractors. Europe is characterised by the existence of a well sustained and profitable Land armament manufacturing fabric composed by three main types of actors, that is to say i) several
world leading multinational companies operating in other defence-related fields (i.e. air or sea)
or in civil-related products (BAE Systems, EADS, MBDA, Thales), ii) some nationally based prime
land system integrators (Nexter, OTO Melara, Patria, Krauss-Maffei Wegmann, Rheinmetall, Saab,
etc), often also specialised in civil-related activities and, finally, iii) many Small and Medium Enterprises (SMEs), either highly specialised in niche markets/specialises knowledge and/or involved
as suppliers in the existing supply chains of the final land armament integrators.
6.
Strong position of European products in international markets. This report has shown that European land armament manufacturers and products are particularly dependant on internationalisation and export activities as a way to overcome the limited size of national markets or existing
regulations that limit the achievement of a truly European internal market in the sector (i.e. Article
346 of the Treaty on the Functioning of the European Union). In this regard, the data shows that
This SWOT analysis is presented in a Pan-European perspective. Of course, these factors can have a different importance amongst European countries due to differences in country-specific conditions such as the structure of the industry
in terms of the degree of concentration or the product markets in which companies operate.
78 Counter Rocket, Artillery, and Mortars systems
77
89
Europe as a whole has got a very strong competitive position in Land Armament international
markets, better reflected in high levels of exports, positive trade balance accounts and the existence of several export success stories within the sector.
7.
Stronger emphasis on R&D activities than the manufacturing average. The high competitiveness
of the European Land armament sector is explained to a large extent by the sector’s continuous
research and innovation efforts in new technologies and products, better exemplified by the 6%
of total sales devoted to R&D activities and well above the European manufacturing sector. In
this sense, the European main Land armament sector enterprises’ innovation strategy is focused
on achieving technology leadership in their interest domains so to produce capability driven,
competent and highly competitive Land armament innovative products and solutions. Moreover, this strong emphasis on innovations is seen within the sector as a key element for assuring
the future sustainability of the European sector in a context characterised by global competition
and the emergence of new competitors in the coming years.
8.
Presence of a highly qualified workforce in the sector. Despite existing difficulties, the European
Land armament sector benefits from a highly skilled workforce that is at the heart of the specialisation of the European industry on know-how dominated high-tech market segments. In this respect, this highly-skilled workforce is a key factor in turning knowledge into wealth and ensuring
productivity, innovation and competitiveness within the sector. Of course, this also requires that
sector enterprises need to recruit, retain and retrain quality workers to maintain their skills base
and know-how.
9.
Presence of good/fluid social dialogue practices in the sector. This study has shown that social
dialogue practices with the Land armament sector can be characterised as active and fluid, facilitating the discussion and (possibly) agreements on different issues affecting the future development of the sector.
10. Existence of associative structures within the sector. The European Land armament sector enterprises are well represented by national and pan-European representative organisations that defend their interest before different public and private actors. In this regard, the recent set up of
the so-called ELDIG Group (European Land Defence Industry Group) increases the public image
and representative activities of the Aerospace and Defence Industries Association of Europe
(ASD) in contrast to other defence-related activities.
11. Concentration of the Land armament sector in some concrete regions in Europe. The concentration of enterprises and employment in certain EU regions and areas reflects the existence of effective “clusters” where companies may share knowledge and resources and combine strengths
in order to develop new products and applications, both for military but also for civilian applications (advanced communications technologies, new materials, etc). However, it worth stressing
that in case of sectoral difficulties, this high concentration of enterprises and employment in certain regions is also a source of vulnerability and threat, especially on the social front.
6.1.2.
Weaknesses of the European Land armament sector
The main weaknesses of the European Land Armament Sector can be summarised as follows:
1.
Preponderance of “small” captive national markets, fragmentation of both the customers and the
industry base. Despite efforts made at some EU political levels, there is not a European-level Land
armament market yet. In this regard, the situation is better characterised by the presence of national “small”79 captive markets where Member States governments favour some national
“champions” in the name of national sovereignty and autonomy in defence-related issues. This
situation, well explained by the recourse to the Article 346 of the TFEU (Treaty on the Functioning
of the European Union), prevents “de facto” the implementation of the Internal Market in the
Land armament sector in particular and results in a large number of different European custom-
79 The only relatively high defence spending markets correspond to UK, France, Germany and Italy, in any case much
smaller than the US one.
90
ers with different regulatory frameworks and standards, unnecessary duplication of products,
production structures and R&T efforts, higher pricing levels, shorter production runs (partially
compensated by export activities), excess capacity as well as a lack of standardisation of military equipments (in the sense that each manufacturer pursues its own technology lines). Obviously enough, all these elements result in avoidable additional costs and inefficiencies for the
manufacturers and for Europe as a whole, especially in comparison to the US Land armament
industry.
2.
Smaller and less specialised main European Land armament manufacturers in comparison to
their US competitors. In comparison to the USA, the EU main land armament manufacturers are
characterised by being smaller in size and more defence-dependent than their US counterparts,
which obviously reduces their possibilities to compensate existing difficulties in the public defence
budgets with civilian-related activities. Also, EU manufacturers achieve lower economies of scale
since they produce a wider range of products in smaller batches, usually aimed at their “small”
national markets or to export activities. Obviously enough, the presence of “small” captive national markets (previously explained) is at the root of this situation.
3.
Weaknesses related to the land armament manufacturing SMEs. European land armament SMEs
play an important role within the sector, especially in relation to their function as suppliers within
the existing sector supply chains. Notwithstanding this, the European land armament SMEs have
a number of weaknesses, better reflected in their limited access to capital for upgrading their
position in value chains, difficulties in establishing positions in export markets or their limited access to national defence markets (due to their difficulties in accessing to key relevant information
on procurement opportunities or in the higher cost (both in terms of time and resources) for them
derived from preparing bids).
4.
Lower involvement in R&D activities in comparison to other defence-related sectors. The available data shows that, despite the existence of important R&D activities within the European Land
Armament sector, this sector shows a less research orientation in comparison to other defencerelated sectors such as military electronics, aerospace or naval industries. This situation is perceived to potentially hamper the EU industry’s future technological competitiveness, especially in
the current context of accelerated innovations so to cope with the new defence and security
risks.
5.
Insufficient competitiveness levels of (some) Eastern European land armament enterprises. This
report has shown that despite the fact that the EU12 defence industry has experienced a massive restructuring process in the nineties and early twenties, their level of competitiveness is still
below the standards of the old Members States’ industries. This situation is better exemplified by
the existing role that the EU12 defence supplier-base plays in the whole European defence supply chain, usually at its lower end with the production of elemental components based on
cheaper labour differences. Notwithstanding this, some new Member States have a thorough industrial strategy to upgrade and reinforce their defence industries in general and the land armament sector in particular (i.e. Poland).
6.
Presence of large and complex, less internationalised supply chains, at least in comparison to
other defence related sectors (i.e. aerospace). The European Land armament sector is characterised by the existence of complex, larger and usually national-oriented supply chains, at least in
comparison to other defence-related sectors (i.e. aeronautics). Notwithstanding this, it is possible
to identify an increasing trend towards the creation of more structured and tiered-supply chains,
with the reduction in the number of first-tier suppliers directly working with the prime contractors.
7.
Limited presence of collaboration agreements amongst European manufacturers. In comparison
to other military sectors (i.e. the military aerospace sector), the European land armament sector
is little active in the development of collaborative projects amongst enterprises both within or
amongst different European countries, especially as far as R&D activities are concerned. In this
sense, this situation has got a negative effect on the competitiveness of the European Land armament technological and industrial base, specially having in mind the existing race for new
and disruptive innovation or the increasingly complexity of technologies used by the sector.
91
8.
Reduction of employment in the last few years. The available data suggests that the employment
within the European Land armament sector as a whole has experienced in the last years a
downward trend, although this negative evolution is primarily explained by the restructuring
process carried out in the new Member States in comparison to a more sustained evolution in the
old Member States (or at least in the majority of them).
6.2. Main Factors of Change (Opportunities and Threats) for the European
Land armament sector
6.2.1.
Opportunities for the European Land armament sector
The main opportunities for the future growth and competitiveness of the European Land armament sector
can be summarised as follows:
1.
Sustained demand of new and/or upgraded European land armament products. This report has
shown that there are very important business opportunities for the European land armament industry in terms of new products and services, including increasing the inter-operability of existing
products and components amongst different manufacturers so to better accomplish the requirements of European armies in international operations. Examples include interoperable technologies, equipment and systems amongst different armies, enhanced information networking
tools, unmanned ground vehicles (UGVs), guided/precision ammunition, battle labs, protection
equipments and technologies, soldier modernisation programmes, logistics services, etc. Also, it
should not be forgotten the existing opportunities within the Land armament industry related to
the high replacement and upgraded/modernisation needs for certain types of land equipment
(i.e. tanks, vehicles, etc).
2.
Opportunities derived from liberating more EU defence resources to procurement activities, multiyear perspective. This study has shown that additional resources could be liberated for the defence industry in general and the land armament industry in particular if the structure of the EU
defence expenditure was more in line with the US one, resulting in less money spent on personnel
(civilian and military staff) and more on equipment procurement and R&D (investment). Also, the
availability of multi-year national contracts can be a good opportunity for the sector, as it may
facilitate a more rational planning of the enterprises’ activities.
3.
Existing business opportunities outside the European market of land armament products. There
are important business opportunities for European land armament manufacturers in non-EU market countries, in the sense that these markets are growing faster than the currently shrinking home
markets (“the Industry follows the money”). In this regard, European companies have to make
good use of these large business opportunities, while at the same time assuring that national
governments actively support their exporting activities80. Of course, an open question refers to
the future effects of all these developments in the European employment.
4.
Opportunities derived from a more intense international cooperation within the European borders.
This report has put forward that a much stronger cooperation, not only amongst European manufacturers themselves but also amongst European manufacturers and European authorities, is a
“must” for the European Land Armament sector in the coming years, due to the increasingly
complexities involved with the development of new products in a public budget constrained environment. In this regard, there are a number of initiatives underway, both amongst European
manufacturers themselves (i.e. the activities conducted by the ELDIG Group81 or some collaboration agreements amongst manufacturers) and amongst governments (the cooperative activities
All in all, this situation is resulting in a tougher competition of European manufacturers amongst themselves in international markets
81 European Land Defence Industrial Group
80
92
promoted by the European Defence Agency (EDA)82 and the European Commission), the new
defence concept of “pooling and Sharing” developed in the informal EU Defence Ministerial in
Ghent 2010, and ultimately the full development of the Common Security and Defence Policy.
All these activities must redound in a higher coordination of R&D and procurement efforts at EU
level, avoiding duplication of efforts, facilitating standardisation of products, substantial savings
and increasing, at the same time, the size of EU defence public procurement markets.
5.
Changes derived from new regulatory/strategic framework, “Trivialisation” of the defence sector.
Some public decisions are expected to radically influence the future developments of the European Land armament sector, facilitating the setting up of a real European internal defence market, the development of more open/competitive/less “biased” procurement practices at national level and, ultimately, the “trivialisation” of the defence sector so to make it more in line
with any other manufacturing sector and not subject to so many exceptions. Examples of these
new framework conditions include the so called “Defence Package”, the two Directives
adopted in 2009 with a view to facilitate the development of a European defence equipment
market, the activities conducted by the European Defence Agency (EDA) or, finally, some recent changes in the procurement strategy in some countries (i.e. the UK White Paper)83.
6.
Opportunities linked to the dual use of defence technologies/products in civilian applications.
One of the most important opportunities for the defence industry in general and the Land armament industry in particular refers to the possibilities derived from the “dual” use of goods and
technologies, that is to say, products and technologies that have both military and civilian applications in the growing security-related market (i.e. C4I technologies, simulation/training products,
vehicles adapted to civil security needs, etc). In this regard, there are important opportunities for
further technological cooperation and collaboration between Defence and Security funding
bodies at EU or at national level (i.e. EDA and the EC). Not surprisingly, some of the most important major companies within the European defence sector have created new “Security and Defence” business subsidiaries to respond to this increasing security-defence consolidation, although the extent of this integration is different amongst enterprises and armament sectors,
where the Land armament sector is one of the sectors with more difficulties to benefit from these
dual-market opportunities due to their product portfolio.
7.
Outsourcing of (some) traditional military in-house services. European national authorities are increasingly open to outsourcing to the private sector some of the classical logistic and service activities (i.e. transport, repair activities, health and medicine, fuel and catering, ICT control, etc).
This situation, relatively common in countries such as the UK or the USA, is currently being exacerbated by existing cost reasons, and results in added business opportunities for the Land armament sector. Notwithstanding this, this option represents a big conceptual change within some
European national Armed Forces as it affects very sensitive issues such as security of supply or information security.
8.
Increased collaboration with universities/research centres in the R&D domain. The European
Land armament sector can benefit from further co-operation with universities and research centres that may allow for a better transfer of know how and technology from these research centres as well as from other sectors.
82 For instance, the EDA has recently published a report on the European Precision Guided Ammunition (PGA) sector,
where this study provides a Roadmap and Implementation Plan that covers a ten years cycle of proposed activities and
actions, including the foundation of a European PGA forum, discussions about European production of identified critical
components and, the definition of a joint European PGA program. For more information see
http://www.eda.europa.eu/news/12-03-07/roadmap_and_implementation_plan_on_precision_guided_ammunition.
83 It is interesting to stress that some interviewed enterprises also reckon that a more clear internal market in defence
industries may also have negative consequences for them, specially if open procurement practices redound in additional price-related competition.
93
6.2.2.
Threats for the European Land armament sector
The main threats for the future growth and competitiveness of the European Land armament sector can
be summarised as follows:
1.
Negative impact of the current economic crisis on public defence budgets. This report has shown
that one of the major threats for the European defence industry in general and the European
land armament in particular refers to the current public budget restrictions, resulting in stagnant
or even lower defence budgets in the last 2-3 years. Moreover, rising production costs within land
armament manufacturers84 exacerbate even more these defence budgets in real terms, resulting in overall reductions in defence equipment expenditures. This threat, expected to continue in
the coming years for a relatively large share of European Member States, is expected to have a
negative impact on the land armament manufacturers in terms of lower public demand and
lower defence procurement figures, as well as the delays/postponements/cancellations of land
armament programmes85, resulting in negative impacts on enterprises’ profitability and future
competitiveness levels, additional cost pressures for suppliers, risks of mounting protectionism or
skills depletion-risks. Specifically in the case of SMEs in the supply chains, some authors suggest
that the current tightened credit conditions in some member States may result that some cashhungry SMEs could turn more easily to foreign financial investors to secure their survival, affecting
therefore the future independence of the European Land armament supply chains.
2.
Growing competition from traditional players coupled with the emergence of new entrants. The
land armament sector (or at least some of its segments) is characterised by a strong competition
worldwide, due amongst other elements to lower technological barriers to entry in comparison to
other defence-related sectors (i.e. aeronautics, electronics, etc). In this regard, the European
manufacturers (both prime manufacturers and suppliers) are being increasingly threatened not
only by the US manufacturers but also by competitors coming from other price-competitive
countries such as Japan, India, Israel, South Korea, Turkey or Russia. This situation is exacerbated
both by the search of less expensive suppliers worldwide but also by the existing technological
and knowledge transfers derived from the offsets agreements signed by European manufacturers with third countries. Finally, the current blurring of the boundaries between the defence and
the civilian security equipments and technologies is resulting in the opening-up of the Land armament sector to new actors and enterprises specialised in civilian products with a possible military use. Against this background, European determination to keep an independent industry
base can act as a barrier.
3.
Threats derived from the coming-to-an-end of several current military operations. Another major
determinant factor for the future of the European LAS is the current military involvement in several
countries (Iraq, Afghanistan) which is coming to an end in the near future and which will likely
mean a drop in the cost of operations and required equipment, as well as a rationalisation of intheatre equipment and logistic support. On the other hand, it can be expected an increase in
logistic movement as military materiel is redeployed (opportunity for the logistic enterprises), as
well as an enhanced tempo of equipment refurbishment/upgrading and capability enhancement (as opposed to production).
4.
Possible downsizing of the land armament sector and need to further restructure the sector. The
combination of tightened public defence budgets with growing competition may result in increasing needs to further restructure the European land armament sector, with important employment and skills implications. In addition to the social costs derived from further reductions in
employment, there is a grave risk of losing cutting edge capabilities (e.g. in design, manufactur-
84 These rising production costs are better explained by the large variety, high technical content and increased complexity of Land defence equipment and systems.
85 In this regard, it should not be forgotten that many Land programmes are usually characterised by low/medium individual budgets (specially in comparison to airborne systems), so they are usually the first candidates when budget cuts
are to be considered. Also, postponements resulting in final cancellations are particularly damaging for the industry, as
they may involve investments by manufacturers that do not result in any final demand.
94
ing, etc), negatively affecting the future survival of the sector at the forefront of defence-related
innovation.
5.
Current and upcoming EU R&D main programmes do not take into consideration defence-related
priorities. In this regard, the currently existing 7th Framework Programme or the proposed “Horizon
2020 - The Framework Programme for Research and Innovation” only include security-related
strategic elements, with no reference to defence-related issues, an issue that it is negatively regarded by the European land armament sector in general.
6.
Specific threats affecting SMEs in the supply chains. SMEs in the existing supply chains are currently confronted with a number of threats that may affect their future. Examples of these threats
include the current trend towards strengthening the role that prime contractor play vis-à-vis the
client, the current rationalisations in existing supply chains or the risk-sharing approaches, where
all of them reinforce the role and negotiating power of prime contractors in relation to their suppliers
7.
Significant presence of an old workforce within the European land armament sector that will have
to be replaced in the coming years. The ageing process of the European workforce is currently
posing a major challenge for the European land armament sector, in the sense that a significant
share of European workers in the sector (approximately a 14%) are nearly to retire in the coming
ten years. This situation requires a number of responses by the sector, amongst others, the replacement of these old workers by younger workers and, secondly, a successful transfer of existing knowledge and skills from old to young workers. Of course, the limited “positive” image of the
sector amongst young people may imply added difficulties to successfully cope with this ageing
process
8.
Need for a highly qualified, skilled, trained and educated workforce; Loss of the existing skill
base. From an employment perspective, the full realisation of the opportunities opened up by
new technologies, innovations and existing high tech processes is directly dependant on the
presence of a highly qualified, skilled, trained and educated workforce. This situation imposes a
number of challenges to the sector in recruiting, training and retaining a quality skilled workforce
for the industry, such as the need to streamline the existing education and training supply with
the current and future new skills’ challenges and needs (skill demands) of the sector, the need to
attract young people to the sector or, finally, the need to train in new skills demands identified by
the sector. These challenges are increased in the current context of major public cuts in new orders and land programmes, which may imply a loss of the existing skill base.
95
Table 6.1
SWOT Matrix of the European Land Armament Sector
STRENGHTS
•
•
•
•
•
•
•
•
•
•
•
Key role of Land armament in the current and
future European military operations.
Commitment of European governments (both at
national and at European level), to keep an independent and sovereign European Land armament capability.
Comprehensive portfolio of Land armament
products.
Strong historical tradition of the Land Armament
sector in Europe.
Presence of a well sustained and profitable
manufacturing fabric, from world leaders to
subcontractors.
Strong position of European products in international markets.
Stronger emphasis on R&D activities than manufacturing average.
Presence of a highly qualified workforce in the
sector.
Presence of good/fluid social dialogue practices
in the sector
Existence of association structures within the
sector.
Concentration of the Land armament sector in
some concrete regions in Europe.
WEAKNESSES
•
•
•
•
•
•
•
•
OPPORTUNITIES
•
•
•
•
•
•
•
•
Sustained demand of new and/or upgraded
land armament products.
Opportunities derived from liberating more EU
defence resources to procurement activities,
multi-year perspective
Existing business opportunities outside the European market of land armament products.
Opportunities derived from a more intense international cooperation within the European borders.
Changes derived from new regulatory/strategic
frameworks
Opportunities linked to the dual use of defence
technologies/products in civilian applications.
Outsourcing of traditional military functions.
Increased collaboration with universities/research centres in the R&D domain
Presence of “small” captive national markets,
fragmentation of both the customers and the
industry base.
Smaller and less specialised main European
Land armament manufacturers in comparison to
their US competitors.
Weaknesses related to the land armament SMEs.
Lower involvement in R&D activities in comparison to other defence-related sectors.
Insufficient competitiveness levels of (some)
Eastern European land armament enterprises.
Preponderance of large and complex, less internationalised supply chains, at least in comparison to other defence related sectors (i.e. aerospace).
Limited presence of collaboration agreements
amongst European manufacturers.
Reduction of employment in the last few years.
THREATS
•
•
•
•
•
•
•
•
Negative impact of the current economic crisis
on public defence budgets.
Growing competition from traditional players
coupled with the emergence of new entrants.
Threats derived from the coming-to-an-end of
several current military operations
Possible downsizing of the land armament sector
and need to further restructure the sector.
Current and upcoming EU R&D main programmes do not take into consideration defence-related priorities
Specific threats affecting SMEs in the supply
chains.
Significant presence of an old workforce within
the European land armament sector that will
have to be replaced in the coming years.
Need for a highly qualified, skilled, trained and
educated workforce; Loss of the existing skill
base
96
7. Drivers of change and future possible
scenarios of the European Land Armament
Sector
7. Drivers of change and future possible scenarios of the
European Land Armament Sector
7.1. Recapitulation of main Drivers of Change
Taking into account the main threats and opportunities for the future growth and competitiveness of the
European Land armament sector already presented in a previous chapter, next table presents the main
drivers of change that are affecting the current and future developments of the sector. In this regard,
these drivers of change can be grouped in five main blocks that are summarised as follows:

Table 7.1
EU policy driving factors: These drivers include the policy trends that are developed
within the political context of the EU and may impact the structure of the Land defence
sector Relevant examples of these driving factors include the development of a real
European Common Security Defence Policy (CSDP) (even if for the moment insufficient)
or different initiatives taken to foster the development of a more European Internal market in land defence products (“Defence Package”, “Directives 2009/43/EC and
2009/81/EC”, Ghent Framework, several activities conducted by the EDA). Also, this
group may also include the coming to an end of several current operations (i.e. Afghanistan) and the development of future military operations, most likely under cooperative
umbrellas (UN, NATO).
Main Drivers of Change
European Political
Drivers of change
National Political
drivers of change
• Full development of • National
a real
European
Common
Security
Defence
Policy
(CSDP)
• Development of a
more
European
Internal market in
land
defence
products (“Defence
Package”,
“Directives”, Ghent
Framework)
• Coming to an end of
several
current
operations
(i.e.
Afghanistan)
and
possible
future
military
operations
under co-operative
umbrellas
(UN,
NATO)
Source: IKEI elaboration.
defenceindustrial
policies
and
defence
procurement
strategies, resulting in
increasing/decreasin
g
impetus
to
cooperation
activities amongst EU
Member
States
(“Pooling
and
Sharing”,
activities
via EDA, European
coordination in R&D,
”off-the-shelf”
approaches, etc)
Economic driversDemand
• Influence
of
the
economic cycle and
evolution
of
European
national
public
defence
budgets
• Sustained
global
demand of land
defence
products
==>
Changing
military
demands
leading either to
new products and
services or demand
for upgrading and
modernisation
of
existing
land
armament products
• Outsourcing
traditional
functions
of
military
Economic driverssupply
• Globalisation
and
Internationalisation
of the European
Industry
• Growing
competition
from
traditional and third
countries
• Defence
industry
ownership in some
EU Member States
• Dual use of products
• Strategies of main
groups and suppliers
Technological drivers of change
• EU
technological
advantage with third
countries
• New technologies as
innovation drivers for
new products and
services
• High
skill content,
need to upskilling
the land armament
sector employment;
Need
for
replacement
of
older workers
• Increasing cost of
defence equipment
• Public-private
partnerships

National (Member States) political driving factors: As it has already been extensively discussed in this report, the European Land armament sector is currently very much influenced by its national context. In this regard, possible drivers of change comprised in this
category include the existing national defence-industrial policies and defence procurement strategies, which result in added/reduced impetus to cooperative activities
amongst Member States (i.e. “Pooling and Sharing” approaches, collaborative activities
amongst several EU Member States developed via EDA, European coordination in R&D,
“off-the-shelf”/best “value for money” approaches, etc)

Economic driving factors from the demand perspective: The economic drivers for
change include both the demand and the supply perspective. In this regard, the main
economic developments that exert pressure on the land armament sector from the de-
98
mand perspective include, amongst others, the Influence of the economic cycle and
the subsequent impact of the cycle on the evolution of European national public defence budgets or, secondly, a sustained global demand for land defence products (in
the sense that new military demands are leading to the development of new products
and services, as well as the upgrading and modernisation of existing land armament
products). Interestingly also, there is an increasing trend amongst national European armies to increasingly outsource part of their traditional military functions to third parties,
with a clear impact on the activities of the Land armament sector.

Economic driving factors from the supply perspective: Meanwhile, the main economic
developments that exert pressure on the land armament sector from the supply perspective include, amongst others, the current process towards the globalisation and Internationalisation of the European Industry in order to overcome the stagnating demand from
national markets, the incorporation of non- European competitors not only from traditional but also from new third countries, issues related to the ownership of some of the
most relevant enterprises in some EU Member States, as well as other defence-related
factors such as dual use products or the own strategies of main European national
groups and suppliers.

Technological driving factors: One of the key elements sustaining the competitiveness
base of the European Land armament sector refers to its technological base, which results in important competitive advantages vis-à-vis third countries. These technological
drivers include both new technologies fostering the development of new products and
services, the need to upgrade the existing skill base of the land armament sector employment (including the replacement of older workers) or the increasing use of public
and private partnerships in order to face increasing resources required for developing
new technologies and innovations within the Land armament sector.
7.2. Classification, Ranking and Selection of Key Drivers
The following Table 7.2 presents all the previously identified drivers of change classified according to different characteristics:

Certainty or uncertainty of their occurrence

Their exogenous-to-the-sector or endogenous-to-the-sector nature

Their level of importance for the next future of the sector.
99
Table 7.2.
Classification of drivers of change
Drivers
Uncertain/ Exogenous/
Certain Endogenous
Very Important/ Less
important
• Full development of a real European Common Security Defence
Policy (CSDP)
U
EX
VI
• Development of a more European Internal market in land defence
products (“Defence Package”, “Directives”, Ghent Framework)
C
Ex
VI
• Member States’ defence-specific industrial policies related to the
land armament sector
U
Ex
VI
• Coming to an end of several current operations (i.e. Afghanistan)
and possible future military co-operative operations (UN, NATO)
C
Ex
I
• Influence of the economic cycle and evolution of European
national public defence budgets
C
Ex
VI
• Sustained global demand of land defence products ==> Military
demands leading to new products and services, demand for
upgraded existing land armament products, outsourcing of
traditional military functions
C
Ex
I
• Globalisation and Internationalisation of the European Industry
C
En
I
• Growing competition from traditional and third countries
C
Ex
I
• Defence industry ownership
C
En
I
• Dual use of products
C
En
LI
• Strategies of main groups and suppliers
U
En
VI
• EU Technological advantage
with third countries, New
technologies as innovation drivers for new products and services
U
En
VI
• High skill content, need to upskilling the land armament sector
employment; Need for replacement of older workers
C
En
I
• Increasing cost of defence equipment
C
En
I
• Public-private partnerships
U
En/Ex
LI
Source: IKEI elaboration.
7.3. Building of Scenarios
From the previous analysis, and according to the ranking of drivers of change previously described, two
main drivers can be considered as having the deepest effect on the future development of the European
Land armament sector, that is to say,

The influence of the future economic cycle and therefore the evolution of available
European national public budgets for defence and specifically for Land defence products and equipments

The evolution of the current Member States’ land defence-specific industrial policies,
which may result in the decision to increase/decrease existing cooperation efforts between EU Member States public authorities (“Pooling and Sharing”, activities via EDA).
Concerning the influence of the future economic cycle, it is a very unlikely to expect that, in the coming
years, Member States’ defence budgets are increasing. On the contrary, the future years are certainly to
be characterised by less and less public resources for defence activities, including procurement and R&T
activities, both resulting from current public debt reduction efforts, the needs derived from restructuring the
financial sector and, finally, existing social pressures to devote available public resources to non-defence
issues.
100
Meanwhile, and as far as the evolution of the existing Member States’ land defence-specific industrial
policies, two main hypotheses could be established regarding the mid-term evolution of these national
land defence industrial policies:
a.
Increasing cooperation amongst national governments (“pooling & sharing”, activities via EDA)
• National public governments opt for more cooperative efforts in the procurement and development of new land armament products/equipments (different degrees in the cooperation, from partially to fully interchangeable-between-countries products and equipments)
• Availability of larger European markets: Important business opportunities for those enterprises/groups that have access to these larger procurement projects. Alternatively, lack of
business opportunities for those contractors that are not selected.
• Increasing emphasis on price and quality considerations versus national origin considerations. Impetus to a real European Internal Market for Land defence products/equipments, in
line with “Defence Package”
• Increasing emphasis on “off-the-shelf” products and equipments that can be used by several European countries/armies (inter-operability)
• Possibly, more business chances (i.e. sale volumes) for larger manufacturers/groups than for
smaller ones.
b.
Emphasis on national sovereignty and preservation of national industrial capacities (maintenance
of the “status quo”
• European national governments opt for keeping their current own sovereignty in land armament products, and their preservation of their own national manufacturing capacities.
No emphasis on cooperative efforts in the procurement and development of new land armament products/equipments between countries.
• No impetus to a real European Internal Market for Land defence products/equipments
• Smaller national markets: National manufacturers/groups have an advantage, despite other
considerations (quality of products, costs, etc). Less emphasis on price and quality considerations. Less sales volumes for national manufacturers/groups.
• More emphasis on ad-hoc products requested by national armies that can only be used by
them (less interoperability)
7.4. Possible Future Scenarios of the European Land Defence Sector
Having in mind the former main discussions, two main scenarios can be envisaged for the European land
armament sector. It must be stressed that these scenarios represent somehow two extreme options of the
form the sector might take in the future, depending on the evolution of a series of variables. In this sense,
the future of the sector will not surely be in reality as reflected in any of the two scenarios but somewhere
in between. But the scenario analysis serves to illustrate the direction in which the sector would evolve
depending on the course of action and policies that public and private stakeholders may follow.
Table 7.3.
Definition of future scenarios for the EU Land armament sector
National land defence industrial policies
Severe reduction of Member States’ public
defence budgets
Increased cooperation
amongst national governments
Maintenance of national
sovereignty and industrial capacities
Scenario 1
Scenario 2
101
SCENARIO 1:
•
•
National land armament industrial policies prioritising the Europeanisation of the sector, in
a context of reduction of defence budgets
Key assumptions

Current orientation of the European military activities does not change: Involvement in international peace keeping asymmetric operations, under the NATO or the UN umbrella.
No massive bilateral engagements foreseen. Renewed impetus to the European Common Security and Defence Policy (CSDP).

Increasing demands by national armies to have common solutions at equipment/subsystem/component level, so land armament platforms and systems are interoperable and make international operations easier and cheaper in terms of procurement, logistic and maintenance.

The economic crisis keeps in the next 5-10 years, resulting in added difficulties in raising
public incomes. Added efforts to reduce public expenses to keep public debts under
control.

Less and less public national resources for defence activities, including procurement and
R&T activities, coupled with limited access to external credit, so

National public governments opt for more cooperative efforts in the procurement and
development of new land armament products/equipments with other European national
partners.

Strong impetus to the development of European programs and better identification by
national Member States of the areas of national sovereign prerogative and essential for
security (Application of the article 346 of the TFEU).

Increasing role of the European Defence Agency and “Pool & Share” approaches in the
procurement policies of national Member States.

National procurement strategies increasingly stress cost and price considerations in addition to quality issues (“off-the-shelf”, best “value for money” strategies)
Consequences

Public national demand for new Land armament products and equipments decreases
due to budget constraints, but this demand for new products is compensated by larger
markets at European level.

Impetus to the development of European programs and the development of a real
European Internal Market for Land armament products/equipments, in line with the “Defence Package”.

Emphasis on price and quality considerations in addition to quality in national procurement policies of land armament products (best “value for money”/”off the shelf” approaches). Increasing “banalisation” of the European Land armament industry, in the
sense that the sector becomes much closer to the logic of the market economy.

Better identification of the areas of sovereign prerogative and essential for security (Application of the article 346 of the TFEU) amongst EU Member States.

Important business opportunities (larger sale volumes) for those enterprises/groups that
have access to these larger procurement projects. Alternatively, lack of business opportunities for those contractors that are not selected.

Strong impetus to the formation of larger pan-European groups (“European champions”),
resulting from merging/acquisition of existing national groups and likely specialised in a
large array of land defence activities. However, the setting up of these European champions would most likely require giving an answer to the incompatible (public) ownership
structures of some of the key European companies. The formation of these “European
102
champions” may be parallel to an increasing specialisation of smaller producers in
“niche” markets where they have competitive advantages to successfully operate.

Renewed impetus to own/collaborative R&T efforts and the development of new products, both amongst the large European champions and smaller enterprises specialised in
niche markets, due to the existence of a higher market critical mass. Less emphasis on
the upgrading and modernisation of existing products.

Likely increase in the use of joint standards and open systems. Increasing emphasis on
common solutions at equipment/subsystem/component level, so land armament platforms and systems are interoperable and can be used by different European countries/armies, especially as far as those equipments/products not regarded as “strategic”
ones. This situation makes possible to control costs at a low level along the life cycle of
products, as well as to enjoy an efficient and functional logistic support. Higher satisfaction levels amongst European armies engaged in international operations.

Increasing Europeanisation of existing supply chains, based on cost but also quality/capability criteria (search for excellence)

Strong probabilities for the large groups/enterprises and those very specialised manufacturers to become world “champions” in export markets, as the development of a large
and stable European home market will make European tested products more attractive
to foreign clients. Reinforcement of the international position of these large
groups/enterprises/, and better possibilities to compete of these European world champions vis-á-vis other third countries competitors.

Key importance of exporting activities for the smaller enterprises/groups specialised in
“niche” markets and products.

Possibilities for Land armament enterprises to diversify towards non-military sectors (i.e.
homeland security issues, products based on dual use technologies, etc,) as a feasible
option to compensate for lower national demand levels of land armament products

Renewed impetus to the European land armament sector in the medium-long term.

Employment effects:

Negative effects on employment in the short run due to possible surpluses of
employment and manufacturing facilities, both for the those countries/enterprises leading this scenario but especially for those ones not leading
the scenario.

Positive employment outlooks in the medium/long perspective from a European
wide perspective. Larger employment opportunities amongst benefitted countries/enterprises from this scenario.

High attention paid by the industry to upskilling, qualifications and continuous
training activities of those workers/enterprises/large groups that keep on in the
sector, especially on new materials and technologies and internationallyoriented skills.

By way of contrast, negative long-term employment consequences for those
countries/enterprises not benefitting from the scenario (including closures and
bankruptcies), unless some kind of compensatory measures are introduced or
some kind of diversification strategies towards non-military products are pursued.

Loss of the relevant and critical skills, competencies, knowledge and experience
to design, develop, assemble, support and upgrade complex land armament
weapon in those countries/enterprises not leading this scenario. Very negative
consequences in the long run for these enterprises/national industries if these
skills, knowledge and experience are lost, as these skills and competencies are
very hard to restore and recover in case of loss.

Likely concentration of employment in fewer geographical locations
103

National land armament industrial policies prioritising the maintenance of existing national sovereignty and industrial capacities, in a context of reduction of defence budgets
SCENARIO 2:
•
•
The negative effects of this scenario in terms of employment and skills (especially in the
short run and for those enterprises/countries not leading the scenario) can be minimised
if a European-wide public policy is effectively devised, well planned and shared by sector agents in the participating Member States (including military organisations, social
partners, R&D institutes, etc) (orderly restructuring), rather than just letting pure market
forces to shape the future of the sector (disorderly restructuring).
Key assumptions

Current orientation of the European military activities does not change: Involvement in international peace keeping asymmetric operations, under the NATO or the UN umbrella.
No massive bilateral engagements foreseen. The European Common Security and Defence Policy (CSDP) is not fully developed.

Increasing demands by national armies to have common solutions at equipment/subsystem/component level are not attended by national governments.

The economic crisis keeps in the next 5-10 years, resulting in added difficulties in raising
public incomes. Added efforts to reduce public expenses to keep public debts under
control.

Less and less public resources for defence activities, including procurement and R&T activities, coupled with limited access to external credit.

Without forgetting cost and price considerations, national public governments opt by all
means to keep their own manufacturing sovereignty in land armament. Priority to purchase national Land armament products.

Limited emphasis on cooperative efforts in the procurement and development of new
land armament products/equipments between European countries. Little development
of European programmes.

No impetus to a real European Internal Market for Land defence products/equipments
Consequences

Public national demand for new Land armament products and equipments strongly decreases due to existing public defence budget cuts. Less sales volumes for national
manufacturers/groups.

Emphasis on national origin of Land armament products, in comparison to a lower emphasis on price and quality considerations.

Increasing demand for upgrading and modernisation of Land armament products (including maintenance activities).

Existing special relationships or strategic partnerships between domestic contractors and
state customers are maintained over time.

More emphasis on ad-hoc products requested by national armies that can only be used
by them. Little interoperability of existing products/equipments amongst different manufacturers, resulting in added difficulties for European armies engaged in international operations.

National manufacturers “benefit” in the short run from a protected national market despite other considerations (quality of products, costs, etc), although in the long run they
104
are negatively affected by a demand that is not able to saturate the existing national
production capacities, especially as far as “new” products are concerned.

Likely reduction in turnover and profitability levels of enterprises, unless compensated by
exporting activities. Paradoxically, this may result in more incentives for enterprises to cooperate between different manufacturers (both within countries but also at European
and at international level) for developing common solutions at equipment/subsystem/component level and below platform level that cannot be developed
on an individual basis. Likely reduction in the number of European Land armament
manufacturing enterprises.

More difficulties for national enterprises/groups to keep abreast with R&T efforts in a context of turnover and profitability reductions. Risk for manufacturers to position their products on a mid-rank and not high rank as before.

Need to restructure existing national main enterprises/groups. Strong emphasis on the
creation of “national” champions in the case of those countries where several national
manufacturers are present.

Need amongst the smallest enterprises/groups to focus on concrete “niche” markets
where they have competitive advantages recognised by the markets.

Strong cost pressures for suppliers in the national supply chains. Increasing emphasis on
outsourcing at international (not European) level, resulting in an internationalisation of existing supply chains.

Key role assumed by exporting activities as a successful way to overcome existing demand contraction at national level. Paradoxically, and in the medium-long term, enterprises/groups might be subject to important exporting difficulties, as clients do not trust
products/equipments not sold to national reference clients.

Strong public support for sustaining exporting activities of national enterprises.

Negative effect in the long run of exporting activities for European manufacturers, as offset agreements upgrade manufacturing capacities of competitors in the long run.

Higher incentives for Land armament enterprises to diversify themselves towards nonmilitary sectors (i.e. homeland security issues) as another possible option to compensate
for lower national demand levels of land armament products.

Likely disappearance in the medium/large run of those national main manufactures/groups particularly affected by shorter national production runs, unless they are
very successful on international markets or they successfully diversify into other nondefence related sectors. Likely also, these national manufacturers particularly affected
may be (partially/totally) absorbed/acquired by larger competitors, not only European
but also, why not, international ones.

Employment effects:

Maintenance of employment levels in the short run, especially if exporting activities are maintained.

Negative employment prospects on employment levels in the medium/long run
at European level as a whole. Very distinctive evolution accordingly to the different competitiveness levels of national Member States/enterprises.

Loss of the relevant and critical skills, competencies, knowledge and experience
to design, develop, assemble, support and upgrade complex land armament
products in those countries/enterprises particularly affected (negatively) by this
scenario.

Increasing difficulties to keep abreast with upskilling and continuous training activities of workers, due to financial difficulties of enterprises.

Likely reduction in the number of European geographical locations specialised
in land armament products.
105
106
8. Final conclusions and Recommendations
8.1. Conclusions stemming from the research

Strategic sector for Europe: The European Land armament industry is a strategic sector of
the European economy, not only because of its contribution in terms of turnover, value
added, high skilled employment, exports and innovations to other sectors but also because of its key contribution to the European and national defence and security policies.

Economic importance of the sector: The EU land armament sector comprises a total of
1.3 thousand enterprises, a turnover of 15.5 billion Euro and a generated value added of
5.5 billion Euro (Eurostat estimations). Main producing Member States are the United
Kingdom, Germany and France, followed by Italy, Sweden, Poland and Spain. According to ASD (the AeroSpace and Defence Industries Association of Europe), the EU Land
armament sector’s revenues amounted to a total of 26.8 billion Euro in 2009, and 29.8 billion Euro in 2010 (ASD uses a wider definition of the sector).

Typologies of existing European sector enterprises: The European Land armament sector
comprises three main types of enterprises: i) a few multinational companies operating
also in other defence-related fields (air or sea) or in civil-related products; ii) some nationally based prime land system integrators and, finally iii) many SMEs, highly specialised
in niche markets and/or involved as suppliers to the large final integrators, and usually involved in both defence and civil markets. Some of these enterprises are under (total or
partial) public ownership, whereas others are purely private enterprises. The main European Land armament sector enterprises are smaller than their US counterparts and produce a wider range of military products. Land armament industry supply chains seem to
be very complex in terms of number of suppliers.

Concentration process but still national-dominated sector: The sector has experienced a
non-stopping process of concentration and consolidation around larger groups in the
last two decades. This process has resulted in the emergence of several large European
defence contractors, mainly at national level but also at EU and at international level. In
any case, the sector is still characterised by a high presence of relevant nationally based
prime land system integrators, resulting in a number of undesired side effects from an
aggregated European perspective in terms of unnecessary duplication of products and
research & development efforts or a lack of standardisation of military equipments.

Less financial resources for land defence: The current and (expected) future cuts in
Member States’ defence budgets represent a major challenge for the European Land
armament industry that is likely to affect the structure of the sector, the relationships between companies and public national authorities, as well as the profile of companies
themselves.

Increasing (but still less dominant) trend towards cooperation: Despite existing fragmentation of the EU 27 defence procurement policies, European and national authorities
have taken since the nineties a number of initiatives intended to foster cooperative activities amongst them (the activities of the European Defence Agency (EDA), the Ghent
Framework, the so-called “Defence Package”', several Directives aimed at developing a
real European defence equipment internal market, etc)

Key role of exporting activities for the sector: Currently, export activities (especially to
non-EU markets) are a key element for the large EU Land armament sector players so to
compensate the limited size of national markets. Some national European governments
strongly support these export activities. However, this strong competitive European position in international markets is currently challenged by a number of elements, including
the emergence of new manufacturers in third countries or the presence of offsets
agreements.

Research orientation of th European land armament sector: The European Land armament sector devotes approximately a 6% of its total sector sales to R&D activities, well
above the European manufacturing sector. Many of the outcome innovations and tech-
108
nologies also have a “civil” use. Public authorities, both at EU and national level, actively
collaborate with enterprises in supporting R&D activities for the industry

Employment quantitative perspectives: The European Land armament sector currently
provides direct employment to a number between 96.1 and 128.7 thousand workers
(according to estimations by Eurostat and the ASD (AeroSpace and Defence Industries
Association of Europe), respectively). However, the real figures might be higher due to
the presence of companies whose product portfolio is more varied and the extensive use
of supply chains by the sector. Also, the defence industry has important multiplier effects,
generating significant levels of indirect employment which several studies estimate in
approximately 2.3 indirect jobs per direct job. However, the EU-27 sector employment
has experienced a clear downsizing trend since early 2000s (1 job out of 4 has been lost),
specially in the new Member States in comparison to a more stable evolution in the “old”
Member States. The Land armament sector is particularly concentrated in a number of
concrete European regions.

Main sector employment patterns: The European Land armament workforce is characterised by a number of specific main employment patterns. Thus, it is a male-dominated
and relatively ageing sector (specially in the coming 10-15 years). Also, sector levels of
qualification and education are higher than the manufacturing average due to the
high-tech and innovative products manufactured. The most dynamic European enterprises are currently involved in several initiatives in order to tackle the ageing problem
(including the attraction of new young people to the sector) and the development of
additional (in-house) training activities so to keep and strengthen skills and new competences. Existing social dialogue practices within the sector can be regarded as longstanding and well developed in nearly all countries.

Recent qualitative changes in workforce: The European land armament sector workforce
is experiencing in the last two decades a number of key changes that go in parallel to
the increased technological content of processes and products, namely: an ongoing
shift from manual workers to professionals, technicians and engineers of various types; a
reduction in the existing hierarchical levels within companies; a higher emphasis on
teamwork structures and the polyvalence of the workforce; an increasing need of expert
skills for new materials and technologies; and, finally, an increased attention towards skills
upgrading, including internationally-oriented skills for all layers of the organisation
8.2. Recommendations

This report has analysed possible scenarios for the future development of the European
Land armament industry and based on a different set of assumptions, where each scenario results in different economic, productive and social consequences for the future of
the sector. In this regard, the research has identified two main possible scenarios related
to the future evolution of the European Land armament sector. Basically, Scenario 1 suggests a situation where national Land armament industrial policies prioritise the Europeanisation of the sector, whereas Scenario 2 draws a situation where national land armament industrial policies prioritise the maintenance of existing national sovereignty and industrial capacities.

According to these analyses, theauthors of this report suggest that the maintenance and
future development of a sound and highly competitive Land armament sector in Europe
requires advancing in the “Europeanisation” of the sector (Scenario 1), that is to say, the
development of a stable European home market that clearly surpasses the current national market boundaries. Such a scenario is likely to produce several positive outcomes,
including a reinforcement of the European defence independence, a more stable and
larger market for enterprises, the reinforcement of the competitive position of the European products and enterprises both at home (European markets) as well as in third countries and, finally, the reduction of existing overlaps and inefficiencies. All in all, the Euro-
109
peanisation of the sector can facilitate the medium/long term preservation of the sector
in Europe and the maintenance of jobs and associated highly specialised skills and know
how.

However, the future resulting from this strategy is also subject to very important uncertainties. First of all, from a policy making perspective, a radical change in current Member
States’ national defence and industrial policies is needed. Amongst other things, this scenario requires the full implementation of the Common Security and Defence Policy
(CSDP), as well as the common definition of the European defence doctrines and strategic interests within this framework.

Also, this scenario is likely to have negative short-run effects on employment and loss of
skills/know-how in those countries/enterprises which are not sector leaders, and coupled
with possible employment surpluses resulting from the creation of the “European champions”. These negative employment prospects, a key worry for national Member States,
could be diminished if an orderly consolidation process is foreseen rather than a disorderly one. In this sense, the timing of the Europeanisation process should be carefully
studied, so that too rapid developments do not increase the short term negative impacts
on employment.

At the same time, the diversification of the sector should be given impulse, fostering
companies’ strategies for the full exploitation of dual use technologies and products, for
which the sector has an undeniable potential. This would also help to keep employment
and skills.

For this purpose, planning must be stressed, including consultations and coordination of
programmes and projects between EU authorities (i.e. EDA and the Commission), national authorities (including of course armies and industrial policy responsible authorities),
the Land armament industry itself, the representatives of workers and other stakeholders
(including R&D and higher education institutes or other interested parties). In this context,
a well-organised social dialogue at EU level represents a sine-qua-non condition for the
development of a properly organised restructuring process.

The Commission’ High Level Task Force on European Defence Industries and Markets, together with EDA and the social partners, can play a key role in fostering this process, optimising coordination and supporting cooperative actions amongst the different European and national actors involved. Meanwhile, Member States with the largest Land armament manufacturing capabilities (i.e. France, Germany, United Kingdom, etc.) should
also be given a higher responsibility in this regard.
110
Annex A. Bibliography and Interviewed
experts
Annex A. Bibliography and Interviewed experts
A.1. Bibliography

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Badowski T, Polski Przemysł Obronny po 2012 roku, in: Armia, 11/2011

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BMVG, Weißbuch zur Sicherheitspolitik Deutschlands und zur Zukunft der Bundeswehr,
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Centro Studi Sul federalismo. ‘The state of the European Defence Equipment Market’,
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Deloitte, The Aerospace and Defense Industry in the US- A financial and economic impact
study,
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Available
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Department for Industry, Innovation and Skills/BIS, Industry-led Group to help redeploy
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Department for Industry, Innovation and Skills/BIS, New System launched to retain Highly
Skilled Employees across Advanced Manufacturing and Engineering Sectors, BIS Press Release, 13.7.2011

Ecorys, FWC Sector Competitiveness Studies - Study on the Impact of Emerging Defence
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Eurodefense España, ‘Oportunidades que ofrece la Colaboración Público Privada (CPP)
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Europe Economics, Study on the Competitiveness of European Small and Medium sized
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European Communities, Study on the industrial implications in the blurring of dividing lines
between
security
and
defence,
2010. Available
on
the
Internet
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112

European Defence Agency, A Strategy for the European Defence Technological and Industrial
Base,
Brussels,
May
2007.
Available
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European Defence Agency, 2010 Defence Data, Brussels, 2011. Available in Internet at:
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European Defence Agency, Defence Data: EDA participating Member States in 2010.
2012b.
Available
in
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European Defence Agency, Europe and United States Defence Expenditure in 2010, Brussles, 2012b. Available in Internet at: http://www.eda.europa.eu/Libraries/Documents/EUUS_Defence_Data_2010.sflb.ashx

European Economic and Social Committee, Need for a European defence industry: industrial, innovative and social aspects, Brussels, 11 July 2012. Available in Internet at:
http://www.eesc.europa.eu/?i=portal.en.ccmi-opinions.21926

European Land Defence Industry Group (ELDIG). Position Paper. September 2009. Available
on
the
Internet
at:
http://www.asdeurope.org/site/fileadmin/user_upload/advocacy/ELDIG_position_paper__UPDATED_MAR_2010.pdf

European Parliament, Policy Department External Policies. ‘The Protection of the European Defence Technological and Industrial Base’, 2007. Available on the Internet at:
http://www.isis-europe.eu/sites/default/files/publications-downloads/2007_artrel_70_ep%20protection%20of%20the%20edtib.pdf

European Parliament, Directive 2009/43/EC of 6 May 2009 for ‘simplifying terms and conditions of transfers of defence-related products within the Community’. Available on the
Internet
at:
http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:146:0001:0036:EN:PDF

European Parliament, Directive 2009/81/EC of 13 July 2009 ‘on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts
by contracting authorities or entities in the fields of defence and security’. Available on
the
Internet
at:
http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:216:0076:0136:EN:PDF

Eurostrategies, A comprehensive analysis of emerging competences and skill needs for
optimal preparation and management of change in the EU defence industry- Final report, May 2009.

Faleg G and A Giovannini, The EU Between Pooling & Sharing and Smart Defence Making a Virtue of Necessity?, CEPS, May 2012. Available in Internet at:
http://www.ceps.eu/book/eu-between-pooling-sharing-and-smart-defence-makingvirtue-necessity

Fromion, Y., Député, ‘Les moyens de développer et de structurer une industrie européenne
de
défense’,
2008.
Available
on
the
Internet
at:
http://www.ladocumentationfrancaise.fr/var/storage/rapports-publics//084000456/0000.pdf

Fuller, S, The Economic Impact of the Budget Control Act of 2011 on DOD and Non-DOD
Agencies, George Mason University, Virginia, 2012. Available in Internet at:
http://www.aia-aerospace.org/assets/Fuller_II_Final_Report.pdf

Geoeconomics and Oxford Economics, Economic Contribution of BAE Systems to the UK,
April
2011.
Available
in
Internet
at:
http://www.oxfordeconomics.com/free/pdfs/BAE_Systems_Economic_Contribution.pdf
113

Hartley, K, et al, AFV Supply Chain Analysis, A study of Warrior and Piranha, DTI, London,
1997

Hartley K, Creating a European Defence Industrial Base, in Security Challenges, vol7, n3,
pp 95-111, 2011.

Kogan E, The State of Eastern European Defence Industries, Royal United Services Institute
(RUSI) Defence Systems, Acquisition Issues, pages 102-104, February 2008

Küchle, H, Die deutsche Heeresindustrie in Europa. Perspektiven internationaler Kooperationen und industriepolitscher Handlungsbedarf. Edition der Hans-Böckler- Stifung
Nr. 200, 2007

Likowski, WZT – 3 dla Indii, Raport Wojsko – Technika – Obronność, nr 2/2012

Manchester Institute of Innovation Research with Centre for Defence Economics and
CNRS-GREDEG, Study on How to measure Strengths and Weaknesses of the DTIB in
Europe-Final Report, report for the EDA, 2008.

Ministerio Español de Defensa, ‘Estrategia de Tecnología e Innovación para la Defensa:
ETID
-2010’.
Available
on
the
Internet
at:
http://www.defensa.gob.es/Galerias/politica/armamentomaterial/ficheros/DGM_ETID_v5d.pdf

Ministerio Español de Defensa, ‘La cooperación industrial. Lecciones aprendidas y propuestas de futuro’, Industrial Policy Books, Madrid, June 2010. Available in Internet at:
http://www.infodefensa.com/wp-content/uploads/SERIENARANJACUADERNO03ISDEFE.pdf

Moling, C and SC Brune, The Impact of the Financial Crisis and Cuts in Member States’
Defence Budgets, EU Directorate-General for External Policies, European Commission,
Brussels, 2011.

Morrison, G, ‘National Security Through Technology – Worth the Wait?’, in: Intellect,
3.2.2012. Available in Internet at: http://www.intellectuk.org/blog/2012/02/03/nationalsecurity-through-technology-worth-the-wait/

PARP, Polska Agencja Rozwoju Przedsiębiorczości, Klaster szansą dla przemysłu
obronnego
30.03.2012.
Available
in
Internet
at:
http://www.pi.gov.pl/PARP/chapter_86197.asp?soid=5B12432E4EF44562BCB4E01A489EAE84

Présidence de la République, The French White Paper on Defence and National Security,
Paris, 2007

PWC Polska et al, Study on the innovative and competitive potential of the defencerelated supplier base in the EU12 - Final Report, Report for the EDA, Warsaw, 2009. Available
in
Internet
at:
http://www.eda.europa.eu/Libraries/Documents/Study_on_the_innovative_and_competitive
_potential_of_the_defence-related_supplier_base_in_the_EU12_1.sflb.ashx

Real Instituto Elcano, “Propuesta para la reestructuración del Sector Industrial de la
Seguridad y la Defensa (SISD) en España”, Madrid, November 2011. Available in Internet
at:
http://www.realinstitutoelcano.org/wps/wcm/connect/63b17d80493d596bab39bb9437ec6e
7e/DT182011_Arteaga_reestructuracion_Sector_Industrial_Seguridad_Defensa_Espana.pdf?MOD=AJP
ERES&CACHEID=63b17d80493d596bab39bb9437ec6e7e

SIPRI, SIPRI Yearbook 2001, Oxford University Press, 2011. Available on the Internet at:
http://www.sipri.org/yearbook/2011/files/SIPRIYB11summary.pdf

Sissons, A, More than Making Things - A new Future for Manufacturing in a Service Economy, A Knowledge Economy Programme Report, The Work Foundation, 2011. Available
on
the
Internet
at:
http://www.theworkfoundation.com/assets/docs/publications/284_More%20than%20making
%20things.pdf
114

Spanish Ministry of Defence, Criterios Básicos para el establecimiento de la Política Industrial de Defensa, Industrial Policy Books, Madrid, June 2010. Available in Internet at:
http://www.portalcultura.mde.es/Galerias/publicaciones/fichero/Cuaderno_ISDEFE_01.pdf

Ministry of Defence, “Defence Technology and Innovation Strategy ETID – 2010”, Madrid,
September
2011.
Available
in
Internet
at:
http://www.portalcultura.mde.es/Galerias/publicaciones/fichero/Defence_technology_2010
.pdf

Oxford Economics, The Economic Case for Investing in the UK Defence Industry, Report
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A
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2011.
Available
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Technische Universität Dresden, ‘European Defence Equipment Market. Chances and
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2010.
Available
on
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Internet
at:
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TEDAE, “Informe Anual de Defensa y Seguridad”, Annual Report, Madrid, 2010

TNO, Development of a European Defence Technological and Industrial Base-Main Report,
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Available
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A.2. Interviewed experts
EU stakeholders
•
•
•
•
Mr Jan-Olov Blix, Future Products Manager, BAE Systems and acting president of the European Land
Defence Industry Group (ELDIG)86
Mr James Copping, Policy Officer, European Commission, Directorate-General for Enterprise and Industry
Dr Burkard Schmitt, Defence Expert, DG Internal Market and Services (DG MARKT)
Mr Vassilis Tsiamis, Senior Officer for Defence Industry, European Defence Agency (EDA)
Experts in France
•
86
Frederic Bouty, NEXTER - Vice President Strategy, Strategy Department Nexter Systems
Additionally, the research team made a presentation of the project to a group of representatives of ELDIG.
115
•
•
•
•
•
•
Jean-Albert Epitalon, Managing director international markets, GICAT (Groupement des Industries de
l’Armement Terrestre)
Eric Brune, CGT - Employee representative NEXTER GROUP
Sylvain Delaitre, CGT -THALES Employee representative for the defense sector, Thales Reseach and
Technology France, Optics and Optronics Department
Luc Scappini, CFDT - Employee representative for the defense sector
André Golliard, CFDT (FEAE) - NEXTER Employee representative
Dominique Sellier, SECAFI - expert aerospace and defence sector
Experts in Germany
•
•
•
•
•
Mr. Heinz Josef Kruse, Rheinmetall Defence Rheinmetall AG, UB Defence Strategische
Unternehmensentwicklung
Mr. Karsten Lepper, BDSV
Mr. Ralf Bergschneider, Betriebsratsvorsitzender, Krauss-Maffei-Wegmann GmbH & Co. KG
Mr. Jürgen Bühl – IG Metall Vorstand
Mr. Werner Frank, Referatsleiter Angelegenheiten Rüstungswirtschaft, BMVG, Bundesministerium der
Verteidigung Abteilung Politik - Referatsleiter
Experts in Italy
•
•
•
•
•
Dr. Michele Nones, Head of Department “Security and Defence” and at IAI (Istituto Affari Internazionali)
Dr. Gianni Alioti, Responsible International Office FIM- CISL (Federazione Italiana Metalmeccanici)
Ing. Carlo Nucci, Coordinator of Defence Activities of AIAD (Italian Industries Federation for Aerospace, Defence and Security)
Dr. Fabrizio Braghini, Head of Associations Relations of Finmeccanica
Dr. Roberto Matteucci, Senior Adviser CIO (Consortium Iveco- Otomelara)
Experts in Poland
•
•
•
Colonel (ret,) Mr Sławomir Kułakowski President of the Polish Chamber of National Defence Manufacturers
Mr Jerzy Szpecht, President of the National Section of Polish LAS at Trade Unions for Electromechanical
Industry (Hedquater – Bumar Żołnierz).
Correspondece with an official (Press Spokesperson) at Polish Ministry of Defence (Inspektorat Uzbrojenia – body responsible for supply of the equipment for the Polish Army).
Experts in Spain
•
•
•
•
Mr. Miguel Ardaiz Martínez, Regional Sales Director, GDELS General Dynamics - European Land Systems
Ms. Clara Tebar, International Coordinator in TEDAE (Spanish Association for Defense, Aeronautics and
Space Technologies)
Mr. Raúl Alvarez, Defence section of the Industry Federation in CC.OO. (Comisiones Obreras Trade
Union)
Mr. Lorenzo Abad, New Programmes Manager, Sistemas FABA, Navantia
Mr Juan Manuel García Montaño, General Directorate of Armament and Material, Spanish Ministry of
De-fence.
Experts in Sweden
•
•
Mr Jan Pie, Secretary General at the Swedish Security and Defence Industry (SOFF).
Mr Conny Holm, President of the local workers union IF Metallat Electronic Defence Systems, Saab AB,
Jonkoping
116
Experts in the United Kingdom
•
•
•
•
•
Prof Trevor Taylor, Emeritus Professor (Cranfield) & Professorial Fellow (RUSI) in the Department of Management and Security (Cranfield Uni) & Defence Management (RUSI)
Ian Waddell, National Officer for Aerospace & Shipbuilding, incl Defence Industry in UNITE
Dr Colin Roberson, Company Director of Advanced Defence Materials Ltd.
Mark Phillips, Research Fellow on Land Operations and Capabilities Programme in the Royal United
Services Institute/RUSI
Gordon Lane, Managing Director, Defence & Director Land ADS(Trade organisation for Aerospace,
Defence, Security & Space industries)
117
Annex B. Country Case Studies
B.1. FRANCE
B.1.1.
a)
Mapping of the National Land Armament Sector (LAS)
Macroeconomic Vision
According to the French industrial federation for land armament GICAT, the French land defence sector
has a turnover of €17,5 billion and maintains over 20.000 direct jobs in France. Furthermore the French armament industry exports equipment for the value €4 billion and acquires an added-value of €2,7 billion in
2011. Thus France is the fourth exporter in armament and represents 8% of global export in arms.
The French state remains the main client and a vital player when it comes to decision-making in the
French land armament industry. France uses around 1.6% of its GDP for defence expenses. For the land
armament sector, the level is approximately 0,4% of total GDP. In 2011, €31.25 billion were spent on defence, including equipment accounts for €16.0billion and research for €880 m. This budget is measured
without pension cost (€7bn), further € 1 billion for current international missions. Until 2013 another €3.5 billion will be saved by delaying parts (mainly the production of new armoured vehicles by two to five years)
of the large modernisation program SCORPION and further reduction of military staff estimated at 54000
persons. This decade is marked primarily by the economic crisis in Northern countries and the phasing out
of large operations in Afghanistan and Iraq and more short term interventions without ground troupes (i.e.
Libya). The 2008 “White Paper on National Defence and Security” created the strategic framework for the
French state and the industry. It shows clearly that land armament capacities have to adapt to new
threats. The main objectives mentioned in the white paper were the anticipation of new conflicts (including terrorism and cyber-attacks) and the strategic shift from national defence to national security, therefore more policing, and international missions. In order to fulfil these new duties, the army has to be more
interconnected with civil, air and naval units. Another aspect is the necessary increase of protection for
vehicles and soldiers which will be guaranteed through the comprehensive R&D program SCORPION.
However the investment in research and development has dropped from €1,7 billion in 1990 to €700 million
in 2011. This clearly affects the sustainability of the sector.
The military threats are changing, budgets are changing, and consequently markets evolve.
New threats are leading to new requirements for the armed forces: modularity (multiple weapon systems
on the same vehicle (VBMR), battlefield digitization, interoperability, network-centric warfare (NCW), etc.
The increasing technical complexity of systems (tanks, VBCI87 ) and digitalisation lead to strong growth in
development costs, which weigh increasingly heavy on industrial projects which are less and less funded
by State contractors. Budget cuts have changed the behaviour of customers. The state as customer does
no longer order a specific tank in many copies like in the 1980s; instead a strategic contract is defined for a
longer period of time. This is the case of the SCORPION program in France88 . These large framework contracts include:

architecture
production of a complete system (several types of vehicles)
communication systems
interoperability
Véhicule Blindé de Combat d’Infanterie (armoured vehicle for infantery).
The Scorpion program is a multibillion euro transformation effort by the Army, Direction Général de l’Armement (DGA)
procurement office and Chief of Defense Staff to acquire a multirole troop carrier, a light tank, and a common command and control system and intends to reduce ownership cost. However, budget cuts could shutter the program.Christian Mons, chairman of the industrial federation “Groupement des Industries Françaises de Defense Terrestre”
(GICAT), has called for a doubling to 100 million euros ($132 million) of government spending on research and technology
in
land
systems,
with
a
focus
on
robotics,
force
protection
and
aeromobility.
http://www.defensenews.com/article/20120211/DEFREG01/302110001/France-Schedule-Scorpion-Exercise-June-Source
87
88
119
These types of large projects are typically adapted to system manufacturers and consortiums, which have
extensive expertise, sufficient technical and financial resources. These contracts are often structuring the
reorganization of the sector, they involve a high risk for the potential "losers". Consequently, a strong « rapprochement » can be observed between Thales-DCNS, Safran-SNPE and Thales-Sagem in order to stay
ahead of the game. Suppliers, which are not part of these industrial partnerships, risk their own marginalization or total eviction from the market.
The SCORPION project has created a long term framework for R&D, production and distribution of new
technology but now budget restrictions are looming. Drastic saving measures are underway in France, the
government is seeking €5 billion in savings over the next three years and industrialists fear that this will significantly affect equipment purchases rather than the operating budget cost. In France, primary budget
constraints are forcing to modify the law for military planning (LPM - Loi de programmation militaire) and to
considerably reduce military expenses. Calculating in constant euros and without changes in the law for
military planning, the budget will decrease from €17 billion in 2010 to €16 billion in 2014, a decrease of at
least 1.2% per year. This target is even likely to be revised downward, given the budgetary situation of
France. The change of parliamentary majority can further influence these forecasts in one or another direction. A new law for the defence programme is expected to be published after the 2012 presidential
elections89.
Table B.1.
Expenses of the three military branches as well as common services (French defense ministry 2012)
Air
2006
2007
2008
2009
2010
2011
1.132
1.311
1.279
1.380
1.307
1.444
Land
991
941
1.009
996
957
1.014
Naval
1.176
1.348
1.345
1.446
1.258
1.265
Common
services
11.576
11.558
11.701
14.064
13.522
12.292
Total
14.875
15.158
15.334
17.887
17.044
16.014
Furthermore, there are other economic factors that have generated significant additional costs. The settlement of a legal dispute with Taiwan named “Tango” on irregularities in the sale of six frigates “La Fayette” in 1991 forces the French state to pay a total of at least € 460 million in 2011. € 170 million will be
paid by Thales. The total costs with interest are € 630 million. A direct effect of this scandal is the cut of the
military budget by € 260 million.
Further revenue provided in the White Paper on National Defence and Security, published in 2008, seem
also extremely unrealistic. The sales of 800 MHz frequencies for € 450 million, sales of real estate property
with € 150 million and sales of satellite Syracuse for € 400 million have not yet been concluded. At the end
of 2011, the French parliament has decided to update the White Paper on National Defence and Security
in order to reflect these additional costs and shortfalls90.
b)
Economic patriotism has a long tradition in the defence sector, this is also the case in the French LAS.
Thales, GIAT and now Nexter were always programmed to be national champions, but now the economic
crisis accelerates the will to cooperate between Thales-DCNS, Thales and Safran-SNPE-Sagem. There
seems to be a consolidation process of French land armament sector around Thales. Thales has a turnover
of over € 7,5 billion of which around € 2 billion are made in LAS. Thales, partly owned by the French state,
89
90
Presentation SECAFI 04/2012
The debate in the French Senat can be found under: http://www.senat.fr/rap/r11-207/r11-207_mono.html
120
owns the equipment supplier TDA Armament with 320 employees and a turnover of €100 million TDA has
lost around half of its staff since the beginning of the 21st century. Thales might acquire shares of Nexter.
Another main LAS system integrator is Nexter. Created by GIAT in 2006, Nexter has reached a turnover of
€792 million in LAS. GIAT-Industry and Nexter are 100% owned by the French state. The company Safran
makes 2 billion € in defence sector in total, of which only around €200 mil. are produced in LAS. It also owns
SAGEM which produces military electronics.
Other relevant manufacturers of armoured vehicles are Renault TD making €189 million and Panhard making €113million turnover in LAS. Panhard is currently a French manufacturer of light tactical and military
vehicles. Its current incarnation was formed by the acquisition of Panhard by Auverland in 200591.
The four categories of players in France
The "consolidators" who have previously absorbed the "consolidated companies" have mastered in the
past both the integration of systems (LSI is called "large scale integrators") and the latest technology (defence electronics and communication) that are considered central elements in modern combat systems.
Consolidators have more financial resources to support development costs which are less and less funded
by state. They are in a position to answer "big contracts" such as FRES or Scorpion. These consolidators are
in France Thales, Safran, and EADS. The “consolidated” are enterprises which were bought in the 2000s, still
influential in their domestic markets, but henceforth they are without strategic autonomy.
The "vulnerable" are independent actors or non-fixed (known to be easily transferable for their shareholders), which are marginalized by the current trends. Thales might buy shares of other companies such as
Nexter in exchange for parts of it ammunition suppliers TDA. This may also involve divisions of "consolidators"
(Thales - Safran optronics - MBDA missiles). This could lead to deeper technical cooperation and perhaps
even to joint production. In the past, this has enabled the creation of EADS and MBDA.
The "isolated" are SME whose sales of land armaments are relatively low (up to hundred million Euro), but
that are protected by their position in a niche or a weak dependence on this activity (predominantly civil
products). Vertical mergers are more likely in the short and medium term, given the predominant role of
"consolidators" mastering defence electronics. Further integration between horizontal actors in the same
segment is not excluded, however it seems less likely and if it happens, it is to be expected to destroy more
jobs in the short term. Further “national" consolidation is the most likely option.
The "losers" will be further destabilized and marginalized. They are either too small or positioned solely on
their domestic market, either on mature technologies, or capabilities of R & D are limited, either all at
once. These are mostly SME that have lost the SCORPION competition.
Consolidation of French land armament around Thales
According to insiders, the scenario of Thales acquiring Nexter is becoming more and more realistic. From
the perspective of Nexter, the integration with a global player in electronics and mechanical engineering
is not considered the best choice because it means less choice in terms of electronic equipment suppliers.
The state policy of strengthening the role of major systems suppliers by framework programs and the arrival
of Thierry Vigneron as new CEO of Thales, tend to prioritize the cooperation Thales-Nexter. The French state
and the General Directorate for Armament (DGA) have been promoting this cooperation by
91

designating Thierry Vigneron as President of Thales.

backing the operation via the Agency for State Participation.
Sellier, Dominique (2012) report Point de situation de l’industrie d’armement en Europe, Secafi Paris 01/2012, p.12.
121

giving the consortium Thales-Nexter-Sagem the first phase (architecture) of its major program of land armament, Scorpion, which amounts to € 10 billion until 203092.
The technical cooperation will result out of this project and it is one condition for closer cooperation in the
future. The scenario is consistent with the strategy of Thales, which supports the development through
takeovers of platform companies like Nexter. Resistance remains though; Dassault Aviation, which owns
26% of Thales, seems reluctant to support this operation because it seems to be an activity which is insufficiently profitable.
The advantages that this new entity would have are a critical mass and the possibility to deliver more parts
of the overall supply. It would benefit from the Thales sales and procurement network and it would guarantee the continuity for the ammunition suppliers Nexter, TDA and Junghans. It would probably double the
activity of Nexter Munitions. The consolidation would be positive vis-à-vis the DGA93 in the Scorpion program. Thales would be the general prime contractor. The question remains if Sagem would accept this
new dominance.
The disadvantages would be the loss of strategic autonomy especially in terms of equipment choices and
it might lead to restructuring process of industrial sites because of the differences in the industrial model
and duplicates, including engineering activities. This scenario might be the starting point of privatizing
Nexter. The next step could be the acquisition of the majority of shares by Thales (51%). The privatisation
could question the status of “workers under decree”. Workers under this contract scheme profit from historically acquired benefits during the time when these companies were in public ownership. Furthermore
the realization of this scenario could increase the competition with German competitors and create a
race for size through further acquisitions.
Until now there has not been any successful cooperation with foreign leaders such as KMW (D) or
Rheinmetall (D) or BAE (GB) on tanks. France decided to launch the long term project Scorpion on its own
without integrating other European member states. Small and Medium Enterprises working on ICT and
integrated warfare will probably create more opportunities for cooperation and an internationalisation of
French companies in the future.
Most restructuring processes already happened in the tank division
In this sector many jobs have been destroyed since the end of the Cold war. The previous military strategy,
based on high numbers of tanks in order to oppose a possible Russian assault has become totally outdated. Starting 1992 onwards the volume of Leclerc tanks fell considerably from 1.500 (for which the group
GIAT was dimensioned) to 300 vehicles. Only one country, the United Arab Emirates, has ordered 150
tanks94. Due to this, the workforce has dropped sharply from 18.000 in 1992 to 6.500 in 2000. Faced by
mounting losses, a second wave of restructuring has affected the GIAT group in 2003 and led to the reduction the workforce to 2,500 employees. Since 2006 the numbers in the French LAS have been stabilized.
Nexter, the main unit of GIAT created in 2006, counts around 2.700 employees in 2011. The numbers have
been stabilized also because of the more international profile of most LAS companies.
c)
Products and Value Chain
The portfolio within the French LAS is large but also specialised on modular armour vehicles, artillery and
surveillance. The sector produces mostly along three product lines:

Armoured vehicles create over €700 million turnover in 2010, largely Nexter and Panhard
http://www.lefigaro.fr/societes/2010/06/13/04015-20100613ARTFIG00272-thales-retenu-comme-l-architecte-de-scorpion.php
Direction Général de l’Armement (DGA).
94 According to the annual report only 17% of the turnover are produced in export markets,
92
93
122

Weapons, artillery and ammunition with a turnover of €550 million in 2010 made mostly by
Nexter, TDA and SNPE

Equipment and terrestrial systems is the largest domain with a turnover of over €6,5 billion
made mostly by Cassidian, Thales and Sagem Defense
As an exemple, one of the major players, Nexter, delivers a large range of products from integrated
weapons systems, armoured vehicles, munitions to equipment such as shelters, NBC-systems and electronics. 67% of the orders in 2011 are integrated systems, 28% are large and medium munitions and 5% additional equipment (NBC-Systems, shelters, etc.). External supply services and maintenance represent growing markets since outsourcing is part of the costs saving strategy of the French army. The ministry of defence is concentrating on core competences of the army (direct battle, security, etc.) (Cour des Comptes
2010:109). Only specific maintenance in high security areas will remain in the hands of army professionals.
Most interviewees, both from employer and employee side, consider that in areas of non-military activities
(administration, clothing, recycling, transport, studies, etc.) external service providers are entering the market.
In fact, the Ministry of Defence states that outsourcing expenses increased from € 592 million in 2001 to €
963 million in 2006 to €1.695 million in 2008.This means a significant of 186% within this timeframe (Cour des
Comptes 2010:8). In fact 47.8% of maintenance is externalised (ibid. 13). In total the army has externalised
already 27.8% of its activities.
External maintenance is more and more needed due to budget constraints, the long lasting use of equipment and the integration of ITC technologies. This indicates a strong demand for outsourcing support. In
France, the DCMAT95 raises most of the operational maintenance (MCO- Maintien en condition opérationnelle) of land armament. An issue is the opposition of interests between the maintenance and control
of it by the armed forces and the related employment and the accounting logic of cost reduction and job
cuts included in the French General Review of Public Policies (RGPP) and the White Paper.
There are many specialised suppliers in France, however the sector is very fragmented96. The land armament market includes 213 companies of which 85% are SMEs with a total employment of 20 000 employees
in 2010. This means that French LAS companies employs on average 100 employees. In the overall defense
sector around 400 SMEs are active.
The French land armament companies are exporting nearly half of their production: €2.1billion of the
turnover is related to export from a total of €5 billion. There are cooperation agreements with Canada
(artillery), Sweden (canons), Great-Britain (drones), etc.
d)
Markets
The European markets darkens but the export markets remain buoyant
Some French companies worry about the widening gap between Europe, which is reducing most its defence budgets, and the rest of the world including India, Russia or China and Brazil.
There is no strategy for European consolidation, the French companies are pursuing the general trend
towards more export. France exports 51% of its armament to Asia, 22% within Europe and 12% in the Middle
East. The three main client countries in the period 2007-2011 were Singapour (20%), Greece (10%) and
Marocco (8%).
95
96
Direction Centrale du Matériel de l'Armée de Terre (Central Directorate of Army Equipment)
According to GICAT – French Lande Defense Manufactors Association.
123
Furthermore commercial partnerships with countries outside of Europe are based on specific products and
agreed under specific conditions (local production in countries such as India and Brazil, etc.).
The French market is in stagnation. The last French Le Clerc tank, out of 406, has been delivered to the
French army in 2007. The Le Clerc tank will be in service until 2040 and updated through the SCORPION
program. The first updated versions will be delivered in 2019. Nexter is exporting its modern and truck
mounted artillery system “Caesar” to Cyprus, Thailand and Saudi-Arabia. Parts of the Leclerc tank are
produced in Czech Republic and China. The Leclerc tank is sold in the United Emirates (388). The deal for
40 tanks with Colombia in 2010 was not concluded, but there are currently negotiations with Qatar. The
armoured ERC developed by Panhard has been sold to Argentina, the Ivory Coast, Gabon, Iraq, Mexico,
Nigeria and Chad. The light armoured vehicle VBL by Panhard is exported to 15 countries.
The AMX-10p by GIAT has been exported to Greece, Indonesia, Mexico, Morocco, Saudi-Arabia, Singapore, United Emirates and Qatar. Panhards’ small armoured vehicle were exported to Chile (15) and Togo
(6). The VAB, built by Renault Trucks in cooperation with GIAT, has been exported to Brunei, Cyprus, Morocco, the democratic republic of Congo, Central African Republic, Ivory Coast, the United Arab Emirates,
Indonesia, Lebanon, Mauritania, Oman and Qatar.
The French army uses French vehicles, but in terms of infantry armament, weapons from Belgium (FN Herstal) and Germany (Heckler&Koch) are in use. Small ammunition is imported from Turkey, Brazil and Israel.
France army forces uses the Swedish all-terrain carrier Bandavgn 206.
Graph B.1
4,5
4
3,5
3
2,5
2
1,5
1
0,5
0
Evolution of turnover of French land armament companies 1999- 2008 ( bn€ - Source
GICAT)97
3,8
3,2
2,2
2,1
1,7
1,1
1999
2000
3,6
2,0
1,5
2001
Chiffre d'Affaires total
3,3
2,2
1,2
2002
3,4
2,5
3,0
4,2
3,8
4,0
2,5
2,7
2,9
1,3
1,2
1,3
2006
2007
2008
3,1
2,1
2,2
0,9
0,9
0,9
2003
2004
2005
Chiffre d'Affaires exportation
Chiffre d'Affaires France
India is a very important market for French military providers. Since 2004, Nexter is participating in DEFEXPO
in India, exhibiting its equipment and showing its know-how in advanced-combat systems. In fact Nexter is
ready to deepen the cooperation with Indian companies (Transfer of Technology, Joint Ventures, Sale of
Components etc.) in order to remain a main provider for ballistic weapons for the Indian army. Therefore
Nexter Systems has decided to establish a subsidiary, Nexter India, in 2012.
Thales, MBDA, Renault and Nexter are all exhibiting their products in Asia. It is clear that the increasing
dominance of China and Russia increases the pressure on other Asian countries to invest in their defence
capacities. There are strong signs that the big players such as Thales adapt to a multipolar world by accepting offset deals and developing regional headquarters.
97
Red: turnover in France, blue: turnover through exports, black: total turnover).
124
But compared to other European competitors, up to now most French suppliers are less internationalized. A
special emphasis is now given to the SME in the LAS by the ministry of Defence and the agency for armament (direction générale de l'armement –DGA). The French government has increased its efforts to promote the export rate of the French LAS. In 2008 the interministerial commission to support international
contracts (in French Commission interministérielle d'appui aux contrats internationaux CIACI) was created.
The French ministry for Defence also helps companies and federations to network and be present on international fairs and conferences.
Dual use is not an option to remain competitive
French LAS companies are rarely involved in dual use products. Most of the time, the products are very
different and therefore there is no transfer of technology from the defence area to the civic or vice versa.
It is rather the technologies of the civil sectors which are transferred and adapted to the needs of the
military clients.

Thales – separate branches, little dual use

Renault Trucks- defence and civil transport, separated entities

SAGEM well separated branches

Panhard – only military, private vehicles in the past

Nexter: only military - The branch Nexter Electronics tried to extend its portfolio to serve
civil clients in transport, energy and aerospace industry, but with little success.
The defence market is strategic for each country of EU and as far as the interlocutors can tell, it seems that
there are little incentives to avoid economic patriotism. The European defence package does not seem to
trigger more cooperation; there are only few European projects. The London or Lancaster agreement of
November 2nd, 2010“98 has little impact on the military sector, except for drones, but it increases the cooperation between France and Great Britain, thereby reducing the incentive to find European solutions. In
the past, two attempts to build armoured vehicles with first German and then British companies failed, so
there is little interest to relaunch similar projects. Nevertheless there seems to be a tendency of closer cooperation based on developments in the ICT sector.
e)
Electronics play an increasing part in the LAS. Particularly the anticipation of threats through sensors is in
high demand. Electronics are driver of change in all three defence sector (aerospace, naval, land).
The agreement and its programme is to be delivered through an overarching defense co-operation Treaty, a subordinate treaty relating to a joint nuclear facility, a letter of intent signed by defense ministers and a package of joint defense initiatives, further information can be found under http://www.number10.gov.uk/news/uk%E2%80%93francesummit-2010-declaration-on-defense-and-security-co-operation/
98
125
Graph B.2
Evolution of Costumer demands in the defense sector
Research is very important in France and higher ranked than in other European countries. The Scorpion
project is in its first phase primarily a R&D project.
Nevertheless, many interview partners consider that the funds allocated to R&D are insufficient. From their
point of view, manufacturers tend to reduce their level of research on new technologies to reduce costs
and position their products on a mid-rank and not high rank as before. These experts are worried that
France defence industry is sacrificing its research and development activities to maintain production capacity. Companies risk to lose irreversibly their industrial and technical skills.
Specified R&D for the military sector is very important, but innovations often are created by other industries
and are adapted to the LAS. Electric vehicles are developed within the private sector, because the market volume of the military sector is far too small. But the LAS companies follow the path of innovation by
adapting necessary parts and integrating useful civic technology.
B.1.2.
Employment
In the French Land armament sector there are 20.000 direct employees and at least the same number of
employees in the supply chain and other related services. So, overall the LAS employs around 40.000 to
50.000 employees. As regards to employment in the French LAS, there is a high average age of the working population in the industry. One might therefore think that there is a strong need to recruit, but the reality is likely to contradict this thesis. In fact the labour force is only slowly renewed, temporary and subcontracted company are increasingly involved in all areas. The departures of employees hired in the 70-80
years could lead to significant deficits in skills essential to the sustainability of European defence industrial
and technological base.
Labor force declining or only slowly renewed
Between 1993 and 2009, France has seen a decline of 30% in employment in the defence sector (BIPE
2009:19). Generally speaking, the employment in the industry is both highly skilled and very specialised. In
particular, one finds a higher proportion of engineers and scientists, and higher levels of qualification in
defence sectors than in the general economy. The recruitment is often made in the army in order to acquire practical knowledge.
126
The industry expects stability on employment with slightly reduction. An increase on company level is only
occurring because of mergers and acquisitions, there is no organic growth and fierce international competition within the defence sector. The next 18 months are told to be important to assess the impact of the
European crisis on the sector.
Getting specific qualifications through internal careers paths
The search for added-value products forces companies to train their employees in order to reach a higher
level of internal quality. The recruitment for technical staff is orientated regional and the companies are
trying to be attractive in order to attach university students to the defence market. The sector produces
and strengthens its competences mostly internally. In France all companies have to give 0.4% of salary cost
into a regional training fund. The employee can ask for further training and can not be send away because of lack of financial resources.
Nexter increased the number of apprenticeships by 45% in two years and this trend will continue. The land
armament sector is not considered to be attractive for French students. The staff is composed of engineers
and also a lot of apprenticeship for electricians in order to catch the necessary talents that are marked by
the sector. These persons evolve to defence specialist and cannot be compared to civilian engineers.
They have to handle very dangerous products and often in very dangerous environments like Afghanistan.
The LAS is also a very male dominated sector, for example in 2011, only 18% of the staff within the Nexter
group was female. In order to engage more woman, the working group “Next’Elles” was created.
Since 2005, the French law forces French companies with over 300 employees to anticipate skill gaps
through an internal agreement called “Gestion Prévisionnelle de l’Emploi et des Compétences” (GPEC).
So far over 200 agreements have been signed. In general, the management of an LAS company has to
plan the transition of generations with the company and communicate with employee representatives
about their objectives and tools.
Nexter, for example, agreed in its GPEC agreement to increase the proportion of employees over 55 years.
The company will increase at constant rate the percentage of workers over 55 years, so that this part of
the workforce will reach 28% in 2012, 32% in 2013 and 33% in 2014. This will made possible through a number of instruments such as halt-time work. Furthermore 5% of Nexter’s traineeships will be allocated to unemployed seniors. However French companies consider that the demographic change is less manifest
than in Germany.
B.1.3.
Qualitative characterisation and perspectives of the national LAS
Strength of the national LAS

Complexity of some systems (operational networks, fire control, guns ...) which restricts
the entry of new entrants

Multiple niches and submarkets

Active market opportunity for old equipment, accompanied by a modernization of systems.

The strong involvement of the French state can be recognized as a strength of the national LAS, but it might be a weakness in the long term, because the French players might
not be available for European cooperation projects, especially with and for the German
industry.
127
Opportunities

Governments are now placing orders in the form of major long term contracts (FRES
SCORPION) to structure the market. There are increasing needs in terms of troop protection through Light Armoured Vehicles.

The development of a "smart" battle dress for infantry, the C4ISR99 programs

The need of new protections against current threats by asymetric warfare. Renewal
phase of the equipment, focused on material more easily deployable => light armoured
multi-role
Weaknesses and risks

There is little interaction with civil markets 'equivalent', compounding the cost of developing (low-duality).

The development of new products takes a long time and is sometimes at odds with the
needs of military operations.

The global competition is strong and opportunities on export markets are limited due to
similar strategies driven by other LAS producers
Stronger cooperation between Rheinmetall and KMW and between Thales and Nexter would increase the
competition on French and German export markets (which is already the case in the naval sector). It
could also be a prerequisite for a European consolidation. This is not very likely given the political context
and in the absence of new cooperative programs (all major land armament programs are launched).
Such kind of European consolidation process could also have painful social consequences because of the
many duplicates of activities within Member States. The Franco-German rapprochement could precipitate
the consolidation of European platformists which are currently rather isolated
Ammunition:
A dilemma arises for European countries, they have to chose between the will to guarantee the security of
supply (this means sufficient quantity and quality for military operations, especially on small calibers) and
the increasing interest to buy at lower cost on the international market.
Over time, the reinternalisation of ammunition production will become an issue (similar to the case of the
UK companies MOD / BAE). In France, the ministerial position on the unexpected relaunch of the domestic
manufacturer of cartridges Famas has been quietly adjourned.
Some companies (including Patria and Nexter) have proven activities and skills in "ammunition". A scenario
of convergence around this activity is theoretically possible but very unlikely in the short term. The same
dilemma persists for pyrotechnic activities; they are strategic but not very profitable (case of SNPE / Eurenco).
The French state remains decisive for the cooperation with German companies. The State-ownership of
the big French players excludes French-German cooperation, because German managers are told not to
be open to have state owned shareholders in their company.
99 Aviations' Avionics & Command, Control, Computers, Communications, Intelligence, Surveillance and Reconnaissance.
128
Mostly likely solution to remain competitive: further French-French consolidation
Meaning a closer cooperation between French players, around Renault Trucks with the dismantling of
Nexter. In this case, it seems likely that a closer cooperation only concerns single systems. Such scenario
requires that the current shareholder, Volvo, has a medium term strategy for its subsidiary. There is a high
uncertainty in this case, for the fate of the ammunition production and other activities. Such an operation
would precipitate a consolidation involving Panhard (totally marginalized in this case) in France and
probably a company from Germany. This scenario does not exclude a subsequent stake of Thales in the
pair RTD-Nexter systems. A closer cooperation between EADS and Renault is a less advantageous solution
in terms of size, but it could be also conceivable.
In the case of a French–German cooperation (EADS / RTD / KMW for example), this scenario could be a
response to the formation of the "champion" Thales / Nexter – Rheinmetall.
A new Franco-German attempt implies a prior privatization of the French companies. This is a scenario
which is discussed within Nexter, but the German state and the shareholders of German groups (mainly
KMW and Rheinmetall) indicated that they would not accept an alliance with a company which is largely
owned by a State. This leads to two prerequisites, which highly depend on the French State: privatization of
Nexter, accompanied by a joint contract with its German partner. The social consequences of this FrenchGerman cooperation would probably be severe.
B.1.4.
a)
References
Bibliography

COUR DES COMPTES (2010) Communication à la Commission des finances, de
l’economie générale et du contrôle budgetaire de l’assemblée nationale
http://www.ccomptes.fr/fr/CC/documents/CCFP/58_2_59265_externalisation_ministere_
defense.pdf

CAUZIC, François; Hélène COLAS; Nathalie LERIDON; Sofiène LOURIMI; Elisabeth WAELBROECK-ROCHA (2009) A comprehensive analysis of emerging competences and skill
needs for optimal preparation and management of change in the EU defense industry,
BIPE.

MASSON, Hélène (2010) Industries de défense et soutien public à la R&D en Europe, n°7,
fondation pour la recherche stratégique

MINISTERE DE LA DÉFENSE (2008) Défense et Sécurité nationale - Le livre blanc, Odile Jacob/ documentation française, Paris.

SELLIER, Dominique (2012) report Point de situation de l’industrie d’armement en Europe,
Secafi Paris.

SELLIER, Dominique; Marlène TOUZET; François SABRIÉ (2011) Point de situation de
l’armement terrestre.
Online articles by :

Le Figaro (www.lefigaro.fr/)

http://www.defense.gouv.fr/dga/international2/exportations/un-dispositif-de-soutien-auservice-de-l-export
Further on :
129

http://www.senat.fr/rap/r11-207/r11-207_mono.html

http://clesdusocial.com/france/fr03-emploi/accord-entreprise-relatif-emploi-des-seniorschez-nexter.htm

http://www.usinenouvelle.com/article/la-france-a-vendu-5-12-milliards-d-euros-darmement-en-2010.N161629

http://www.ixarm.com/-Opportunites-et-aides-a-l-export-

http://www.number10.gov.uk/news/uk%E2%80%93france-summit-2010-declaration-ondefense-and-security-co-operation/
b)
List of Interviews
•
Frederic Bouty
NEXTER - Vice President Strategy
Strategy Department Nexter Systems
13, route de la Minière – 78034 Versailles, France
Tel.: +33 1 30 97 35 35
[email protected]
•
Jean-Albert Epitalon
Managing director international markets
GICAT (Groupement des Industries de l’Armement Terrestre)
3, Avenue Hoche, 75008 Paris France
[email protected]
•
Eric Brune
CGT - Employee representative NEXTER GROUP, formerly GIAT Industries
CGT 263, rue de Paris, 93 516, Montreuil cedex
Tel. : +33 6 15 26 69 32
•
Sylvain Delaitre
CGT -THALES Employee representative for the defense sector
Thales Reseach and Technology France
Optics and Optronics Department
45 rue de Villiers, 92200 - Neuilly-sur-Seine, France
Tel. :+ 33 6 07 13 04 68
E-mail: [email protected]
•
Luc Scappini
CFDT - Employee representative for the defense sector
2-8, rue Gaston Rébuffat - 75019 PARIS
Tel : +33 15 64 15 680
[email protected]
•
André Golliard
CFDT (FEAE) :NEXTER Employee representative
Tel : +33 4 77 44 70 81 or +33 6 80 30 45 88
[email protected]
•
Dominique Sellier
SECAFI - expert aerospace and defense sector
SECAFI - BP 72081 31019 Toulouse cedex2
Tel:+33607624703
130
c)
Other relevant information that partners may want to include
Insys
ANGLETERRE
Euroshelters
50%
Rolls-Royce
FRANCE
Auverland
Volvo
Vickers
100%
Alvis
BAE Systems
100%
Panhard
50%
R.O.
CTA Inc.
Renault trucks
100%
Nexter
50%
NBC-Sys
100%
Sagem
SNPE
Optsys
ex-STN
(terre)
Rheinmetall
100%
TDA
EADS
Thales
GIWS
Etat
Norvège
Diehl
26.8%
50%
50%
Wegmann&Co
B&V
(terre)
51%
Nammo
Patria Hagglunds Oy
50%
Krauss-Maffei W
100%
Demag Krauss-Maffei
49%
100%
Raufoss tech.
Siemens
PAYS
SCANDINAVES
Patria Industrie
50%
Hagglunds Vehicle
50%
HB Utveckling
50%
15%
Saab
ALLEMAGNE
Bofors Defense AB
35%
100%
Oerlikon Contraves
United Defense
RUAG
Mowag
100%
General Dynamics
Oerlikon Bührle
SUISSE
100%
Pays-Bas
Autriche
Belgique
25%
DAF Trucks
Finmeccanica
100%
FN Herstal
Alenia Difesa
Otomelara
100%
Steyr-Daimler
RDM
Otobreda
100%
Espagne - Portugal
Fiat
100%
Iveco
Spel
Santa Barbara
Indep
ITALIE
131
Boulevard du Roi Albert II, 5, office 332
B-1210 Brussels
Tel: +32(0)22016571
Fax: +32(0)2.217.59.63
132
B.2. GERMANY
B.2.1.
a)
Mapping of the National Land Armament Sector (LAS)
In 2010 the estimated German defence industry turnover amounts to 16 bn. € (equal to around 0.7% of the
GDP)100. Currently there are 80,000 employees in this branch (0.2% of total employees in Germany). The
German Association of the Defence and Security Industry (BDSV) estimates in October 2012 that more
than 200.000 workers (in total - including companies of the supply chain) are employed in this branch and
producing a turnover of around 22 bn. €. The average share on R&D covers 19%, in comparison to this
figure the average of the industry spend 2% of their turnover on it101. About 65% of the employees are
working for SMEs, where these SMEs have a share of sales about 50% of the total turnover in this branch.
According to the PWC database, 86 German companies have core activities in this sector. A quarter and
up to a third of the companies and employees of the German defence industry are told to be working in
the branch of land defence technologies (IG Metall 2009 and interviewee). There exists no official statistics
on that branch in Germany. A lot of companies which provides land armament equipments offer civilian
products as well. Küchle 2007 gives an estimation that 7.000 employees are working for the leading system
manufacturers and 13.000 for the large suppliers. Apart from these figures, approximately 2,500 companies
are involved in building armoured vehicles as part of the supply chain (Küchle 2007). The Leopard II tank
on its own combines the efforts of approximately 1,500 companies.
356
216
A
23
55
18
27
RO
E
69
30
ay
Ru
ss
ia
n
Sp
ai
n
Sw
ed
en
Uk
ra
in
e
Uk
ra
in
e
71
18
ly
30
or
w
17
Ita
27
129
86
us
tri
a
Be
lg
iu
m
Bu
lg
ar
C
ia
ze
ch
Re
p.
Fr
an
ce
G
er
m
an
y
Hu
ng
ar
y
400
350
300
250
200
150
100
50
0
Companies with core activities on the defence market
N
Graph B.3
Amount
Source: PWC 2010: Challenges for the German defence industry.
The employment in land armament technologies (production of tanks, armoured vehicles, Ammunition
etc.) has decreased rapidly after the end of the cold war. In the past (1985) around 50.000 employees
worked for the German system manufacturers, this figure decreased to 44.000 in 1990 and declined to
15.000 in 1997. As mentioned before the experts estimate that today approximately 7.000 employees are
working for the leading system manufacturers.
The German army technology companies can be divided into different categories:

System manufacturer – the main providers are Kraus-Maffei Wegmann and Rheinmetall
AG.
100
BDSV 2010: Sicherheit made in Germany. Berlin
101
“Parlamentarischer Abend” of the BDSV on the 18th of October 2012
133

Supplier and component manufacturers – among them, there are Diehl Defence GmbH,
ESW GmbH, MTU GmbH, Renk AG, Zahnradfabrik Friedrichshafen AG, ThyssenKrupp AG
(with B+V Industrietechnik) and others.

Weapons and ammunition industry – Rheinmetall Waffe Munition GmbH, Diehl BGT Defence GmbH & Co. KG, Junghans Microtec GmbH, Heckler & Koch GmbH, MBDA
Deutschland GmbH.

Protection systems and support vehicles – IABG mbH, TADANO FAUN GmbH, Iveco
Magirus AG, Kärcher Futuretech GmbH among others.
The German manufacturers in the land armament sector (LAS) have developed an accredited technical
expertise over the years. This is reflected in systems like the main battle tank Leopard or the armoured
transport vehicle Fuchs that are on high demand in export markets.102 Armoured and modular vehicles
from Germany are worldwide recognized as the technically most developed systems in their class. Concerning the requirements for “Protection in Action” the German manufacturers are also ahead of the
competition game.103 On the one hand, these factors lead to success in export markets but on the other
hand this success leads to a strong dependence on external markets (share of 70%)104.
The Budget and Procurement framework gets tighter
The Bundeswehr and the defence industry mourn for years about the scarce resources of the national
procurement budget. The current decisions make these concerns even more acute. Until 2014 the Ministry
of Defence is supposed to save about 8.4 bn. €. Besides the reduction of personnel, the proposed plans
include large potential savings and changes in the procurement of the Bundeswehr. Just to give some
information, the increase of the procurement budget from 5.49 bn. € to 6.51 bn. € in 2014, mentioned in
the Bundeswehrplan 2010, is not feasible. Instead there will be significant reductions. Due to that the prospective German procurement programs will probably no longer be focused only on national manufactures. As mentioned in different strategic governmental papers105 and also in a statement given by the
German minister of defence - Thomas de Maizière on Mai 27th 2012 - the procurement strategy will include
the possibility to purchase products from foreign manufacturers. The pre-conditions are that these systems
are of high quality, available on the market within a short time period and are less expensive than German
products (Strategy: Best-Value-for-Money).
Table B.2.
Distribution of expenditure Bundeswehr
In bn. €
Supply
Personnel
Material maintenance
Other operation
Sum operation
Operator contracts c
Research, development, test
Military procurements
Military facilities
Other investments
Sum investments
Investment rate
Sum spending
2010
4.51
11.98
2.30
3.72
22.51
1.68
1.21
5.49
0.95
0.16
7.81
28%
32
2011
4.60a
11.97a
2.25
3.74
22.56
1.75
1.11
5.66
0.97
0.16
7.89
29%
32,2
2012
4.65a
11.88a
2.26
3.78
22.56
1.84
1.08
5.99
0.97
0.16
8.20
29%
32,6
2013
4.70a
11.89a
2.26
3.81
22.66
1.91
1.01
6.28
0.97
0.16
8.42
30%
33
2014
4.75a
11.90a
2.29
3.83
22.76
1.91
1.08
6.51
0.97
0.16
8.72
30%
33,4
Source: BMVG 2010
RP-Online 2011: Warum Militärs den „Leo“ lieben von Gregor Mayntz – last update: 12.07.2011 – 15:31
A Canadian Leopard II tank crew survived a heavy explosion in Afghanistan without casualties. This was reported
recently in the German press
104 BDSV and confirmed by interviewees
105 Weißbuch (2006), p. 79-83; Verteidigungspolitische Richtlinien (2011)
102
103
134
In September 2012 the Federal Government announced to increase the budget for the Ministry of Defence in 2013 up to a total amount of 33,3 bn € taking into account rising salaries and being able to spend
money for 5.000 voluntary conscripts. 0.93 bn. € will be spend on R&D. But in the medium-term the budget
will decrease106 - in particular due to the reduction of staff within the armed forces- over approximately
33.0 bn. € in 2014 to around 32.5 bn € in 2015 and 2016
Expectations and strategies of the company management
Significant lower personnel strength, less units and the purchase of commercially available foreign products107 may result in lower employment volumes and e.g. less maintenance and modernisation contracts
with negative consequences for local economies and employment. All the large-scale projects (armoured
personnel carrier Puma, Boxer) are in the testing phase or about to be delivered. Based on current information, there are – on the short-term – no large-scale projects in the planning (e.g. no substitute for the
battle tank Leopard II, but constant upgrades). This point can indicate a long term under-utilization of the
industrial capacities that will first affect R&D activities and then production capacities. Consequently the
volume of new acquisitions on domestic markets will decrease compared to the last years.
The management of the main German companies in the defence industry react differently to these new
challenges. The strategies vary from increasing cooperation level with companies from other countries
(e.g. from the U.S.A., see next chapter) or to a decrease of armaments capacity. Even a diversification of
products towards non-military sectors (but with focus on homeland security)108 or new forms of cooperation and joint ventures are possible. Increased effort to be successful in export markets outside the established alliance systems is a strategy but can be seen critically by the public opinion.109 And those efforts on
export markets are restricted due to legal boundaries in Germany (Exportrichtlinien, Kriegswaffenkontrollgesetz) and a decision taking committee of the Federal Parliament (Bundessicherheitsrat).
Some companies like the manufacturer of optical systems “Carl Zeiss” separate their whole activities on
the defence sector110. After a profit collapse on their defence and security branches, these activities were
offered to investors and acquired in July 2012 by Cassidian and operates now as Cassidian Optronics
•
Jeopardizing jobs
The announced savings on the defence budget till 2016 and the framework of structural reforms of the
Bundeswehr – may threaten thousand of jobs in the German defence industry111. These numbers have to
be recognized as rough estimation. No precise assessments on the employment perspectives on the LAS
were given by the interviewed experts. Actually the trade union IG Metall announced to start a survey in
order to collect deeper information and estimations regarding the perspectives of this branch.112
106
107
BMVG: Bundestag berät über Verteidigungshaushalt (Einzelplan 14), Berlin 13.09.2012
Like the Eagle IV of General Dynamics European Land Systems
108 Rheinmetall Defence developed a synthetic fog production system to hide naval ships which one can be
used for terrestrial infrastructures when they are threat by terror alerts.
109 There are critical discussions in Germany if to deliver more than 600 Leopard II tanks to Saudi-Arabia
http://www.zeit.de/politik/ausland/2011-12/leopard-panzer-saudi-arabien
The business's products include night vision binoculars, military laser pointers and satellite optics and has around 160
million Euros in sales
http://www.ftd.de/unternehmen/industrie/:ausstiegsplaene-carl-zeiss-verkauft-militaeroptik/70056389.html
110
111
Said by Bernhard Stiegel (IG Metall) on 30.11.2011
http://www.igmetall-cassidian.de/Newsansicht.162+M550e44f9455.0.html
112
Positionspapier der IG Metall zur Wehr- und Sicherheitsindustrie. July 2012
135
•
Impact of the financial crisis
The financial crisis had no short term impacts on the defence procurement producers, defence divisions
stabilized during the crisis. In 2008 Rheinmetall AG has achieved a total turnover of 4 bn. €. The defence
division of Rheinmetall with around 7,200 employees has achieved an annual turnover of 1.8 bn. €. These
earnings stabilized the result of Rheinmetall AG after the market break down in the automotive sector due
the financial crisis (Rheinmetall). In the medium term financial bottlenecks in public budgets will not lead to
an increase in procurement budgets in Europe. Therefore the necessity of efficient and unified procurement and cost savings will grow.
•
Changes in demand by new requirements
The military requirements change based on the strategy to develop an “Army of the Future”. In fact, the
focus changes from strategic land warfare scenarios with “battles” between armoured land forces to
agile, intelligent, light armoured troops in different conflict areas around the globe. This prospective mission
profile will change the demand in army technology in the medium term (IG Metall 2009: 13-14 and BMVG
2012).
Since the eighties the German army technology industry has produced over 15,000 armoured vehicles,
with a remarkable export rate. A big chunk of the cake has been exported to NATO Member States and a
smaller part has been delivered – based on export licenses – to third countries. Added to the pure production value, future deals on maintenance and support guarantee a steady turn-over. In the light of a potentially policy-driven Europeanization of the branch113 and delimited national procurement budget of the
Bundeswehr, the companies will probably act in Europe and on international markets to maintain their
position. This can be displayed on the two German system manufacturers Rheinmetall and KMW.
b)
Four major companies (Rheinmetall, KMW, MTU, Diehl) are all 100% in national (but not state) ownership.
They are either family owned or organized as holdings. For the moment, there is no sign that foreign investors try to acquire German companies. However, some German and European companies with German
cooperation took over non-European companies in the last few years. Rheinmetall absorbed some smaller
ammunition factories in South Africa. Another way of investment is the selling of product licences to other
countries, so they are able to build the product on their own (manufacturing in licence). Especially
Rheinmetall and KMW are, as system producers, national champions which cooperate in a lot of projects
(armoured carrier Puma, patrol vehicle AMPV, etc.).
The national consolidation in the area of weapon and ammunition has progressed. During 1990, there
were still many German provider with approximately 16,000 employees, this industry is now focused on
Diehl, Rheinmetall, MBDA, Heckler & Koch and Bayern-Chemie, as daughter of MBDA who sold their activities on explosives to ROXEL, which together have less than 6,000 employees.
There are some specific geographical areas where LAS and other defence production plants in Germany
are concentrated: Hessen (KMW, Rheinmetall), Northern Germany (Atlas Elektronik, Rheinmetall Defence,)
and South/South-West of Germany (Diehl, MTU, Renk, KMW). In any case, most of the company headquarters and production sites are located in West- and South-Germany.
113 Considering the political declarations on a Common Foreign and Security Policy (CFSP), on the European Security and
Defence Policy (ESDP) and the political rhetoric on joint European projects in defence procurement, a neutral observer
might gain the impression that the Europeanization of the LAS Industry is a plausible option. Furthermore, in the light of
limited national budgets on the one hand and the demand for armies` modernisation on the other, there is theoretically
a strong in-built trend towards further Europeanization in the LAS sector, mirroring that already partly experienced in other
defence industry sectors such as aircraft, missiles, helicopters and electronics. The rationale behind such a process could
be identified in its political relevance and its economic logic. In addition, as mentioned above, the sequencing of procurement orders, the partly conflicting mission requirements of weapon platforms and the incompatible ownership structure of companies represent major barriers to a “European scenario”. Nevertheless, changes in the political or industrial
environment could facilitate a process of Europeanisation. decision-making.
136
Rheinmetall (http://www.rheinmetall-defence.com/index.php?lang=3)
Rheinmetall AG, based in Dusseldorf, is an automotive supplier and a defence technology producer with
worldwide 21,516 employees in 2011. In the last years Rheinmetall accomplished a number of strategic
positions in the market. The “Clear Line Strategy” – agreed in 2000 – demands a concentration on the
core competences of defence technology and automotives.
Based on this agenda, civilian parts of the company were sold and other military provider acquired. In the
meanwhile, the former majority holder on Rheinmetall the Röchling Industrieverwaltung GmbH sold their
shares in 2004. The stock options were bought by about 75 institutional investors.
In 2011 Rheinmetall AG has achieved a total turnover of 4.45 bn. €. The defence division of Rheinmetall
with around 9,200 employees has achieved an annual turnover of 2.1 bn. €. These earnings stabilized the
result of Rheinmetall AG after the market break in the automobile branch due the financial crisis.
Some products of the Rheinmetall are the Wisent, the Yak and the Fuchs in different types. A special feature of the German land armament sector is that competing companies work together to develop different weapon systems and platforms. For the development of the armoured vehicle Puma for the
Bundeswehr, Rheinmetall Landsysteme and Krauss-Maffei Wegmann founded the joint venture PSM
GmbH. Both of them hold 50% of the shares. This type of cooperation is not new as the Panzerhaubitze
2000, the Boxer and the AMPV are based on similar cooperation models. Diehl BGT Defence GmbH & Co.
KG, RAFAEL Ltd. (Israel) and Rheinmetall Defence Electronics operate the joint venture EuroSpike GmbH
which is the prime contractor for the EuroSpike missile family. Rheinmetall Landsysteme became copartner of the new founded Heeresinstandsetzungslogistik GmbH (HIL) in 2005. For eight years this company is responsible for the maintenance of selected vehicles and weapon systems and provides employees in operation areas till February 2013. The Ministry of Defence will probably not sign a new contract and
announced to operate the businnes of HIL in future on its own114. New EU procurement directives and the
initiation of a divesture process are the main arguments.
The operating figures of Rheinmetall’s defence division in the last two years indicate a positive and solid
result with a profit-turnover ratio before taxes and investment costs of 9.1% alternatively 10.7%. This implies
that there is no pressure on side of Rheinmetall to work on a European solution unless Rheinmetall is an
equal partner. Under these circumstances a special problem is that possible partners and competitors are
state-owned or they already have formed bigger units like the BAE in Great-Britain.
Today the major customer Bundeswehr is responsible for 30% of the turnover of Rheinmetall. The announced IPO of the automotive division of Rheinmetall AG, (the KPSG AG) which was officially postponed
(cancelled?) in September 2012 arguing on of the current Euro crisis implies that the company will be seen
as more as a defence procurement company and not only as a diversified group (focusing on this core
activity to strengthen the external perception as one leader on the international defence markets). At the
end of August 2012 Rheinmetall AG has announced to restructure its activities on Rheinmetall Landsysteme
within a “Three Plants Concepts” and to concentre its activities in Unterlüß (near to a military training
ground). The three plants Kiel, Kassel and Gersthofen will be probably affected by this decision and may
loose more than hundred of jobs115.
Krauss-Maffei Wegmann (http://www.kmweg.de/de/)
Krauss-Maffei Wegmann (KMW) is the other very important German provider for armoured wheeled and
tracked vehicle in Europe. Around 3,200 employees develop and build combat vehicles in Munich and
Kassel for international consumers in over 30 countries.
Source: Tagesschau 15th of August 2012
Source Handelsblatt 28th of August. http://www.handelsblatt.com/unternehmen/industrie/laut-ig-metall-rheinmetallwill-hunderte-jobs-streichen/7064634.html
114
115
137
Products of KMW are the Leopard II, the new armoured transport vehicle Puma, but also vehicles like the
Dingo, Mungo, GTK Boxer and artillery systems like MARS and the Panzerhaubitze 2000. In a consortium
KMW is an assigned maintenance partner and spare parts producer for the armoured weapon systems of
the German ARV Büffel and the mine thrower Skorpion. KMW was founded in 1999 via an amalgamation
of the defence activities of the Krauss-Maffei company (locomotive, plastics technology) located in Munich, a subsidiary company of Mannesmann AG, and Wegmann & Co. located in Kassel, which the majority was in possession of the family Bode. Siemens finally sold 49% of the shares in 2010 to the WegmannGroup.
A possible merger of Rheinmetall and KMW was cancelled because of the agreement between Siemens
and Wegmann. The sale of shares from Siemens to Rheinmetall could not be realized because Wegmann
intervened via their purchase option and veto right. According to reports the purchasing price was around
400 Million € and KMW now has a complete family-owned business structure.
The turnover ascended from 2007 (1.25 bn. €) till 2008 (1.4 bn. €) but in 2009 the turnover declined (1.2 bn.
€). At the same time the profit increased from 109 million € (2008) to 158 million € (2009). However in 2010
KMW has suffered the greatest decline in sales in the history of the company. The revenue has fallen by a
quarter to 0.9 bn. €. According to a company spokesman and the German newspaper “Handelsblatt” the
cause of this decline is a major contract with Greece for Leopard II tanks that is phasing-out in combination with a difficult market environment after the financial crisis116. As a consequence, KMW downsized the
number of employees over the last three years by around 10 to 15%. All concerned employees were sent
into early retirement or normal pension. There were no enforced redundancies117.
KMW tries to expand through smaller national takeovers in the defence sector. KMW and Rheinmetall are
both involved in the current largest project of the European land armament sector. The German
Bundestag gave the green light for the purchase of 405 IFV Puma amounting to 1.5 bn €, which KMW and
Rheinmetall jointly produce. Aside the purchase of 200 Boxer by the Dutch armed forces, there are increased efforts for cooperation in emerging defence markets, for example India. New subsidiary companies were founded in Brazil and Turkey. According to those new markets the company expects a perpetuation of the current turnover and growth levels.
Diehl Defence (http://www.diehl.com/de/diehl-defence.html)
By the aggregation of all defence sector activities of the Diehl-Group, Diehl Defence was founded in 2007.
The company is divided into two subdivisions: On the one hand, Diehl BGT Defence GmbH & Co. KG concentrates on ammunition, sensors and guided missiles. Meanwhile, Diehl Defence Land Systems GmbH
concentrates on maintenance and modernization of military vehicles. Furthermore there are participations
in AIM Infrarot-Module, Diehl & Eagle Picher, Junghans microtec, Diehl Iberia Sistemas, S.A., Diehl Raytheon
Missile Systeme GmbH (RAMSyS). The company is headquartered in Überlingen (Baden-Württemberg).
Overall, the company has 27 sites in 8 countries. During the last few years the company focused on a
strategy of internalisation. Therefore representations were founded in Bangkok (Thailand), Ankara (Turkey),
Abu Dhabi (United Arabian Emirates) and New Delhi (India). In addition, Diehl Defence takes part in defence technology fairs in Chile, Qatar and India. In 2010 Diehl Defence had 3,097 employees and a turnover of 729 million €. This represents 27% of the total turnover of the Diehl-Group (in 2010: 2,725.1 million €)
and about 23% of the total employees.
Since 2004 Diehl BGT Defence GmbH cooperates with the US-company General Atomics Aeronautical
Systems to develop and produce unmanned aerial vehicles. Additional partner in this cooperation is
Rheinmetall. Together they will provide the model “Predator”. Furthermore Diehl cooperates with Atlas
Elektronik, Alliant Techsystems, Alenia Marconi Systems, Avio and many others.
116
http://www.handelsblatt.com/unternehmen/industrie/ruestungsindustrie-im-europaeischen-ausland-geht-fast-nichtsmehr/6202548-3.html
117
Interviewee
138
In the last two years Diehl BGT Defence GmbH & Co. KG scored two big deals. First the delivery of ammunition to British and Australian armed forces amounts to 120 Million € plus the delivery of special ammunition
to French armed forces. Second an order of the US Marine Corps has a volume of 1.7 Million $.
The company also participates in some EU research programs. In the case of the “Networked Multi-Robot
Systems”, the Diehl BGT Defence occurs as prime contractor. The EU research programs are not limited to
the military sector; a civilian part is for example the safety on airports. The company provides solution for
public authorities (e.g. police), but the core business remains the procurement of armed forces. To stabilize
the position in the defence market the company intends to deepen the cooperation with medium-sized
companies (i.e. innovative SME that produce sub-components such as screws, nuts, light metals, wheels,
plastic parts, electronic components, etc).
Cooperation in Germany
Especially Rheinmetall and KMW, the two German system integrators, are national champions which cooperate successful in a lot of projects (Schützenpanzer Puma, Patrouillenfahrzeug AMPV, etc.). The most
important project of cooperation is of course the MBT Leopard II. KMW is the general contractor and
Rheinmetall supplies very important components like the 120mm gun, MTU builds the engine. Currently
Rheinmetall tries to strengthen its position in this cooperation. So they develop packages such as modifications and upgrades for the Leopard II tank on their own and offer it to clients on the export markets while
the Bundeswehr uses the modernisation packages from KMW. This leads to some misunderstandings between both companies even if there exist a long lasting trend of cooperation on single procurement projects. In this way the partners are able to use the expertise of each other and they avoid pressure of competition. According to their point of view, the industry has no wish to form only one big national champion
from the major companies. According to them most of the European competitors are national champions
and often subsidized or state-owned. A German “national champion” would be the number four under
the biggest European defence company. One single German champion would not have a stronger position in terms of market share, technology and competition than nowadays due to the fact that a close
cooperation already exists.
European Perspective
Within a European scenario model, two variants might be discussed: a Franco-German solution (Nexter
and Rheinmetall/KMW) and an extended European solution of the consolidation (with the involvement of
BAE Land Systems, Nexters and the two German companies).
But both German system providers are not in an acute economic distress and probably they will accept
new path of cooperation only if they gain a leading role inside such a European scenario. The German
part evaluates the governmental participation in Nexter as negative (IG METALL 2009: 12). Furthermore no
European political initiatives or large joint projects that could push towards a European industrial champion
are expected by the representatives of the industry.
Collaborative development of tanks or future vehicles and joint-ventures are, according to experts118, not
useful for the German side. This is caused by the leading role of German companies in some areas. They
fear that their know-how could be drained by “cooperating partners”. In addition, companies in other
European countries have to deal with overcapacities, especially in the market of infantry combat vehicles.
According to our interviews, German companies don’t have to fear similar problems at the moment due
to their leading role inside the German and European market and their success in foreign markets.
With regard to the production costs of land vehicles and tanks, they are not comparable to the complex
programs for combat aircrafts or satellites. In this area Germany proves only sub-competencies and the
118
Küchle 2007 and confirmed within our interviews
139
high level of costs forces all partners to joint projects. According to representatives from the industry, development and production of land vehicles will remain in the hand of the national system integrators. One
reason is the complicated, expensive and time-consuming collaborative development of new products
(due to different needs of armies and different time frames to replace e.g. older vehicles).
A current example for a more transatlantic than European approach can be seen in the cooperation
between Rheinmetall and General Dynamics Ordnance and Tactical Systems (GD-OTS), a business unit of
General Dynamics which bundles efforts in the area of tank ammunition. The so called “Defense Munitions
International (DMI)” is located in the US and develops and sells 120-mm-kinetic-energy and multi-purpose
ammunition. By aggregating their activities into DMI both Rheinmetall and GD-OTS intend to improve their
international market access, achieve synergies in production and realise joint developments.
The IG Metall expects a stronger Europeanization for the mid-term future. Further cooperation on European
level will probably be based on financial aspects and not due to political willingness under a short-term of
view. Europe is still facing a big financial crisis and the defence budgets of European states are not turning
upward in the next years. Despite all political and military avowals, no real projects for using the same
military products or structures (logistic, ammunition, vehicles) are foreseen, because the requirements for
military equipment differ till today considerably across countries and armies. However, it is expected that
European military cooperation will grow and the interviewee from IG Metall identified a stronger approach
towards the Europeanization under a mid- and long-term perspective. May fiscal problems could be a first
driver. Because of the quite badly financial situation in most of the European countries, a consolidation of
military competence, skills and equipment is likely. This prospective situation is evaluated neutral with a
tendency towards a positive estimation given by the German manufactures we interviewed. The leading
role in technology and armoured vehicles provide German companies quite a good advantage. But
there is no question about, that within a consolidated European defence market the competition will be
grow.
c)
The LAS in Germany is very diversified. There are major companies for armoured vehicles and tanks
(Rheinmetall, KMW), infantry weapons (Heckler & Koch, Walther), engine technologies (MTU) and production of missiles and ammunition (Diehl). A lot of companies deliver as first tier supplier important components. (Renk AG – gear boxes, ESW-GmbH - stabilizing systems, ZF-Friedrichshafen - guidance systems). The
suppliers are active as well in civil as in military markets, the share on military products is up to 75% (like
ESW).
In the past most of the very well known Germany military products were produced in the vehicle sector
(like the Leopard I and II tank, which is used by many nations or the wheeled armoured vehicle “Fuchs” to
detect NBC fallout). Nowadays, the German LAS is more and more involved in high technology developments like electronic systems and also remains focused on the production of armoured vehicles. A clear
signal towards this trend is the joint venture of Rheinmetall and the truck producer MAN, called RMMV Rheinmetall MAN Military Vehicles119.
Service is also becoming more and more important for the German LAS. In February 2005 the Heeresinstandsetzungslogistik GmbH (HIL) was born to meet the requirements of maintenance of the Bundeswehr
The new company is an important provider of complete solutions in the market for military wheeled vehicles, covering
the entire range of armoured and unarmoured transport, command and role-specific vehicles for the international
armed forces. Rheinmetall has a stake of 51 percent and MAN 49 percent in the new company, which is headquartered
in Munich. When the integration and merger has been completed the company will have around 1,300 employees,
whose annual turnover will amount to more than a billion Euros. They probably will benefit both from the MAN Nutzfahrzeuge AG research facilities and Rheinmetall's comprehensive military knowledge. RMMV offers a range of military trucks
for all assignments, with exceptional lifecycle costs, performance – and most importantly – crew protection.
Sources:
http://www.handelsblatt.com/unternehmen/industrie/joint-venture-mit-man-rheinmetall-schmiedet-neuenruestungsriesen/3343720.html
http://www.rheinmetall-defence.com/index.php?fid=5305&lang=3
119
140
machines, at least for the following eight years. It is a collaboration between the federal government, that
holds 49% of the shares, and the HIL Industrieholding GmbH, that holds 51% of the shares. The HIL Industrieholding GmbH is in equal possession of Industriewerke Saar (IWS), a company of the group VA-System of
the Diehl Stiftung & Co. KG, Rheinmetall Landsysteme (RLS) and Krauss-Maffei Wegmann (KMW) (KÜCHLE
2007:18). As mentioned before, the Ministry of Defence will probably not sign a new contract due to
changing legal backgrounds and announced to operate the HIL on its own.
On the case of partly privatisation and outsourcing is mostly managed by trained soldiers of the
Bundeswehr. Nowadays Rheinmetall and KMW provide voluntary mechanics and technicians, who pursue
the maintenance of vehicles in areas of conflicts and wars like in Afghanistan or the Balkans.
Since 2002 another civilian service company adds to the operation of the armed forces, the BwFuhrParkService GmbH. This municipal company is hold by Deutsche Bahn (24.9%) and the Ministry of Defence
(75.1%). Everyday vehicles (also ones including military equipment), construction machinery and trucks are
rented as “leased vehicles” to the Bundeswehr. This improves cost control and the vehicles may be returned on an ideal cost-benefit point.
Typically prime contractors rely on many external suppliers. Especially those systems which consist of many
high-tech electronic devices and are built as modular stations. So from the perspective of the contractors,
there is a high request for special components from different civilian and military sectors. The increasing
importance of electronical and high technological devices forces the main companies either to form
connections to companies which are specialized in such products, or to establish own “In-House” departments, to fulfil the high security standards and to ensure a long term capability for producing those products. An example showing how important these new co-operations are can be identified by the new
company RMMV established by Rheinmetall and MAN.
“Dual-Use” is told to be not as important as it often is considered. Most of the companies got own divisions
e.g. for the automotive industry. The use of products in each of the other divisions seems logical. But just to
mention one example an interviewee explained, Rheinmetall can only use 10% of its automotive products
for its own defence division. Similarly there are no large “spin out” effects from defence technologies and
products to the civilian sector of the company. Most of the parts and technologies are not useful for civilian products. The military parts have to be treated very confidentially and are too expensive for the open
market.
d)
Markets
Export oriented providers such as KMW and Rheinmetall must consider how they can achieve a comparable technical and industrial competitive position vis-à-vis worldwide acting groups such as BAE and General Dynamics. Nowadays the export of defence technology plays an important role for the industry. The
turnover of both German system providers depends from 60% to 70% on their export. The suppliers also rely
on the export. This applies to whole systems, components and licenses (IG METALL 2009: 11). Land armament products from German manufactures are in service by armies all around the world, especially armoured vehicles and small arms. Leopard I and II are active in over 20 states.120 The Rheinmetall 120 mm
gun on the Leopard II is used by even more armies and those have different tanks than the Leopard II. A
lot of German armoured vehicles were sold into other countires 121, some of them are developed and built
with partners. Products like the armoured fighting vehicle Boxer, reconnaissance vehicle Fennek (both
Germany and Netherlands) or armoured personal carrier Fuchs (operated by up to six countries). Small
arms from Heckler & Koch are used or built in license in nearly all western countries and their allies.
120
121
e.g. Brasil, Chile, Denmark, Finland, Greece, Canada, Norway, Austria, Turkey, Singapur, Poland, Switzerland, Spain
Like the „Dingo“ in Belgium, Austria, Czech Republic or Luxemburg
141
Impact of new EU legislation (defence package)
The German industry expects that the “Defence Package” will not have a negative short-term impact on
their markets. Similar to arguments on P. 13 competition is expected to grow in Europe but due to the high
level and reliability of German LAS products negative consequence are not expected by the German
Industry.
e)
In 2010 German companies sold military electronic equipment in the value of 453,629,138 € (, technology
in the value of 218,808,009 € and military software in the value of 26,684,876 €. Source: BMWi 2011: 26). To
get further information about R&D activities of the single companies see chapter B.1.1.b).
B.2.2.
Employment
According to the interviews realized in spring 2012 the large companies within the German Land Armament Sector did not expect a further reduction of employment figures within the next years. Compared to
the budget cuts at the end of the Cold War and also compared to other NATO and EU countries, the cuts
nowadays were estimated as relatively limited and were told not have a strong negative effect in terms of
employment. Meanwhile (autumn 2012) the employees of Rheinmetall Defence are affected by the announced restructuring process (p.9). In the past the loss within the national market during the last period
could be compensated by companies´ approaches to increase sales on the export markets. Today the
business of Rheinmetall is divided into one-third inner-state production (German army), one-third for European exports and one-third for other countries (mainly USA). According to the interviews with representatives from the industry, it was estimated by them that it is important to establish new markets and to secure
the success on export markets otherwise a significant reduction of employment could become a threat in
a couple of years ahead again. But as mentioned before the efforts to export products and technologies
depend significantly on the political will in Germany. In Germany every export of defence products is subject to supervision by the political committee (Bundessicherheitsrat). If there is a non-democratic government or the possibility of human rights abuse in the importing country or region, it is likely that the political
committee will not approve the export.
Similar to the defence industry in other European countries, the entire German defence industry faces
considerable change in the coming years. This is mainly caused by two trends. First, the financial crisis of
the public authorities leads to cuts in the budget of the Bundeswehr. Mostly affected are the acquisition
and operation of LAS. Second, based on financial bottlenecks and a security policy reorientation, the
Bundeswehr has to face a transformation process. These structural reforms include a reduction of the staff
level of the Bundeswehr and the suspension of the compulsory military service. Export customers like the
Netherlands also restructure their armed forces and waive for example chain-driven battle tanks.
In order to face these developments, the LAS in Germany is struggling to keep technological core competences. Adjustments and changes threaten the level of employment and the level of qualification in the
long term.
Another important challenge could be identified within the research. For the next years the German industry is facing more and more labour shortages because of the demographic trend in Germany, the positive
economic situation in Germany (the internal competition to get and keep skilled worker inside the industry
will grow), success in exports and increasing cohorts of elderly people. Right at the moment the average
age in the industry is still on a lower (younger) level than other branches of the industry. E.g. KMW workers
are on average 42.5 years old. But things are expected to change within the next 15 years. The character
of jobs in the armament industry is becoming more high skilled and specialized. Since the last decade the
typical employee is very qualified and good trained. Beside the fact of labour shortage, the recruitment of
trained and skilled personnel is becoming a challenge because of the unstable situation in the internal
142
market connected with an uncertain order situation. KMW (in close cooperation with the skills and vocational training centre of the Bavarian Industry - BBW) developed in 2009 training courses for their employees to keep and strengthen skills and new competences.122 Young engineers and technicians are interested in jobs in the sector because of high specialized work, new technologies and good incomes. But if
they notice that a long-term engagement is doubtful, some of them realign their specialization. Due to this
fact many qualified workers like armour steel welders change into other high paid branches like the oil or
aerospace industry. Another concern is that companies are sending high qualified personal up to six
months into areas of war like Afghanistan, to secure service and maintenance. This kind of job requires a
lot of skills (as well specialized as broadly based to deal with a lot of different technical problems) and a
strong mental character as well. Coming back to Germany these service men often need psychological
support like soldiers do. If high risk operation fields like Afghanistan end and/or the system platform, on
which these people were working on, is going out of service, people might lose their jobs, for which they
sacrificed a lot. As a result, it will be nearly impossible to gain new employees for those kinds of jobs as one
interviewee estimates.
In the land armament industry temporary employment does not have a big value. At KMW around 10% of
the employees are under temporary employment schemes. Due to new labour rights and working contracts temporary employment is becoming much more expensive for companies than it was in the past
decade. Even in a situation of labour shortage, high level requirements and standards in the armament
industry make it nearly impossible to take over temporary employees into permanent contracts. It was said
that in some jobs, there will be ten self trained permanent workers and only one is able to achieve the
highest qualifications in his career.
B.2.3.
Qualitative characterisation and perspectives of the national LAS
The German land armament industry offers a wide range of system capabilities. It has a technological
leading role; particularly armoured vehicles like Leopard II, artillery systems and the 120-mm gun can be
mentioned. Despite poorer conditions compared to other countries, e.g. a more restrictive export and
offset policy in Germany, the national LAS industry still has efficiency advantages in comparison to enterprises from other countries.
A successful market penetration of Western and Middle Europe is a result of the strong system capabilities
and technological efforts by the German LAS industry. Based on traditions, extended over decades, the
market position in the field of land armament systems, in comparison to both the U.S.A. and European
competitors is excellent. American companies attempt to reduce the German advantage by designing
heavy battle tanks or artillery system through a huge increase in resources for research and development
(IG Metall 2006: 5).
German companies have to face a reduction of chain operated vehicles in the next 10 years. But not the
lack of prospective products and a decrease of companies´ turnover in this field is viewed as a problem
by the representatives of industry. A loss of knowledge and innovation capabilities is recognized as prospective danger. Geostrategic and geopolitical circumstances will not lead to new orders and R&D activities to develop new chain operated systems like MBT and heavy tank guns (like the 140mm gun as once
discussed for a prospective follow up tank of the Leopard II).
Some German companies are particularly affected by the process because research measurements are
largely founded by contracts. In fact Rheinmetall, although more than 20 % of their staff are engaged with
research and development, spends only 4% of its turnover for company financed research and technology activities. So some companies are not able to spend a higher share of their turnover on research because there is no guarantee for a return of this investment. According to that, research, development and
production are to a majority customer financed within a contract. A German expert we interviewed ex122
KMW Press Release 2009: “Geförderte Fortbildung in der Spritzgießtechnik“
143
pects that by 2017/2018 the lack of research could lead to a loss of knowledge. However KMW has its own
department for research and strategic analysis of prospective needs of the German Bundeswehr and
other customers. This department is financed by KMW itself. 25 to 30% of the total staff at KMW is involved in
development and research. This rate would only be around 10% if KMW would finance research and development only contract founded and not by own investments an interviewee informed us. The reason for
this can be seen in the traditional orientation and efforts as a family-owned company.
According to representatives of the German industry, it is in the interest of all companies to achieve a
stronger homogenization concerning the different national requirements of defence products. Global
missions which are taking place at the moment or expected in the future are more and more designed as
multinational military operations. Therefore the same military equipment (e.g.: armoured vehicles, weapons, rockets, IT-Systems) by participant states or allies would make missions easier and cheaper in terms of
procurement, logistic and maintenance. Furthermore the strategic and tactical requirements of the armed
forces differ from country to country. Even the branches within national armed forces are often not able to
unify their own requirements for a special product. For example there are more than ten different versions
of the NH-90 Helicopter for different national armies and their branches (e.g.: naval forces need another
version than air force or army branch do). But there are still a few examples for multinational cooperation
like the Airbus M400 or the Eurofighter (Typhoon) or as mentioned before (see P.15) products like Boxer or
Fennek. Between the NATO partners there is already a program for further teamwork in this field. It’s called
“NATO owned and operated” and consist of programs like the AWACS, Ground Surveillance or the future
National Missile Defence System. What is needed? A European military doctrine and a well functioning
political authority on European level, which is able to take measures on its own could be an important step
towards a European solution. This would be an important step to achieve an approach in terms of military
requirements and to develop joint projects and products.
B.2.4.
a)
References
Bibliography

BDSV 2010: Sicherheit made in Germany. Berlin

BMWi, Bundesministerium für Wirtschaft und Technologie (Hrsg.) (2011): Bericht der
Bundesregierung über ihre Exportpolitik für konventionelle Rüstungsgüter im Jahre 2010.
Rüstungsexportbericht 2010, München.

BMVG 2006: Weißbuch zur Sicherheitspolitik Deutschlands und zur Zukunft der
Bundeswehr. Berlin

BMVG 2011: Verteidigungspolitische Richtlinien. Berlin

BMVG 2012: Bewertung des neuen Ausrüstungs- und Nutzungsprozesses der Bundeswehr
durch das Gremium externer sachverständiger Rüstungsexperten. Berlin

BMVG 2012: Wehrwissenschaftliche Forschung. Jahresbericht 2011. Berlin

KÜCHLE, Hartmut (2007): Die deutsche Heeresindustrie in Europa. Perspektiven
internationaler Ko-operationen und industriepolitscher Handlungsbedarf. Edition der
Hans-Böckler- Stifung Nr. 200.

IG METALL (2006): Kasseler Erklärung zur Lage der heerestechnischen Industrie in
Deutschland des Arbeitskreises „Wehrtechnik und Arbeitsplätze in der IG Metall“,
Frankfurt am Main.

IG METALL (2009): Heerestechnik. Europäische Perspektiven der heerestechnischen
Industrie in Deutschland. Eine Bestandsaufnahme. Kurzreport 03/2009, Frankfurt am Main.

PWC PriceWaterhouseCoopers (2010) : Challenges for the German defence industry.
Development of the markets – strategies for the industry, Frankfurt a.M.
144

CALEPIN INTERNATIONAL, Ministère de la défense et des anciens combattants (Hrsg.)
(2012): Calepin international des principales entreprises travaillant pour la défense. Édition Mars 2012. Direction Générale de l’Armement.

EUROPÄISCHE STRATEGIE UND TECHNIK: Jahrgang 2012

STRATEGIE UND TECHNIK : Jahrgänge 2009-2011

WEHRTECHNIK (wt) : Jahrgänge 2010-2012
Online articles by :

Rheinische Post, (www.rp-Online.de)

Das Handelsblatt, (www.handelsblatt.com)

Die Zeit, (www.zeit.de)

Die Süddeutsche Zeitung (www.suedeutsche.de)

http://www.sipri.org/yearbook/2011/files/SIPRIYB11summaryDE.pdf

http://www.rusi.org/downloads/assets/201203_RDS_Heidenkamp.pdf

http://de.statista.com/statistik/daten/studie/152204/umfrage/entwicklung-derruestungsexporte-aus-deutschland-seit-dem-jahr-2000/

http://www.rheinmetall.de/de/media/editor_media/rheinmetallag/group/publications_1
/annualreports/2011_4/GB_2011_d.pdf

http://www.rheinmetall.de/de/media/editor_media/rheinmetallag/group/publications_1
/annualreports/2011_4/Presentation_2021-03-21_e.pdf
Further on :
b)
List of Interviews
•
Mr. Heinz Josef Kruse,
Rheinmetall Defence Rheinmetall AG
UB Defence Strategische Unternehmensentwicklung
Rheinmetall Platz 1
40476 Düsseldorf
Telefon: 0211-473 4150
•
Mr. Karsten Lepper
BDSV
Friedrichstraße 60
10117 Berlin
Tel.: 030-206189900
•
Mr. Ralf Bergschneider
Betriebsratsvorsitzender
Krauss-Maffei-Wegmann GmbH & Co. KG
Krauss-Maffei-Straße 11
80997 München
Tel.: 0089/8140-5599
•
Mr. Jürgen Bühl
IG Metall Vorstand | VB 06
Wilhelm-Leuschner-Str. 79
60329 Frankfurt am Main
Tel. 069-6693-2416
145
•
Mr. Werner Frank
Referatsleiter Angelegenheiten Rüstungswirtschaft, BMVG
Bundesministerium der Verteidigung
Abteilung Politik - Referatsleiter
Pol II 4 - Wirtschaft, Industrie, Markt, Export
Fontainengraben 150
53123 Bonn
Tel.: 0228 - 12 5855
c)
Other Relevant Information
146
Boulevard du Roi Albert II, 5, office 332
B-1210 Brussels
Tel: +32(0)22016571
Fax: +32(0)2.217.59.63
B.3. ITALY
B.3.1.
Mapping of the National Land Armament sector (LAS)
This section is interested in mapping the Land Armament Sector in Italy. Defining the sector is not easy, in
the first place because there is a lack of data, secondly because only few of the enterprises involved are
specialized just in Land Armament sector.
The main structure and production system involves two firms. The first one is OTOMELARA S.p.A. (Finmeccanica Group). Almost half of the production of OTOMELARA S.p.A. is linked to the Land Armament Sector.
The second enterprise involved is IVECO Defence Vehicles S.p.A. (IVECO Group, branch of the multinational Group Fiat industrial S.p.A.), which also manufactures special vehicles. Although these two enterprises have separate activities, together they cofounded CIO (Consorzio Iveco Otomelara), which produces most of the tracked vehicles manufactured in Italy.
The production of land armament involves other enterprises and sectors (such as mechanic, electronic,
textile, gum and chemical industries), although it is not easy to identify which part of the production of
these industries is directly involved in Land Armament Sector. According to the identification of ELDIG (the
European Land Defence Industry Group), we identified some other companies which are not only producers, but also suppliers (for more details see also annex 3, elements provided by the interviewed expert
Dr Alioti):

Armoured Vehicles – Otomelara, Iveco Defence Vehicles, ARIS, CMD, Curti, INIS

Soldier Systems (related to portable electronic equipment) - SELEX Sistemi Integrati (Finmeccanica Group), LARIMART, TELEGI

Sensors for C4I (Command, Control, Communication, Computers and Intelligence) – SELEX Galileo (Finmeccanica Group) as far as optical sensors fare concerned, ELETTRONICA, INIS

Weapons and ammunition – Otomelara (mainly artillery), Beretta (mainly small arms and
ammunition), ARIS, Curti, EUROCONTROL, INIS, TELEGI

Protection equipment and systems – Otomelara, Aerosekur (all military protection systems), ARIS, Curti, ETEM

C4I equipment and systems - SELEX Sistemi Integrati (Finmeccanica Group), ELETTRONICA, EUROCONTROL, LARIMART
147

Logistic and support equipment and services – SELEX Elsag (Finmeccanica Group), ARIS,
ETEM, OMP Engineering, TELEGI
Another enterprise which produces radars and land based sensors (anti-aircraft defence) is Rheinmetall
Italia (branch of the German Rheinmetall Defence).
a)
For the Italian Land Armament Sector, there is a lack of study on the specific sector. Most of the analysed
studies are on aerospace and naval industry. There are no field data on Land Armament Sector.
The importance of the defence industry in Italy is showed in the two graphs presented here. The first graph
above explains the military expenditure in Italy, which is often involved in international missions. According
to SISPRI, the percentage of military expenditure on GDP in Italy has decreased in recent years.
Graph B.4
Military expenditure in Italy
Military expenditure in Italy
30000
25000
M. Euros
20000
15000
10000
5000
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
0
Years
Source: www.sispri.org
148
Graph B.5
Military expenditure in Italy as percentage of GDP
Military expenditure in Italy as percentage of gross domestic
product 1988-2010
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
2,6
2,4
2,2
2,0
1,8
1,6
1,4
1,2
1,0
0,8
0,6
0,4
0,2
0,0
Years
Source: www.sispri.org
In Italy, the Land Armament Sector is not relevant. According to the interviewed expert Nones, for instance, Italy has not a significant LAS. However, AIAD, the Italian Industries Federation for Aerospace, Defence and Security, claim that Italian national companies have a stable market for their products and
services, with some success stories such as the innovative wheeled vehicle called Lince, sold directly by
Iveco Defence Vehicles, without the consortium CIO.
Nowadays, it is very hard to foresee the effects of the present crisis on this sector. As far as LAS is concerned, main companies in the sector have still orders for the next years. At the moment, cuts in the Defence budget for the future refer to combat aircrafts and to the number of the people now employed by
the Ministry of Defence (civil servants, soldiers and especially officers, whose number in the shift from the
draft system to the professional army has somehow managed to stay at a level higher than the needed
one). By way of contrast, there are currently several priority-level public programmes with a positive impact on the Italian LAS. A good example is given by the so-called “FORZA NEC” Programme, intended to
connect all soldiers with the decisional centre and to all database, in order to get all information in real
time.
b)
As already mentioned, the sector is very concentrated. Referring to vehicles and heavy weapons, two
enterprises are both involved in the construction of tracked vehicles (within the consortium CIO). The consortium CIO was founded in 1985 by IVECO Defence Vehicles (www.iveco.com) and OtoMelara
(www.otomelara.it), each holding a 50% share, and it was intended for the design, development and production of main battle tanks and armoured vehicles that are currently achieving a significant international
success (AIAD, 2012). OtoMelara and Iveco have been the first companies to understand that a consortium would have been the right solution after 1989.
OtoMelara, which belongs to Finmeccanica Group, resulted from the merging with Breda Meccanica
Bresciana, that took place in 1994. Its products have been sold in more than 50 countries and it is presently
world leader in the design and production of small and medium calibre naval guns (AIAD, 2012). It has
revenues for 414 million Euro (data 2010). However, its production is not exclusively on land armament
149
sector, which is 53% of the total revenue123. Approximately 30.2% of Finmeccanica Group is owned by
Italian Economic and Finance Ministry, 23.8% by Italian and Foreign Institutional investors and 46% by individual investors (www.finmeccanica.it). For what concerns the geographical distribution of Institutional Investors (the 23.8% of the ownership), see the figure below. As it can be seen, Finmeccanica Group is indirectly under State control. According to the interviewed expert Dr Nones, this type of ownership is very
important for the implementation of the company strategies, since it is not clear whether the same positive
company performance would be possible with no state ownership.
Graph B.6
Geographical distribution of Institutional investors (23.8% of
the total ownership)– Finmeccanica Group
7,3%
14,5%
North America
UK/Ireland
Italy
7,3%
54,9%
Rest of Europe
Rest of the world
16,0%
Source: www.finmeccanica.it
Iveco Defence Vehicles is a private company, owned by the multinational Group Fiat Industrial S.p.A..
Iveco Defence Vehicles is completely dedicated to Land Armament Sector. The factory is located in Bolzano, where it was founded in 1985. Iveco Defence Vehicles represents more or less 5% of the revenue of
Iveco Group (according to the interviewed expert Dr Alioti).
Referring to the other enterprises partially involved in Land Armament Sector, Rheinmetall Italia is a branch
of the German group which acquired Oerlikon Contraves (Switzerland) in 2009, while Selex Sistemi Integrati, Selex Galileo and Selex Elsag are part of Finmeccanica Group.
Referring to mergers and acquisitions, the main experience of joint venture is the collaboration in the Consortium between Otomelara and Iveco DV. There are no cooperation experiences amongst Italian and
other European Land Armament Sector enterprises. The only known experience is the acquisition of licences to produce weapons (e.g. Otomelara produces a cannon with a German licence). On the other
side, the only relevant acquisition is the already quoted one of Oerlikon Contraves by Rheinmetall, that in
Italy took the name Rheinmetall Italia.
The national LAS is concentrated in particular geographical areas:

La Spezia (Otomelara and suppliers)124

Brescia (Otomelara)
123 Another 44% of OtoMelara’s total revenue is dedicated to naval systems, ammunition and launchers. The remaining
3% to airborne armaments.
124 In the Liguria region there are also naval building sites (Genova), together with electronics and telecommunication for
the navy. In the same region there is also production of air force armaments.
150

Bolzano (Iveco. Its suppliers are not concentrated in the surrounding area, but are instead are located all around Italy)125

Rome (Selex Sistemi Integrati and Rheinmetall), Electronics and Logistics
Selex Galileo’s activity is not concentrated but there are three main geographical points (Turin, Milan and
Florence). Optical and optoelectronics is placed in Florence. Artillery, light weapon and electronics are
also in Milan and Brescia.
At the moment, there are no processes on their way of restructuring and delocalization in the Italian national Land armament sector. According to the interviewed expert Dr Matteucci, the presence of a single
national enterprise (the old national-champion idea) is important in order to offer a wide range of products which may be used also by other States. The case of CIO and of the two enterprises in Italy helps to
understand that this solution is sustainable, because the returns on investments are good and, in the land
armament sector, products are cheaper than in other military sector. Finmeccanica and Iveco have
products which satisfy the requirements of the demand and they may also compete at European level.
However, the two main enterprises are also involved in possible future plans under this respect. Finmeccanica group and Fiat group are facing restructuring processes. In Finmeccanica there will be the selling
of part of the enterprises of the group. For example, Nexter is looking for alliance in the sector looking also
with Otomelara, in order to face competition vis-à-vis USA but also vis-à-vis emergent States. Otomelara is
looking for new alliances in Europe in order to face new competition.
c)
The product portfolio of the national Land armament sector is very wide. Interestingly, and within the Consortium CIO, there is a wide range of uniformity together with the standardization of subsystems and components. This situation makes possible to control costs at a low level along the life cycle of products, as well
as to enjoy an efficient and functional logistic support. Enterprises produce all goods linked to the LAS.
Otomelara’s main products are Hitrole Light e Hitfact. The main products are:

The VBC Freccia vehicle, produced by CIO for the Italian and the Spanish army;

The Light Multirole Vehicle or LMV/VTLM (called Lince for the Italian army), produced by
IVECO DV for peace-keeping operations and with high performances.
In December 2010 there was the agreement for the first VTMM ambulances between the Administration
and the Defence Ministry. This product comes from a cooperation agreement with the German company
Krauss Maffei Wegmann (AIAD, 2012).
Otomelara portfolio of products ranges from naval guns to ammunition, from artillery guns and armoured
vehicles to antiaircraft systems. Iveco is trying a diversification of products into the civil domain.
The provision of defence-related services is an increasing important market for the Land armament sector,
due to the update of equipment for international operations. Moreover, products’ quality and quantity
have to be changed in the future.
According to the interviewed expert Dr Alioti, in Otomelara more ore less 75% of the production value
comes from third suppliers (e.g. electronic equipments from USA and plate from Finland). Especially for
IVECO there are external suppliers. Iveco and Otomelara are integrators of parts of external suppliers.
Otomelara produces turret, the remaining part of the vehicles are made by Iveco (including motors).
Iveco Defence Vehicles is in Bolzano since 1985. Before the factory was owned by Lancia (an automotive company,
subsequently acquired by the FIAT Group) and military vehicles were produced in Turin.
125
151
SMEs are not important in the Italian Land Armament sector. However they are suppliers of the two main
companies.
d)
Markets
The national market is closed to foreign competitors. There are some products which are exported abroad.
For example, Lince has been exported in UK (where is named Panther CLV) and also in Russia, where it will
be produced under Italian licence.
The whole Italian Land armament sector in the past exported three products (according to the interviewed expert Dr Alioti):

Centauro (8x8 Wheeled Armoured Combat Vehicle), produced by CIO,

Puma (light armoured vehicles with low profile, available in 4x4 or 6x6 versions), produced by CIO and

Lince (Light Multirole Vehicle), produced by Iveco.
Generally speaking, Italian defence products are very well positioned in some world market segments
(e.g. helicopters, cannons, Lince, electronics for the defence). However, there is a weakness in the space
and aircraft sectors. For instance, Lince has been exported in 11 foreign countries (almost 3,600 produced
vehicles and 4,000 ordered vehicles – Matteucci quoted). It has been a successful product also because
of the Italian armed forces’ experience in international operations, creating a new segment of the market,
in which it has become the leader. The success of this product is due to the close relationship between the
enterprise and the client. There is also an agreement between Iveco and Brazil, to produce a new platform of VBTP-MR126. Interestingly, the Brazilian government wants the transfer not only of the products, but
also of the production process and of the technology.
New EU legislation promoting a common market for defence products is expected. However, there is no
clear idea of what is likely to be expected.
e)
Otomelara declares that 10% of the revenues are spent in Research and Development activities. According to the interviewed expert Dr Alioti, a large part of Iveco’s employees are involved in R&D activities.
Interestingly, electronics have a large impact and is implementing the innovation process in the sector.
According to the interviewed expert Dr Nones, the two main drivers for innovation moving towards more
electronic Land Armament Sector refer to the qualitative (more than the quantitative one) role of the
Army in the wars nowadays and the need of a greater protection of soldiers, both allied and local forces,
in NATO international operations. All developments move in this direction, for example looking for greater
control of the situation on the battlefield with the help of visors and sensors, larger capacity of data elaboration and greater security.
According to the interviewed expert Dr Braghini, companies have to invest in high tech, in order to be
reliable on an international basis. The investments in innovation have to be continuous in technological
applications between civil and military (there are technologies which are in common also with other military industries). Moreover, R&D is often a sequential process, but the different phases sometimes may be
simultaneous as well. For example the guided weapons, firstly developed for sea warfare needs, subsequently underwent a large application increase also in the land armament sector. In this field different
parts of the system may have different life cycles. Therefore an harmonized system may create efficiency,
but sometimes also the re-engineering of the process has to be done in the same way.
The supply is of 2.044 units of the new family of vehicles (worth about € 2,5 billions). The start will be in 2012 and the end
should be in 2030.
126
152
Finmeccanica has built up devised cooperation agreement on projects with more than 20 Italian universities (Parma and Turin, Universities in Puglia and in Liguria, plus other Universities – Braghini dixit).
B.3.2.
Employment issues within the National Land Armament Sector (LAS).
As far as the employment in the Land Armament sector is concerned, unfortunately there is a lack of studies and surveys. The only data we have been able to get are from FIM- CISL and the interviewed expert Dr
Alioti.
Graph B.7
Employment and Tournover in the military sector
Source: Alioti, 2012.
For the number of employees, the number of employees directly involved in the LAS may be estimated in
1,600-1,700 people. In the sector, work about 4,000 people, numbering also the short-term contractors.
Otomelara has 1,168 employees, Iveco DV 1,068 employees. Otomelara in La Spezia has 1,040 employees
(after the selling of the missile division of the cormpany), while in Brescia, where Breda Meccaniche Bresciane127 operates in the light artillery sector, employees started around 350 units and in recent years decreased till 150. In November 2011, 40 of them were released and 20 has been hired.
Employment in the Land Armament sector has decreased in the first half of the Nineties, but after that it
has remained more or less stable due to existing orders. In fact, and according to the interviewed expert
Dr Alioti, in the past 15 years the two enterprises remained stable in the number of employee, decreasing
the average age and changing the mix between workers and engineers. Both in Otomelara and in Iveco,
there has been a hiring process in order to substitute people who got retired. The average age now is 4045 years.
The majority of the employment of the two enterprises is composed by technical workers and engineers, a
situation which may facilitate the re-collocation of the eventually fired employees. According to the interviewed expert Dr Alioti, there has been a change in the professional mix with a reduction of the number of
127
Breda Meccaniche Bresciane has been acquired by Otomelara.
153
employees and an increase in the number of new engineers, getting to an higher percentage of technicians (38% in Iveco DV and 78% in Oto Melara).128
According to the interviewed expert Dr Alioti, there is a low level of employment turnover and a high level
of employment loyalty in the Italian LAS, where the existing social dialogue is higher than in other metalworking industries. Just to give some examples, relationships with trade unions in IVECO Defence Vehicles
are good and better than in other companies belonging to the FIAT Group, where this social dialogue is a
richness also for managers in the sense that workers representatives are involved also when risks have to be
faced. Also in Otomelara, social relationships are different (and better) with respect to other companies of
the Finmeccanica Group.
According to the interviewed expert Dr Alioti, there are no instruments for successfully anticipating
changes in skills and jobs within the sector. Indeed, both companies work on orders, so enterprise flexibility
is fundamental.
B.3.3.
Qualitative characterisation and perspectives of the National LAS.
Italy plays an important role into the foreign policy realm, especially as far as international operations are
concerned. About the future, there is an important need to understand and reflect where this involvement
may have for the Italian LAS and the implications in term of policy and investments (Matteucci dixit).
According to the interviewed expert Dr Braghini, notwithstanding the present crisis, the world LAS sector is
stable129. Thus, this expert forecasts an increase in the demand of LAS products in the future, because
many technologies used in the sector are multi-sectoral as the defence sector is developing also in the
direction of the security sector [e.g.: Carabinieri and Policy (which both employ light armoured vehicles in
anti-riots operations) Civil Protection, Firemen]. Borders are not clear-cut between the two sectors, as far as
technology and solutions are concerned, especially with regard of electronics and satellite communications. Also, and with the increase of international operations, the importance of the Italian Army grows
again, together with the need of LAS-related products (AIAD, 2012b).
Table B.3.
SWOT analysis of the Italian LAS
Strengths
A consortium of two companies
Strong connections between Army
and Companies
• Strong analysis of Army’s needs and
solutions basing on experience
•
•
Weaknesses
Lack of independent studies on
which ones are the excellence
points, strenghts and weaknesses.
• Lack of big European centres of
research
•
Opportunities
•
•
•
•
Valorisation of niche excellences
Exporting also in non-EU countries
Dual production (civil and military)
Innovation in electronics and satellite
communications
Threats
Competition in Europe with standardised products
• Standardization of specific national
needs.
•
Source: Own ellaboration
Notwithstanding this, Dr Braghini suggests a likely reduction in investments in defence. However, this will be
likely counterbalanced by other sector such as security and Civil Protection. Moreover, Dr Matteucci suggests that the reduction of investments in Defence will force investment in efficiency and operative capa-
128
129
In Otomelara 346 employees have a bachelor level and 595 have a high school diploma.
In some foreign countries the budget dedicate to defence has increased.
154
bilities with more quality, in cooperation with foreign Army Forces. Dr Alioti suggests about the possibility to
increase public investments in R&D at the expense of reduction in the employment costs of soldiers.
Looking at the future, interviewed experts Dr Alioti and Dr Matteucci forecast that in the next 5-10 years
there will be an integration of the Defence model in Europe, despite the fact that every State is currently
interested in maintaining its land defence manufacturing sovereignty, especially for social issues. As a
consequence there will be a surplus of employment and manufacturing facilities. In this context where
demand will not be able to saturate all this productive capacity, it will be needed a rationalization process
with mergers and acquisitions, but for this there are two main obstacles:

There are no European programs which push towards the rationalisation of this sector
(e.g. common vehicle in the whole of Europe or push factors to favour collaborations
and groups);

There is no European central institution for defence in order to create unique products.
According to the interviewed expert Nones, a scenario in which there are less European producers is desirable for two main reasons:

Army leaders of different European countries need to have common products as a target, in order to get closer each other and in order to have a kind of inter-operability (especially in international military operations);

European Land armament enterprises need to be more competitive in comparison with
US producers.
Dr Matteucci suggests that a feasible solution might be to integrate available systems and the development of common European projects which may grant their interoperability. Meanwhile, production facilities could be disseminated in different assembly centres that could develop technical and technological
capabilities. However, and at the current moment, there is a lack of proposal of this type of joint European
projects in the LAS.
According to the interviewed expert Dr Alioti, the re-organization of the Italian Land Armament sector will
be done in collaboration with France and Germany
B.3.4.
a)
Annexes
Bibliography

AIAD - Federazione Aziende Italiane per l’Aerospazio, la Difesa e la Sicurezza (2011),
Relazione esercizio 2010.

AIAD - Federazione Aziende Italiane per l’Aerospazio, la Difesa e la Sicurezza (2012a),
Members Directory.

AIAD - Federazione Aziende Italiane per l’Aerospazio, la Difesa e la Sicurezza (2012b),
Relazione esercizio 2011.

Alioti, G. (2012), L'industria aerospaziale e della difesa in europa tra integrazione e
cambiamenti struttural, in OPAL (Osservatorio Permanente sulle Armi Leggere), Affari di
armi. Percorsi di pace. Attualità, ricerca e memoria per la pratica della nonviolenza, Emi.

ASD – AeroSpace and Defence Industries Association of Europe (2011), Facts and Figures
2010.

ASD – AeroSpace and Defence Industries Association of Europe (2010), Facts and Figures
2009.

Briani, V. (2009), L’industria della difesa italiana, Osservatorio di Politica Internazionale, IAI.
155
b)

Caruso, R. e Locatelli, A. (2010), Some recent development in Italian defence industry
(with a special focus on Finmeccanica group), working paper

Quercia, P. (2012), Quale difesa per la Repubblica? Sicurezza nazionale, Costituzione,
scenari internazionali ed industria della Difesa, Edizioni Strateitaly.

www.aiad.it

www.finmeccanica.it

www.otomelara.it

www.sispri.org
Interviewed experts Î including name of the expert, role and function, address, phone/fax/e-mail
1.
Dr. Michele Nones,
Head of Department “Security and Defence” and at IAI (Istituto Affari Internazionali)
Address: Via Angelo Brunetti, 9, Rome
Phone: +39.06.3224360
Fax: +39.06.3224363
2.
Dr. Gianni Alioti,
Responsible International Office FIM- CISL (Federazione Italiana Metalmeccanici)
Address: Corso Trieste, 36, Rome
Phone: ...... - Fax: ….
3.
Ing. Carlo Nucci
Coordinator of Defence Activities of AIAD (Italian Industries Federation for Aerospace, Defence and Security)
Address: Via Nazionale, 54, Rome
Phone: +39 064880247
Fax: +39 064827476
4.
Dr. Fabrizio Braghini
Head of Associations Relations of Finmeccanica
Address: Piazza Monte Grappa 4, Rome
Phone: +39 0632473646
Fax: +39 0632657187
5.
Dr. Roberto Matteucci
Senior Adviser CIO (Consortium Iveco- Otomelara)
Address: Via Poma, 2, Rome
Phone: +39 011502963
156
c)
Supply chain in the Land Armament sector
Tier 1 contractors
157
Tier 2 contractors
Tier 3 contractors
B.4. POLAND
B.4.1.
Polish statistical services (Central Statistical Office) do not perform studies concerning manufacturing activity under the group “Manufacture of military fighting vehicles”130. However, the Polish public statistics
gathers and makes the data for the following group of products available: “Manufacture of weapons and
ammunitions”131. The results of an analysis performed within the past 10 years indicate that the value of
products sold for this group in the values of products sold under the whole section of “Production” has not
exceeded 0,2 % (Graph B.8).
NACE 30.4: tanks, armoured amphibious military wehicles and other military combat vehicles.
By 2008 incl. - NACE 29.6; until 2009; until 2009 - 25.4: The group comprises: heavy weapons, small arms, air or
gas guns and pistols, war ammunition, hunting, storting or protective firearms and ammunition and explosive
devices. The data is available for the whole 25.4 group, and it is not possible to distinguish its sub-groups.
130
131
158
Graph B.8. The value of products sold within the group “Manufacture of weapons and ammunitions” in the total industry sold value in Poland in the period 2002-2010 (in %)
0,25%
0,20%
0,15%
0,10%
0,17%
0,17%
2005
2006
0,20%
0,20%
0,19%
0,15%
0,13%
0,09%
0,08%
0,05%
0,00%
2002
2003
2004
2007
2008
2009
2010
Source: Author’s own compilation based on the data of the Central Statistical Office (2003, 2004, 2005, 2006, 2007,
2008, 2009, 2010).
In monetary terms, the value of production sold in EUR in this group in the study period of 2002–2010 has
not exceeded the amount of 400 million EUR (Graph B.9).
Graph B.9
The value of products sold within the group “Manufacture of weapons and ammunitions” in the period 2002-2010 (current prices in million EUR)
500
360
400
254
300
200
100
151
126
2003
2004
83
400
283
340
281
0
2002
2005
2006
2007
2008
2009
2010
Source: Author’s own compilation based on the data of the Central Statistical Office (2003, 2004, 2005, 2006, 2007,
2008, 2009, 2010).
The phenomenon of financial crisis which started at the end of the past decade, has significantly affected
the LAS entities. It was mainly indicated by reducing allocation by the Ministry for National Defence to
purchase the LAS products by 5.2 billion PLN (approx. 1.25 billion EUR) in the Budgetary Act for 2009. The
risks involving withdrawal of the Ministry for National Defence from the contracts already commissioned
and the limited scale of purchases, constituted an immediate consequence of that decision132. For 2008
and 2009, the outlays on Ministry for National Defence amounted to 19,6 billion PLN and 22,78 billion PLN,
what stated respectively 1,67% and 1,79% of total GDP in these years. This situation was in contradiction
with the statements of “„Ustawie o przebudowie, modernizacji technicznej i finansowaniu Sił Zbrojnych RP”
act, which commit the State to finance the National Defence budget no less than in amount of 1,95% of
GDP (BBN, 2010).
132 As indicated by one of the IDIs, consequences of this condition have been alleviated – due to an initiative
taken by Trade Unions, which included such measures as transfers payable to contractors to whom the Ministry
for National Defence awarded contracts in other form (e.g. by activities of the Industrial Development Agency –
Agencja Rozwoju Przemysłu).
159
a)
Several sub-sectors may be differentiated in the structure of the Land Armament Sector in Poland while the
entities operating in the Land Armament Sector in Poland may be subdivided into the following groups in
particular (Nowak, 2012, see Lewandowski, 2011:177):

Enterprises grouped around BUMAR sp. z o.o., a state-owned company, supervised by
the Ministry of State Treasury due to its ownership structure,

Enterprises associated under a capital group of the National State Agency - the Industrial Development Agency (Agencja Rozwoju Przemysłu SA), also supervised by the Ministry of State Treasury due to their ownership structure,

Other state-owned enterprises supervised by the Ministry of State Treasury due to its ownership structure,

Military Renovation and Manufacturing Companies supervised by the Ministry for National Defence due to their ownership structure,

State-owned R&D entities (operating in the form of enterprises or research institutes), supervised by the Ministry for National Defence, Ministry of Economy and Ministry of Interior
(3 of these entities are within the structure of the BUMAR group mentioned in item 1).

Private enterprises, including the ones:
– based exclusively on the Polish capital,
– privatised enterprises, particularly the ones operating in the aviation industry, which are currently
held by foreign capital providers (USA).
Almost 130 different companies with various profiles of operations and level of turnover operate within the
Land Armament Sector in Poland. Detailed information concerning names of the companies operating in
the groups from a) to f) may be found in the publication by E. Nowak (2012)133 quoted above.
The Polish Chamber of National Defence Manufacturers 134 is the largest sectoral organisation which associates 132 entities operating within the defence sector in Poland. Analysis of membership of this organisation performed based on the data published at http://www.przemysl-obronny.pl/ (PIPROK, 2012), shows the
distribution of these entities operating in this sector in the context of the subject of their operations135 (See
table below).
Publication available for general use, published at http://www.bumar.com/polski-przemysl-obronny/ppo/polskiprzemysl-obronny/
134 This means that the Chamber associates almost all LAS entities in Poland. Estimates by A. Nowak (Nowak, 2012)
indicate that approx. 100 entities operate in this sector. Detailed data on all the members of the Chamber may
be found on its website (PIPROK, 2012).
135 A database presented in Annex 1 has been developed for the needs of drafting the report.
133
160
Table B.4.
Structure of the Polish defence sector regarding the company profile (Members of the PChNDM)
Activity
Aviation
Warships and its equipment
Military vehicles (incl. tanks)
Weapons, ammunitions and explosives
Optoelectronics, IT and command systems
Logistics
Soldier's equipment
R&D bodies
Military infrastructure
Policy equipment
Trade
Others
TOTAL
Number of enterprises/bodies
9
4
19
12
24
12
9
12
6
4
10
11
132
Source: Author’s own compilation based on the data of PIPROK (2012)
Concerning the issue of mergers and acquisitions, for a number of years the Land Armament Sector in
Poland was dispersed, however starting in 2007, as a result of implementation of a government strategy
focused on this sector, i.e. “Strategy of Consolidation and Support to Development of the Polish Defence
Industry in the Period 2007-2012”, similarly as it was the case in the western countries, this sector started to
be consolidated (Nowak, 2012). That measure was to facilitate development of a national capital group
with Bumar sp. z o.o as its core, and its goal included acquisitions by Bumar sp. z o.o. of the LAS entities
controlled by the State – both of the enterprises and research units. Interviews held demonstrate that integration of the “Military Renovation and Manufacturing Companies” category with the Bumar group still
remains an open issue.
Interestingly, the Bumar group can be sub-divided into four groups (known as Divisions) for which Bumar sp.
z o.o. acts as the parent company. The Divisions include (Bumar, 2012a; Bumar 2012b; Nowak, 2012):

Bumar Amunicja Division (Ammunition), in which Bumar Amunicja SA (former MESKO SA
company) dominates. This Division currently includes 9 entities136. It is responsible for
manufacturing of ammunition and missiles (small arms ammunition and artillery ammunition, SPIKE anti-tank guided missiles, GROM and FENIKS missiles),

Bumar Żołnierz Division (Soldier), in which Przemysłowe Centrum Optyki S.A. (Industrial
Center of Optics) in Warsaw dominates This Division currently includes 5 entities. It is responsible for manufacturing of small arms ammunition and individual equipment for soldiers (protective vests, side arms, sights, optoelectronic systems, helmets, gas masks),

Bumar Elektronika Division (Electronics), in which Radwar SA from Warsaw dominates. This
Division currently includes 3 entities. It is responsible for manufacturing of electronic systems radiolocation (command systems, radars, sensors, anti-aircraft and anti-missile systems),

Bumar Ląd Division (Land), in which Bumar Łabędy SA in Gliwice will play the key part
(this division is under organisation process). This Division currently includes 3 entities, which
manufacture armoured vehicles and platforms (tanks, special-use vehicles and technical
support vehicles).
136 Detailed information on the names of enterprises operating within the specific Divisions may be found at the
Bumar website and in the compilation by E. Nowak (2012).
161
At the time of performance of this survey (May 2012), 24 enterprises137 belonged to this capital group, including, apart from the above mentioned entities, two companies involved in special sales (Nowak, 2012).
Concerning the geographical location of the Polish land armament sector, the following table present
geographic distribution of the members of the PIPROK Chamber – entities of the Polish defence sector, by
Polish geographical areas.
Table B.5.
Geographical
prises/bodies
distribution
Geographical areas
Dolnośląskie
Kujawsko-pomorskie
Lubelskie
Lubuskie
Łódzkie
Małopolskie
Mazowieckie
Opolskie
Podlaskie
Podkarpackie
Pomorskie
Śląskie
Świętokrzyskie
Wielkopolskie
Warmińsko-mazurskie
Zachodniopomorskie
TOTAL
of
the
Polish
LAS
enter-
Number of enterprises/bodies
3
8
3
1
4
3
63
0
0
7
15
14
2
5
0
0
128
Source: Author’s own compilation based on the data of PIPROK (2012)
In the geographic perspective, it is possible to identify the phenomenon of geographic concentration of
entities operating in specific LAS branches, as well as organised forms of cooperation between numerous
entities from the sector of enterprises and R&D sector.
In this case, primarily the concentration of localisation of LAS entities, in the Mazowieckie region (with capital in Warsaw) in particular, should be indicated.
Another example (in a smaller scale) concerns an initiative of March 2012 to establish the first Polish cluster
dedicated to development of scientific work and information exchange exclusively for the LAS sector. This
cluster is to include the Warsaw Technical University, the Military Academy of Technology and the Bumar
National Defence Concern (PARP, 2012).
Interestingly, the current cooperative links in the Polish LAS are mainly capital-focused, although there is
also cooperation within the meaning of the logistics chains. In this context, the Polish LAS (state-owned)
cooperates with SME enterprises (private) in the field of supply of components in such branches as communications and electronics. However it should be emphasised that this situation is also characteristic for
other markets, as it has been declared by one of the respondents.
Within the past several years, the LAS structure has undergone many changes, mainly due to two restructuring strategies for this sector, adopted by the government. The first strategy was planned for the period
2002-2007. It anticipated setting up two groups of manufacturers operating in this sector: the first one was
to be focused on Bumar Sp. z o.o., while the other on the Industrial Development Agency SA. The other
strategy was signalled earlier and it was focused on the period of 2007-2012. It anticipated that the idea of
137 Detailed list of entities within the Bumar Group broken into the above-mentioned four Division may be found at
Bumar (2012b) http://www.bumar.com/o-firmie/spolki-w-grupie-bumar/
162
establishing two groups should be given up, and one group, i.e. the Bumar-based one, was to be the target. At the same time the strategy proposed that the Bumar group should be reorganised, several product-focused divisions were to be created (Badowski, 2011) and, finally, consolidation-related efforts around
the ARP group were to be given up through selling its members to foreign entities (via privatisation) or announcing their bankruptcy; Badowski, 2011)138.
It should be emphasised that these strategies mainly concerned the state-owned sector, however they
resulted in a significant concentration of the production, reduction in the number of companies (the number of cases of duplicating the same types of production in several companies was decreased), staff reductions, which lead to a greater competitiveness of the entities operating in this sector. It is worth adding
that the above restructuring processes induced a significant decline in the number of staff. One of the
interviews indicated that over 20 companies currently owned by Bumar group, employed approx. 100000
persons in the early 1990s; in 2000 – approx. 30000, and now – approx. 10000 (detailed key data on employment is presented in section 2 of this report).
b)
The available information shows that that it is possible to identify two main categories of specialisation of
LAS enterprises. On the one hand, the first category includes products offered on foreign markets, including Radiolocation systems (e.g. Radwar); Automated battlefield systems (e.g. PCO); Rosomak transporter
(licenced by Patria, Finland; WSM Siemianowice Śląskie); Communications system. As well as this, it is worth
stressing several modernisation activities commissioned by developing countries, which instead of purchasing new products, significantly modernise their existing resources, should also be mentioned.
On the other hand, the other category includes services mainly addressing domestic market. In this context the following fact needs emphasising: an ability to modernise equipment manufactured in the former
Soviet Union to reach NATO standards has become a Polish specialty, which has been accomplished at a
very high level; this element may be indicated as a certain market niche that has been filled by such Polish
companies (see Badowski, 2011) as the Military Renovation and Manufacturing Companies (WPRP).
Concerning the importance of the provision of defence-related services market for the Polish Land armament sector, and in the perspective of the results obtained from one of the interviews, two categories
should be differentiated. The first one covers operations of the above-mentioned WPRP, which focus on
rendering modernisation services for used equipment, which in many cases are not limited to service provision, but practically involve making of significantly improved products upgraded with new functionalities,
based on the used products. The other category includes outsourcing of general management services
provided by LAS entities to external market (e.g. accounting or IT services), and these practices are in line
with the tendencies occurring in other countries and branches.
Concerning the role of SMEs in the national Land armament sector, SMEs constitute a key element of the
Polish LAS. In this context it should be reported that these entities decide upon implementation of the tasks
that are unprofitable to “large” entities (due to high overheads), and which are necessary to accomplish
the final products by the “large” LAS companies. Moreover, this trend (which involves subcontracting increasingly growing number of semi-products, and which ultimately contributes to production of the final
product) has been growing in the consecutive years. An ability of flexible adaptation to changing technological requirements is another advantage offered by SMEs. Competition amongst suppliers is very high.
138 Comprehensive description of restructuring processes of the Polish defence industry, including summary of the
measures delivered under the strategies mentioned above, is presented in an article by S. Głowacki “Restrukturyzacja przemysłu obronnego w latach 1999-2008” (Głowacki, 2009), and T. Badowski “Polski Przemysł Obronny
po 2012 roku” (Badowski, 2011).
163
c)
Markets
As regards the issue of presence of Polish companies on the international markets, it should be stated that
the share of export in the structure of Polish LAS’s revenues and its scale have been declining in the last
years. According to one of the respondents, this situation results from the lack of strategic management in
large Polish LAS, as well as the lack of the state intervention instruments that could support this type of
export activities.
As it has already been mentioned in this paper, the key Polish export products currently include radiolocation systems (e.g. Radwar – Bumar Elektronika139), automated battlefield systems (e.g. PCO140 – Bumar
Żołnierz), Rosomak transporter (licence by Patria, Finland; WSM Siemianowice Śląskie141), and communications systems. It should be also emphasised that at the beginning of this year (January 2012), Bumar signed
(jointly with Indian BEML) a contract for supply of 204 WZT-3 vehicles of the value of 275 MUSD, where this
contract has been one of the largest one in the Polish land defence industry for many years (Likowski,
2012).
Detailed information on Polish LAS products, their manufacturers and purchasing countries for the period of
the last 20 years are presented in a publication developed by a team of journalists of Raport – Wojsko –
Technika – Obronność magazine (Raport MSPO, 2011). This report indicates that the directions of export of
Polish LAS cover a large set of countries in Europe (e.g. Germany, United Kingdom, Spain, France, Italy,
Sweden, Latvia, Lithuania, Czech Republic, Slovakia, Hungary, Georgia, Ukraine), America (USA, Venezuela), Africa (Algeria, Nigeria), Middfle East (Iraq, Iran, UAE, Yemen, Saudi Arabia) or Asia (South Korea,
Birmania, Vietnam, Phillipines, Nepal, Malaysia, Indonesia, India).
It should also be added that the subject of analysis of the directions of the Polish LAS export was addressed
by the Ministry of Foreign Affairs of the Republic of Poland (Ministerstwo Spraw Zagranicznych, 2010). However, reviews of this report indicate (see: Łuczak, 2011) that being based on a methodology whose starting point includes the number of export licences granted by the MFA of RP which also cover cooperative
export, i.e. export of products of Polish subsidiaries to their parent companies, it only demonstrates this
single aspect of export activities. In this perspective, the USA and Canada are the top buyers of Polish
equipment.
Analysing links of Polish LAS with foreign enterprises it should be stated that the Polish LAS are not active in
this field, both in the aspect of cooperation or capital acquisitions in foreign companies. One of the interviews indicated the period which was favourable to activities of the second type (acquisition of foreign
companies) expired about 10 years ago, and was mainly used by large foreign companies.
In this context there is a need to establish a large Polish player, i.e. Bumar group, which will be the national
LAS main enterprise and will be important in the field of international contacts. Otherwise, foreign companies will prevail, which will ultimately result in liquidation of Polish subcontractors as the foreign producers
will “introduce” their own supply channels from their countries of origin. Thus it will result in liquidation of
Polish SMEs whose production meets the needs of this sector.
Concerning the role of non-defence (dual use) markets, the crisis has affected Polish LAS badly. A “lesson”
learnt from this experience is the fact that Polish LAS enterprises have identified important opportunities
offered by the transformation of purely defence-related products to products with a civilian use. This will
help them to survive during periods when no orders for defence-related products are submitted. This tendency has re-appeared recently, after a long-lasting break, which started at the fall of the former economic system (each LAS company also manufactured civil equipment).
Corporate website: http://www.bumar.com/elektronika/?from_link=http://www.pit.edu.pl/
Corporate website: http://www.bumar-zolnierz.com.pl/
141 Corporate website: http://wzms.pl/pl/
139
140
164
Finally, and as far as the actual/expected impact of new EU legislation on the Polish Land armament sector, the survey performed indicates that the plans of implementing a new EU directive have caused two
types of reactions. On the one hand, there are worries whether the Polish LAS is ready to such market
opening and participation in the international competition. On the other, there is a view stating that implementation of the directive – with appropriate strategic measures delivered in the Polish LAS – may be
translated into benefits. However this approach requires that management systems used by large Polish
LAS should be re-modelled, the philosophy focused on concentration of domestic buyers given up and,
finally, a clear support by Polish authorities to the export efforts of national enterprises.
d)
Referring to the issues of modern technologies and innovation, an important change has occurred on the
Polish LAS market in the recent years, that is to say, the government has stopped buying the products for
which there is no real demand and which are not characterised by appropriate quality. Poland’s involvement in Iraq and Afghanistan was the main contribution to this change. Due to participation in these actions, Polish government has become interested not just in purchases “as such”, but in products which will
ensure appropriate level of safety to Polish soldiers and prove realistically useful to them. This approach
had a positive impact on the sector and has become a catalyst to processes of modernisation, which
may be exemplified by new types of weapons and, in general terms, increased R&D expenditure and
change in approach to management. It should also be added that importance of these elements to LAS
production is increasing, which mainly results from a high (and increasingly growing) pressure of foreign
markets.
R&D activities of Polish LAS are commanded by the Bumar group, who should be identified as the leader.
Thus, and in 2009, it spent approx. 45 M EUR on R&D (Wilewski, Wróbel, 2011), while other LAS entities demonstrated weak activity in this field (Łuszczyk, Chorążka, 2010). Meanwhile, there are former R&D units (e.g.
PCO, OBRUM) that currently continue in time.
Public funding is the main source of financing of this type of activities. The following sources of financing for
Polish LAS should be reported in this context (Łuszczyk, Chorążka, 2010):

Budget of the Ministry for National Defence (including funding received under research
programmes of the European Defence Agency (EDA) and NATO’s Organisation of Research and Technology (NATO R&TO),

Budget of the Ministry of Science and Higher Education, in this case funding is allocated
under the “Programme of Scientific Research and Development Work for Industrial Defence Capacity”142 and the “National Programme of Scientific Research and Development Work”.

EU (e.g. grants under the Innovative Economy Operational Programme financed under
the ERDF)143.
In case of projects implemented under EDA, Łuszczyk and Chorążka (2010) report that in 2010, Polish LAS
entities took part in two programmes, implementing 20 projects with the Polish contribution reaching 10%
of their value (approx. 22 M EUR).
142 Under the programme for the years 2007-20011, the amount of approx. 440 M PLN was allocated for research,
development and special purpose projects in the following fields: “Information and Network Technologies; Sensors and Observation; Precise arms and weapons; Crewfree Platforms (autonomous); Protection and Survival on
the Battlefield; Modern Materials, including energy-saving and smart materials) (Łuszczyk, Chorążka, 2010).
143 For more information see Wilewski (2011a) and Wilewski (2011b).
165
B.4.2.
a)
Employment issues within the National Land Armament Sector (LAS)
Main employment figures
Key indicators for the employment level in the Polish LAS entities in the course of the recent years are presented next (below). Data presents the employment of the sector involved in manufacturing of arms and
ammunition.
Table B.6.
Key figures for employment and related issues for the Polish weapons and ammuniton
manufacturers
Year
Number of economic entities
Sold production in mln PLN (1 EUR = 4 PLN)
Average employment in thousands
Average monthly gross wages and salaries in PLN
2005
2006
2007
2008
2009
15
1.128,1
6,4
1.976,27
14
1.270,4
6,4
2.174,05
14
1.642,5
6,5
2.458,65
15
2.479,3
6,8
2.822,33
13
1.531,9
5,5
2.862,39
Source: Author’s own compilation based on the data of the Central Statistical Office (2005b, 2006b, 2007b, 2008b,
2009b, 2010b)
Analysing the situation in terms of employment in the perspective of Bumar group, it should be reported
that in the recent years, no major labour redundancies have been implemented in this group. However,
and looking into the future, It is anticipated that approx. 1600 employees will leave the company in the
period of 2011-2012 under this scheme, mainly implemented under the “voluntary employment termination” scheme that has been negotiated by trade unions, and which is a certain solution to the problem of
employment restructuring at Bumar. This scheme covers 16 out of 23 entities which compose today “Bumar
group”. There are a number of reasons underpinning these negative employment forecasts:
b)

Declining level of orders by the Ministry of Defence caused by a poor offer of Bumar in
terms of its high-tech aspects,

Crisis-effected budgetary reductions for purchases by the Ministry of Defence in 2009

Declining export by Bumar group (low competitiveness),

Necessity to adapt the structure of employment to the real needs (liquidation of unnecessary indirect or white-collar positions)

Technical progress resulting from advancing automation and declining demand for labour force.
Characterisation of employment
Ageing of Polish LAS workforce is noticeable. The necessity to deliver restructuring processes (including
group redundancies in the last decade of the 20th century) resulted in non-employment of young workers.
One of the interviews indicates that currently the share of employees with many years of service (over 20
years of employment) as well as aged 50+ is very high (among blue collar workers in particular). Phenomena of employing new young workers occur, however they are marginal in comparison to the number of
staff terminating their employment. Unattractive level of remuneration offered to new workers mainly contributes to this phenomenon. Employing foreign workers is not observed either, which is due to the strategic
nature of this sector.
On the other hand, the survey results indicate that jobs in LAS mainly require high qualifications, both on
the part of production staff and other staff working in the sector (the so-called support staff involved in
such operations as service).
A competence gap is a key problem noticeable in this sector. On the one hand, there are high expectations of the employers of this sector in terms of qualifications, and there are problems to prepare the staff
adequately to meet these expectations, on the other. In this context, available training programmes (EU
166
funded) for staff aspiring to enhance their qualifications, language courses in particular, should be emphasised, which has also been reported during one of the interviews.
The practices used many years ago, involving such companies as Bumar to subcontract secondary vocational schools to develop courses for required vocational profiles, or to sponsor scholarships for gifted students to become its employees, are slowly regaining their popularity, however they are used to a small
extent. In this context, negative consequences of a Polish reform implemented in the previous decade to
liquidate vocational education, become visible. As a result, schools are not prepared to supply the market
with candidates holding required qualifications.
c)
Anticipation of changes in skills and jobs within the sector
In Poland there are three main trade unions (Solidarity /Solidarność/, OPZZ and Trade Union Forum
/Forum/), where the first two dominate in the Polish LAS sector. They mainly observe plans and changes in
the LAS, and actively take part in these processes and in the negotiations of agreements.
The scheme of the “voluntary employment termination” is an example of such actions in Bumar, which
contributed to a great success of the trade unions.
The interviews also indicate that the trade unions not only perform monitoring and negotiation-related
function. They also emphasise certain directions that should be adopted in order to increase employment
and improve competitiveness of the sector. For instance they take care to ensure that staff enhance their
qualifications. Due to their initiative, the funds unused for the scheme of voluntary employment termination
have been re-allocated to pay for staff training.
d)
Social dialogue in the Polish Land Armament sector
Social Dialogue in the LAS in Poland is dynamic and its stakeholders are very easy to identify. On the one
hand there are trade unions (Solidarity and Electromechanical Industry Trade Union) that represent the
workers’ interests. Meanwhile, employers are represented by the association of the LAS employers (Związek
Pracodawców Przedsiębiorstw Przemysłu Obronnego i Lotniczego - ZPPPOiL), which is chaired by the head
of PZL Świdnik. Finally, government is represented by representatives of the Ministries of Economy, Finance
and National Defence.
One of the respondents claimed that the case of Poland was a good practice of having social dialogue in
the LAS. The so-called “Trilateral team for social and economic issues in the conditions of restructuring of
LAS entities and LAS capacity” has operated in Poland for over a decade. It was established to facilitate
this dialogue. The Team is very active and it is ranked highly and includes representatives of workers, employers and the Government. The team meets several times a year. The results of the inetrviews indicate
that representatives of Trade Unions do not find it hard to discuss issues being important in their opinion, nor
request the meetings (parties respond immediately). The dialogue is held at a high level, although, as one
of the respondents reported, the party representing government not always meets its obligation (which
however is not perceived as a controversial issue).
It may be stated that the dialogue is harmonious, there are no significant omissions and the team is willing
to cooperate. The subject of this trilateral dialogue includes such issues as implementation of the defence
directive and related fears; consolidation and restructuring of Bumar, which results from the modernisation
strategy adopted for the LAS in the period 2007- 2012, or the issue of contracts for multi-year programmes.
Currently, there are no significant social conflicts have been recorded for the sector. In any case, and in
2009, major issues occurred at Bumar Łabędy, which underwent in that year group redundancy due to the
financial crisis and reduced scale of orders submitted by the Ministry of Defence. Nevertheless, as one of
the respondents declared, also in case of reductions in the State Budget, which resulted in smaller orders
for Polish LAS, the negative phenomena were alleviated significantly due to the efficient dialogue.
167
Social dialogue-related measures taken by the Polish LAS are enhanced and strengthened, which is demonstrated by such actions, as an EU funded project entitled “Strengthening mechanisms of consultations
and cooperation of social partners under the sectoral social dialogue in the LAS” (Electromechanical
Industry Trade Union). Project participants included representatives of trade unions and organisations of
employers. They learnt methods and ways of delivery of social dialogue through workshops, seminars and
lectures delivered by experts. Participants listed the possibility of informal exchange of views and information as a key project value (ZZPE, 2012)144.
B.4.3.
a)
Main SWOT of the Polish LAS
This research has identified the strengths/weaknesses and opportunities/threats of Polish LAS, which are
presented in the following Table (Table 7).
Table B.7.
SWOT of the Polish LAS
Strengths
•
Weaknesses
Experience in LAS transformation in Poland, including • No / slow implementation of modern management
maintaining the capacity of this industry, without its
methods in all LAS companies (including such asliquidation within the past 20 years.
pects as insufficiently fast implementation of modern
IT systems, which results in low efficiency)
•
Faults in management – cases where persons without
appropriate sector-related experience and appropriate qualifications were nominated as managers of
LAS companies.
Opportunities
Threats
Consolidation of Bumar group creates a single and
strong player on the market, which will facilitate
greater export-related opportunities and a greater
range of products.
•
Competition from large foreign enterprises (financial
and technological capacity)
•
Risk of dumping prices on the part of foreign competition
•
Maintenance of a significant supply with a great
capacity, which however must be developed and
modernised;
•
•
Deliveries of Polish equipment do not depend on
complying with political conditions (for Poland)
•
Limitations (protectionism) to access to foreign markets – the issues of stability of multi-year programmes.
Currently these programmes are unstable (they may
be terminated, renegotiated, or annexed, which results in a high degree of uncertainty of orders by the
Ministry of Defence)
Increased R&D expenditure in the companies. Modernising Polish LAS products, which will stimulate their • Implementation of the EU “defence” Directive and
greater competitiveness
potential similar threat in contacts with the USA.
•
Source: Author’s own compilation
b)
Expected future expectations on the sector in the next 5-10 years
Development perspective of this sector during the next 5-10 years involves further consolidation of the
enterprises that currently duplicate their production output. It will also be necessary to change the LAS
companies management systems, including introduction of the principle of strategic management (the
need to adopt multi-year perspective). Moreover, the phenomenon of market shrinkage will be observed.
Employment in the LAS will decline as the technological level is improving, which ultimately requires fewer
employees to work in the sector. On the other hand, the demand for people holding relevant qualifications, competence level and foreign language skills will be growing, as a result of such issues as offset programmes or manufacturing licensed products which require specific knowledge and skills in order to meet
144
Detailed information on the project: http://www.zzpe.org.pl/dialog/opis.html
168
the production-related requirements. It should also be emphasised that the information obtained from the
services of the Ministry for National Defence responsible for purchases for the army of the Republic of Poland indicates that the value of the orders should reach the average level of 1 billion EUR / a year.
On the other hand, the key expectations of this sector concern not only maintenance of the adequately
high level of orders submitted by the government, but also the quality of the contracts (which are significantly amended during their term which causes disturbances for producers delivering orders laid down in
these plans).
The second key issue concerns expectations related to political dimension, which includes a more intensive engagement on the part of authorities and political decision makers to support Polish LAS producers in
exporting markets.
B.4.4.
a)
Annexes
Bibliography

Badowski T. (2011), Polski Przemysł Obronny po 2012 roku, Armia, 11/2011

Biuro Bezpieczeństwa Narodowego (2010), Zagrożenia dla procesu modernizacji
technicznej Sił Zbrojnych RP, Warszawa, luty, 2010

Bumar (2012), Strona “O firmie”, http://www.bumar.com/o-firmie/ (30.04.2012)

Bumar (2012), Strona „Spółki w Grupie Bumar”, http://www.bumar.com/o-firmie/spolki-wgrupie-bumar/ (30.04.2012)

Central Statistical Office (2003), Production of industrial products in 2003,
http://www.stat.gov.pl/cps/rde/xbcr/gus/PUBL_produkcja_wyrobow_przemyslowych_w_2003
.zip

.zip.zip

.zip

http://www.stat.gov.pl/cps/rde/xbcr/gus/PUBL_pbs_produkcja_wyrobow_przemyslowych_20
08.zip

http://www.stat.gov.pl/cps/rde/xbcr/gus/PUBL_pbs_produkcja_wyrobow_przemyslowych_w_
2009.zip

http://www.stat.gov.pl/cps/rde/xbcr/gus/PUBL_pbs_produkcja_wyrobow_przemyslowych_w_
2010.xls

Central Statistical Office (2005b), Statistical Yearbook of Industry – Poland, 2005

169
b)

Głowacki S. (2012), Restrukturyzacja polskiego przemysłu obronnego w latach 1999-2008,
http://www.bumar.com/polski-przemysl-obronny/ppo/s-glowacki-restrukturyzacja-przemysluobronnego-w-latach-1999-2008/ (30.04.2012)

Hypki T. (2009), W czasach światowego kryzysku, Raport Wojsko – Technika – Obronność,
nr 9/2009

Hypki T. (2011), Przed wielkimi zmianami. Przemysł lotniczo-zbrojeniowy 2010, Raport
Wojsko – Technika – Obronność, nr 9/2011

Likowski (2012), WZT – 3 dla Indii, Raport Wojsko – Technika – Obronność, nr 2/2011

Lewandowski W. (2011), Polski przemysłowy potencjał obronny w dobie konsolidacji,
Bezpieczeństwo Narodowe, I-2011/17, www.bbn.gov.pl/download.php?s=1&id=7022

Łuczak W. (2011), Eksportowe manipulacje, Raport Wojsko - Technika - Obronność, nr
5/2011

Łuszczyk M., Chorążka P. (2010), Wybrane problemy związane z prowadzeniem badań
naukowych i prac rozwojowych w sektorze obronnym - szanse i zagrożenia dla rozwoju
przedsiębiorstw przemysłowego potencjału obronnego - przyczynek do dyskusji;
opracowanie na zamówienie Związku Zawodowego Przemysłu Elektromaszynowego;
Warszawa – Baranów Sandomierski 16.06 - 18.06.2010r.

Ministerstwo Spraw Zagranicznych (2010), Eksport uzbrojenia i sprzętu wojskowego z Polski.
Raport
z
lat
2008–2009;
Report
aveiable
in
English:
http://www.msz.gov.pl/files/docs/DPB/polityka_bezpieczenstwa/newsy_docs/20110207RAPO
RT/exports_arms_en_1.pdf

Nowak E. (2012), Konsolidacja Polskiego Przemysłu Obronnego, Raport Wojsko - Technika
- Obronność, nr 2/2011

PIPROK (2012), Strona Polska Izba Producentów na Rzecz Obronności Kraju “Członkowie”,
http://www.przemysl-obronny.pl/ (30.04.2012)

PARP (2012), Polska Agencja Rozwoju Przedsiębiorczości, Klaster szansą dla przemysłu
obronnego
30.03.2012,
http://www.pi.gov.pl/PARP/chapter_86197.asp?soid=5B12432E4EF44562BCB4E01A489EAE84
(29.04.2012)

Raport MSPO (2011), Poish Defence and Law Enforcement Equipmend Worldwide (last 20
years), nr 05.09.11

Wilewski K. (2011a), By armia rosła w siłę, Polska Zbrojna. Prezentuj Broń, nr 3/2011

Wilewski K. (2011b), Jak zarobić na wojsku, Polska Zbrojna. Prezentuj Broń, nr 4/2011

Wilewski K., Wróbel T., (2011), Bumar a sprawa polska, Polska Zbrojna. Prezentuj Broń, nr
2/2011

ZZPE (2012), Dialog społeczny w zbrojeniówce, http://www.zzpe.org.pl/dialog/opis.html
(29.04.2012)
Interviewed experts

In depth Interview - Colonel (ret,) Mr Sławomir Kułakowski President of the Polish Chamber of National Defence Manufacturers (biggest organization in Poland in this aspect,
about 100 armament sector producers/providers/etc as members)
170
c)

In depth Interview - Mr Jerzy Szpecht, President of the National Section of Polish LAS at
Trade Unions for Electromechanical Industry (Hedquater – Bumar Żołnierz).

Correspondece - An official (Press Spokesperson) at Polish Ministry of Defence (Inspektorat Uzbrojenia – body responsible for supply of the equipment for the Polish Army). This
body exist since 2011 and it is former part of Ministry of Defence RP responsible for such
topics and still is controlled by MoD.
171
B.5. SPAIN
B.5.1.
a)
The ‘Industrial Companies Survey’145, published by the INE (‘Instituto Nacional de Estadística’, the National
Institute of Statistics of Spain) provides information on the turnover of the Land Armament Sector (from now
on named LAS), which includes the ‘Manufacture of Weapons and Ammunitions’ (NACE Rev2 25.4), and
the ‘Manufacture of military fighting vehicles’ (NACE Rev2 30.4). According to this source of information,
the total turnover of the LAS reached 713.3 millions of Euros in 2008, and diminished to 662.4 millions of
Euros in 2009. Focusing on 2009 data, the LAS turnover represents just 0.17% of the total turnover of the
whole Spanish Manufacturing, which reflects the small size of the sector in comparison the entire collection
of manufacturing activities. On the other hand, and according to the ‘Central Directory of Companies’146,
LAS companies mean just 0.03% of the total number of companies in the Spanish Manufacturing. More
precisely, in 2011 there were 64 companies registered in the LAS (i.e. NACE Rev2 25.4 and NACE Rev2
30.4). In any case, according to some experts, these figures associated to the LAS lack a number of SMEs
which are partly involved in the sector as small providers.
On the other hand, according to the information available in the Annual Report of TEDAE147 (Spanish Association for Defence, Aeronautics and Space Technologies), the turnover of the ‘Armament, missiles and
ammunition’ subsector has increased from 225.8 millions of Euros in 2008 to 424.4 millions of Euros in 2010.
Conversely, the turnover of the ‘Terrestrial Platforms’ subsector has decreased from 509.9 millions of Euros in
2008 to 159.3 millions of Euros in 2010 (see Table B.8). As a whole, the total turnover of the LAS (i.e. ‘Armament, missiles, ammunition’ plus ‘Terrestrial Platforms’) has followed a downward trend, from 735.77 millions
of Euros in 2008 to 583.71 millions of Euros in 2010.
Table B.8.
Evolution of turnover in Defence and Security, by subsector.
2008-2010.
Subsectors
Armament, missiles, ammunition
Terrestrial Platforms
TOTAL TURNOVER LAS
TOTAL TURNOVER DEF./SEC.
2008
225.82
509.95
735.77
3,830.90
2009
279.57
405.44
685.01
5,363.85
2010
424.40
159.31
583.71
5,431.05
Unit: Millions of €
Source: TEDAE, 2010.
Concerning the weight of each subsector over the total sales of the Spanish Defence and Security Market
in 2010, the following chart shows that the ‘Terrestrial platforms’ sector is the smallest subsector, representing only 2.9% of the total Defence and Security Sales (TEDAE, 2010). Meanwhile, the ‘Armament, missiles
and ammunition’ sector appears as the second smallest sector, as it just represents 7.8% of the total sales
(see Graph B.10). In contrast, it is unquestionable that the aerospace sector is the defence subsector with
greatest turnover and employment figures, followed by the naval sector.
145 For more information, see the website for the ‘Encuesta Industrial de Empresas’, or the ‘Industrial Companies Survey’:
http://www.ine.es/inebmenu/mnu_industria.htm
146 For more information, see the website for the ‘Directorio Central de Empresas’, or the ‘Central Directory of Businesses’,
published by the INE: http://www.ine.es/jaxi/menu.do?type=pcaxis&path=/t37/p201/&file=inebase
147 For more information see: www.tedae.org
172
Graph B.10 Proportion of sales by Subsector over total sales in the Defence and Security Market. Spain 2010.
Aerospace
Platforms:
53,0%
Others
(sensors, eng,
etc.): 8,6%
Armament,
missiles,
ammunition:
7,8%
Naval
Platforms:
27,7%
Terrestrial
Platforms: 2,9%
On the other hand, and from a historical perspective, it is necessary to explain that in the mid-nineties the
European Union (including Spain) gave a boost to the military market. At that time, the Spanish Government started numerous projects for new armament, aimed at modernising the Armed Forces, which lead
to the implantation of major procurement programmes. Thus, in 1996 the Spanish MoD, in collaboration
with the Ministry of Industry, approved a ‘Modernization Plan’ which included the acquisition of new and
modern aeronautic, naval and terrestrial equipments. This was a direct consequence of the access of
Spain to NATO, given that this organisation imposed many military requirements to Spain (Delàs, 2012).
In this context, the Spanish MoD progressively increased its production demand for the Spanish military
industry, which benefited from large contracts. Thus, these new armament programmes originated growing military expenses. However, since 2009, the economic and financial crisis has lead to a drastic reduction in Spanish defence budgets, resulting in the contraction of direct domestic demand. More precisely,
Spanish public investment in defence has decreased by almost 70% between 2008 and 2011 (from 2,039
millions of Euros in 2008 to 654 millions of Euros in 2011; see Table B.9) (Martí Sempere, C., 2011).
Table B.9.
Evolution of Defence Investment. Public Budget.
Year
2008
2009
2010
2011
2012
Investment in Defence (Millions of Euros)
2,038
1,733
1,202
1,005
654
Source: Martí Sempere, Carlos, “Los retos de la Industria de Defensa en la nueva
década”, Instituto Español de Estudios Estratégicos, Madrid, 2011.
Diverse sources indicate that at the present time the Spanish defence expenditure means approximately
0.65% of the GDP (2012 data), the lowest percentage in the NATO. Concerning the 2012 Public Budget,
data from the Ministry of Finance and Public Administrations shows that the funds allocated to the Defence Policy for the year 2012 reach the amount of 6,261.3 millions of Euros, which is 8.8% lower that the
funds for the previous year (6,868.2 millions of Euros in 2011). In particular, individually considering all the
items included in the Defence Policy, available data indicate that the worst affected item refers to the
‘Special Modernization Programmes’, followed by the ‘Modernization of Armed Forces’, which are closely
related to the technological development of the defence industry (see Table B.10).
173
Table B.10. State Budget for the Spanish Ministry of Defence. 2011 and 2012.
DEFENCE
Administration and General Services
Staff Training (Armed Forces)
Reverse Personnel
Modernization of Armed Forces
Special Modernization Programmes
Operative expenses of the Armed
Forces
Logistic Support
TOTAL
%
(2012)
%
Variation
2011/2012
Budget
2011
%
(2011)
Budget
2012
1,234.3
18
1,217.5
19.4
-1.4
485.6
546.6
383.1
204.5
2.362.7
7.1
8
5.6
3
34.4
418.9
550.9
268.9
4.9
2,289.1
6.7
8.8
4.3
0.1
36.6
-13.7
0.8
-29.8
-97.6
-3.1
1,651.2
6,868.2
24
100
1,510.9
6,261.3
24.1
100
-8,5
-8.8
Source: UGT (Unión General de Trabajadores), based on data from the Ministry of the Finance and Public Administrations
The reduction of defence budgets has a head-on impact on companies’ capacities, which had a high
percentage of purchases from the MoD guaranteed (TEDAE, 2010). Companies will probably find that
most of the demand originated from the MoD will be now predominantly related to the maintenance and
modernization of already acquired infrastructure. The question here is if this lower level of demand will be
enough to keep the military industry’s capacities, including LAS, especially bearing in mind its high fixed
costs.
Table B.11. Some concrete examples of the consequences of budget cuts
•
The public budget particularly allocated to the Army has decreased by 167 millions of Euros between
2011 and 2012 (6.2%). More precisely, maintenance costs have been cut by 10%. As a consequence,
30% of armoured and mechanized vehicles and campaign and antiaircraft artillery have been paralysed. In this sense, as a curiosity, one of the measures applied by the Spanish Land Army in order to save
costs consists of leaving tanks in hibernation. This is done through a process known as ‘dehumidification’,
which implies storing the tanks without their batteries, oil or any other element that might deteriorate
them.
•
Another current issue derived from budget cuts refers to the need of the Spanish Armed Forces for replacing the old BMR vehicles for new 8x8 vehicles. The Spanish company GDELS-Santa Bárbara Sistemas
presented its proposal (offering the Piranha model), whereas other foreign companies from Switzerland
and Italy have also presented their own models. Santa Bárbara is strongly fighting to get this project,
and the company defends its proposal by highlighting two strong points: the excellent qualification of
the workforce and the fact that the whole production would take place in Spain (the whole vehicle and
its components, such as engine, electronic systems, etc. would be entirely developed by Spanish firms).
Furthermore, Santa Barbara has even proposed a ‘self-financing’ system, by which the factory would initially obtain the funds from the US headquarters, so that the MoD does not have to start its payments until 4-5 years later. However, even if the Spanish MoD is aware of the need for modernization of 8X8 vehicles, its high debt and the budget cuts do not let it advance in this process.
Source: Interviews with experts.
b)
MAIN ENTERPRISES
Spanish enterprises with a presence in Defence, Aeronautics and/or Space are integrated within the Spanish Association for Defence, Aeronautics and Space Technologies, TEDAE148. This Association was set up in
Madrid in 2009, in order to assume the representation and promotion of its members (including small, me-
148
For more information see: www.tedae.org
174
dium and large enterprises) both nationally and internationally. The constitution of TEDAE is the consequence of a general trend all over Europe, where, over the last years, defence and aerospace industries’
organisations have progressively merged into a single representative organisation in each country. In fact,
TEDAE was created after the dissolution of Atecma, the previous employers’ association of the aeronautics
sector, and Afarmade, the employers’ association of the defence sector.
With regard to the main national enterprises and the level of concentration of the Spanish defence sector
in general, and the LAS in particular, it can be said that the industry is characterised by a limited number of
major companies which act as the main contractors (and which are nevertheless small compared to their
international counterparts), and a large group of small-scale providers or suppliers, normally positioned in
the private sector (TEDAE, 2010). In fact, there are products with a sole national supplier, either due to the
exclusivity of the products or because there is only one entity or large company with the capacity to
channel and manage the necessary resources to supply the products.
On the other hand, in most cases the Spanish Ministry of Defence appears as the sole national consumer.
More precisely, the General Directorate of Armament and Materiel (DGAM) is the organisation responsible
for the preparation, planning and development of armament and materiel policy as well as the oversight
and administration of its execution. Thus, the role of the Government in the defence industry in general,
and in the LAS in particular, is critical (TEDAE, 2010; MoD, 2010).
Focusing now on the largest Spanish defence companies, there are four main companies in the whole
Spanish defence industry, which represented in 2009 75.4% of the total defence turnover, and 74% of the
total employment. Each of these companies basically monopolises its corresponding defence subsector
(EADS-Casa, in the aerospace sector; Navantia, in the naval sector; Indra, in the electronics and communications sector; and General Dynamics Land Systems-Santa Bárbara Sistemas, in the LAS sector).
With regard to the LAS specifically, and as already mentioned, the largest manufacturer in the Spanish LAS
is GDELS-Santa Bárbara Sistemas, which produces armoured vehicles (wheeled and tracked), as well as
weapons and systems, and artillery and ammunition. The company has seven production sites in Spain,
and its defence sales reached 310 millions of Euros in 2010.
Table B.12. GDELS-Santa Bárbara Sistemas. Company fiche.
General Dynamics European
Land Systems
(GDELS)
•
•
•
•
•
General Dynamics European Land Systems (GDELS) is a business unit of the American multinational General Dynamics Corp.
The Spanish public-owned ‘Santa Bárbara Sistemas’ was the first company that General
Dynamics Corp bought in Europe, in the year 2001. After that, the American multinational
progressively acquired other defence factories throughout Europe, in Switzerland (European
Land Systems Mowag), Austria (European Land Systems- Steyr) and Germany (European
Land Systems- Germany).
All production sites were unified as a single business unit under one European parent company in 2003. In 2011 the headquarters of GDELS (General Dynamics European Land Systems) were set in Madrid.
As one of the European leaders in the land combat systems sector. GDELS has focused itself
on four specific divisions with the aim of producing greater synergies and coordination between its 12 plants. These four divisions are: Tracked Vehicles, Wheeled Vehicles, Bridges, and
Artillery & Ammunition, plus a network of R&D centres, and logistic and customer relations
activities.
At the present time, GDELS is a global leading designer, manufacturer and integrator of
tracked and wheeled armoured vehicles, tactical vehicles, ammunition and weapons systems. Moreover, GDELS provides Integrated Logistic Support (ILS) services to a variety of Costumers for all product range through the entire life cycle.
175
GDELS Santa
Bárbara Sistemas
(Spain)
The Spanish public-owned ‘Santa Bárbara Sistemas’ was the first company that General
Dynamics Corp bought in Europe. It was acquired in the year 2001, and one of the reasons
for the Spanish Government to sell it to General Dynamics was that they agreed to keep
employment levels and working conditions for at least 5 years.
• According to 2010 data, GDELS Santa Bárbara Sistemas had 1,634 employees, whereas the
sales for that year reached a value of 310M€. This data make the Spanish production sites
the largest within the GDELS Group. Moreover, GDELS Santa Barbara Sistemas is the most important vehicle manufacturer among all of them and it enjoys porwerful manufacturing capacities and a great adaptability.
• GDELS Santa Bárbara Sistemas has 7 different production sites in Spain, and each one of
them is specialised in a number of particular products:
Trubia: armoured vehicles (wheeled and tracked), howitzers, turrets, etc.
Oviedo: medium and light armament
Sevilla: armoured vehicles (final assembly and tests)
Madrid: headquarters and R&D
Palencia: artillery systems, arms, ammunition
Granada: gunpowder
• The main products and programmes developed by GDELS Santa Bárbara Sistemas are the
following:
•
1. Weapons and systems
•
•
•
Light weapons (CETME, AMELI, CETME L, LAG 40)
Artillery (155/52 APU SBT howitzer)
Turrets (TC-25, TC-13, TC-3, TC-7, TC-19, TC-9)
2. Ammunition, gunpowder and explosives
3. Armoured vehicles
•
•
Tracked vehicles (Pizarro)
Wheeled vehicles (BMR, Dragoon, VEC)
4. Modernization Programmes
•
•
Tanks: AMX-30E, M60 Patton Armoured Vehicles: BMR 2
In addition to the above, GDELS Santa Bárbara Sistemas manufactures also products of
foreign patent, for example, the Armoured Vehicles Leopard 2E (German patent) and AMX30E vehicle (French patent), or the Spike missile (Israeli patent).
• Concerning cooperation agreements, an interesting example is the DONAR, a 155mm advanced artillery system which was developed by the German Krauss-Maffei Wegmann
(KMW) and GDELS-Santa Bárbara Sistemas together. Moreover, GDELS-Santa Bárbara Sistemas also collaborates with European manufacturers such as the French Nexter or with the
Norwegian Namo. At Spanish level, they frequently cooperate with Spanish companies such
as Navantia (which manufactures, for example, engines) or Indra (which normally provides
electronic systems).
• GDELS Santa Bárbara Sistemas is making huge efforts to open foreign markets. The company
has recently won a tender for the UK, by which the UK MoD has placed an order of Ascot SV
vehicles (the modern version of the Pizarro model).
•
Source: Interviews with CCOO Trade Union and GDELS-Santa Barbara Sistemas representatives.
Additionally, other main Spanish companies which manufacture military fighting vehicles are the following
ones (Delàs, 2009):

IVECO España (www.iveco.com), which manufactures both commercial vehicles (e.g.
trucks and buses) and military transport vehicles. Its defence sales reached 53.6 millions
of Euros in 2009.

UROVESA (www.urovesa.es/), which manufactures platforms for the transportation of
heavy armament and armoured vehicles. Its defence sales reached 42.8 millions of Euros
in 2009.

Einsa (www.einsa.es), which produces missile pallets and diverse tools for planes. Its defence sales reached 14.8 millions of Euros in 2008.
176

SAPA Placencia, SA, (www.sapaplacencia.com) which manufactures light weapons and
systems, and has lately specialised in mechanical transmissions for heavy vehicles. Its defence sales reached 8.8 millions of Euros in 2009.

Cohemo (www.cohemo.com), which manufactures diverse components for armoured
vehicles and battleships and provides maintenance (e.g. maintenance of Leopard, Pizarro, Centauro or BMR vehicles). Its defence sales reached 4.7 millions of Euros in 2009.
As well as this, it is worth citing Santana Motor, SA, an important vehicles manufacturer which closed in
February 2011 (Delàs, 2009). Moreover, it is necessary to mention that Navantia, the largest manufacturer
in the naval sector, also produces engines for military vehicles (for instance, General Dynamics and
Navantia have often collaborated in the manufacturing of some vehicles). Likewise, through the ‘Faba
Systems’ activity line, Navantia manufactures products such as CDS Systems, DORNA Fire Control System
and Communication Systems.
On the other hand, and also with regard to the Spanish manufacturers in the LAS, the following list includes
the main companies which manufacture Weapons and Ammunitions (Delàs 2009):

Explosivos Alaveses (EXPAL) (www.maxam.net/es/expal) which manufactures explosives,
mines, ammunition, bombs, clusters, etc., and integrates systems and services for the defence and security industry. Its defence sales reached 64.7 millions of Euros in 2009.

Fabricaciones Extremeñas (FAEX) (www.maxam.net/es/expal), which manufactures explosives, mines, cluster bombs, etc. Its defence sales reached 25 millions of Euros in 2009.

S.A. Electrón.Submarina SAEs (www.electronica-submarina.com), which manufactures
sea mines, sonar and sensors. Its defence sales reached 16.1 millions of Euros in 2009.

Explosivos de Burgos (EDB) (www.maxam.net/es/expal), which manufactures explosives,
mines, rockers and fuses. Its defence sales reached 11.4 millions of Euros in 2009.
OWNERSHIP QUESTIONS
The past 25 years have seen radical changes in the industrial structure of the Spanish defence sector, including the LAS. Thus, a couple of decades ago the sector was mostly owned by the public sector. However, nowadays it has been almost entirely privatised (with the notable exception of Navantia, the leading
manufacturer in the naval sector, which is still 100% Government-owned). In any case, defence industries,
both public and private, are highly dependent on the Ministry of Defence, given that for most defence
products the National Government is basically the sole consumer (TEDAE, 2010).
In this sense, during the nineties, many public companies in the defence sector were privatised (completely or partly). With regard to the main companies in the LAS sector, currently most of them are private.
It is interesting to look at the case of GDELS-Santa Bárbara Sistemas, the largest manufacturer in the Spanish LAS. This company, initially known as ‘Empresa Nacional Santa Bárbara S.A’, was constituted in 1960 as
a company 100% owned by the Spanish Government, with the main objective of manufacturing armament for the Spanish Armed Forces. In 2000, the Government decided to privatize it. Three different companies presented their proposal to buy ‘Santa Bárbara’: the American General Dynamics, the German
Group Krauss Maffeei & Rheinmetall, and the Spanish Explosivos Alaveses. Finally, in July 2001, the company was bought by General Dynamics, one of the world leaders of armament manufacturing. The reason
for this choice was the Industrial Plan presented by General Dynamics which guaranteed that employment levels and working conditions would be kept at least until 2006 (Delàs, 2012).
Concerning other vehicle manufacturers, IVECO España is part of an Italian private business group (subsidiary of Fiat Industrial S.p.A.), whereas UROVESA is a Spanish privately-owned company. On the other
hand, the case of Santana Motor is particularly interesting: the company was totally owned by the Regional Government of Andalucía, but in 2010 they decided to close it, due to its huge losses.
177
Finally, with regard to the ammunitions sector, it must be explained that MaxamCorp (known as ‘Unión
Española de Explosivos, UEE’ until the year 2006) is a global private business holding with over 140 companies operating across world. EXPAL, whose headquarters are located in Madrid, is responsible for the ‘defence’ business unit of the Maxam Group. With regard to the Spanish companies, the Maxam Group
gathers three companies aimed at the manufacturing of military ammunition, as follows: Explosivos de
Burgos, Fabricaciones Extremeñas y Fabricaciones Metalúrgicas de Albacete, which all together cover a
very large size of the whole Spanish ammunitions sector (Delàs, 2012).
Annex 3 at the end of this national report includes a figure showing the Spanish military industry network
with the State and Financial Groups.
COOPERATION EXPERIENCES
According to TEDAE, cooperation processes among defence companies are relatively slow, and even
scarce. For this reason, some experts recommend that it is convenient to create a context which stimulates
collaboration among companies, so that they gain more competitiveness and capacity to influence the
market (Cortes Generales, TEDAE, 2009). As well as this, some military industries claim the need for creating
a ‘national pole’ in the defence sector, with the largest companies included, and with the support of the
Government, so that Spanish industries can compete in better conditions with foreign competitors. Certainly, this is seen as a very convenient way for Spain to react against the restructuring process in the European defence industry.
On the other hand, it is interesting to mention some cooperation examples cited by our informants from
GDELS-Santa Bárbara Sistemas, who stated that the company is open to collaboration. Thus, for instance,
there is a strong collaboration among the different European production sites that comprise ‘General
Dynamics European Land Systems’. According to interviewed representatives, the different factories support and help each other, and in some cases the workload is shared according to the needs or interests of
each of them.
Moreover, cooperation between different enterprises is also relatively frequent. For example, the DONAR is
a 155mm advanced artillery system which was developed by the German Krauss-Maffei Wegmann (KMW)
and GDELS-Santa Bárbara Sistemas together. Additionally, GDELS-Santa Bárbara Sistemas also collaborates with the French Nexter or with the Norwegian Nammo, whereas, at national level, they frequently
cooperate with Spanish companies such as Navantia (which manufactures, for example, the engines) or
Indra (which normally provides electronic systems). In our informants’ opinion, the overall assessment is that
collaboration agreements between companies turn out to be very advantageous for all participants,
which makes this type of agreements relatively common for GDELS-Santa Bárbara Sistemas.
c)
Spain has made great efforts to develop a powerful defence industry which has achieved important capacities for manufacturing defence material and equipment. Although not all the implemented programmes have reached the success expected, in some cases the Spanish defence industry has managed
to develop important competitive advantages in some niche markets (Martí Sempere, C., 2011). Concerning LAS product specialisation, the Spanish defence industry in general has progressively specialised in a
number of critical industries, partly due to the small size of the domestic market. The most notable areas of
excellence are (TEDAE, 2010):

Armoured combat vehicles and personnel carriers

Artillery

Electronic Equipment, Sensors and Electronic Warfare

Munitions and Explosives
178
As a curiosity, it is worth mentioning that vehicles and heavy armament programmes are so sophisticate
and specialised that their manufacture lasts for a relatively long period of time. However, ammunition is a
more basic good, and it is produced quicker; thus, it is more a utility-type product where cost factor has
more weight. In line with this, it is remarkable that the large defence programmes implemented years ago
by the Spanish MoD result in workload for several years, so at present, there are still many LAS companies
whose current production derives from those large orders placed before the budget cuts.
Finally, it is also interesting to highlight that the provision of defence-related services is becoming increasingly important for the defence industry in general, and for the LAS in particular. In this sense, nowadays
the sustainability concept is already an essential element in any procurement process for weapons systems
and equipment. Moreover, in a context of budgetary constraints, and having left behind the period of
major weapons systems acquisitions, the new scenario is focused on equipment sustainability (TEDAE,
2010).
ROLE OF SMES
Spanish LAS SMEs constitute a large group of small-scale providers or suppliers, normally positioned in the
private sector. In fact, SMEs constitute the basic industrial fabric of the defence sector, and they are
closely connected to the region where they are located, facilitating products’ embeddedness in local
areas. For this reason, one of the objectives of the Industrial Policy is to achieve the maximum participation
of SMEs in production processes, due to their ability to develop a national industrial base with strong military capacities (MoD, 2010).
According to our informants, SMEs in the LAS provide lots of specialized small components to main contractors. Normally, these SMEs have a “mixed production”, that is, they are not exclusively devoted to defence components, but they also work for other industrial sectors.
Significantly, many experts working in the LAS remark that a great part of the technology innovation in the
sector comes from SMEs. Thus, it is estimated that much of the R&D investment takes place small and medium “seed companies”. For this reason, it is necessary to keep these lower size companies, which represent the “specialist niche” in the defence market.
Finally, according to our informants, a current extended trend among main contractors is the reduction in
the number of SMEs which constitute the value chain, in order to keep just the best performers. Certainly,
the work developed by SMEs in the value chain is a key component for the success of the final product,
and factors such as the quality of the components, costs, delivery times, etc. are strictly considered by final
manufacturers. Defence products are particularly complex and the technology required is very sophisticate, so the whole process must be extremely precise.
d)
Markets
EXPORTS
According to data published by TEDAE for the defence and security market, the exports of ‘Armament,
missiles, and ammunition’ reached a value of 80.7 millions of Euros on 2010, which meant 19% of the total
sales (i.e. domestic demand plus exports) in this subsector. Meanwhile, concerning ‘Terrestrial Platforms’,
exports had a value of 60.7 millions of Euros in 2010 (which meant 38.1% of the total demand in this subsector) (see Table B.13). It can be observed that the percentage of exports over total sales in the Total Defence and Security Market is higher than in the LAS specifically, mainly due to the large export figures of
the aerospace and naval sectors.
179
Table B.13. Evolution of Exports. LAS and Defence and Security Market. (2008-2010)
2008
Subsectors
Armament, missiles, ammunition
Defence and Security Market Total
2009
Exports
% Exports/
Exports
(millions €) Total Sales (millions €)
85.1
84.5
1,708.4
37.7%
16.6%
44.6%
92.2
80.1
2,892.5
2010
% Exports/
Total Sales
33.0%
19.8%
53.9%
Exports
% Exports/
(millions €) Total Sales
80.7
60.7
2,946.8
19.0%
38.1%
54.3%
Note: ‘Total Sales’ refers to domestic demand plus exports.
Source: TEDAE, “Informe Anual de Defensa y Seguridad”, Annual Report, Madrid, 2010.
On the other hand, concerning Spanish LAS companies’ access to international markets, TEDAE explains
that there is not any institutional platform to support defence exports. In other words, Spain lacks an institution similar to the’ Defence Exports Support Group’ (DESG) of the United Kingdom, the Swedish ‘Försvarsexportmyndigheten’ (FXM)149, or the French ‘Direction Générale de l'Armement’ (DGA)150. In fact, a
common claim among industry representatives refers to the demand for support from the Spanish Government to help them access new markets, increasing its weight in international offerings. Likewise, it is
estimated that exports is an issue which should be supported by the Spanish Government as a whole; thus,
not only the Ministry of Defence, but also the Departments of Industry, Economy, Foreign Affairs and Interior
should be actively involved (TEDAE, 2010).
Nowadays, exports are seen as a future business opportunity for the LAS, and GDELS Santa Bárbara Sistemas is making huge efforts to open foreign markets. An example of an important achievement in this field
is that Santa Bárbara has recently won a tender for the UK, by which the UK MoD has placed an order of
Ascot SV vehicles (the modern version of the Pizarro model).
DUAL MARKETS
Concerning the involvement of defence industries, including LAS, in dual markets, it can be said that technologies are more and more applied in both civil and military sectors without distinction, and there is a
growing industrial diffusion between both sectors (MoD, 2010). However, some experts observe that defence products are not really characterised by a great duality. In other words, defence products do not
always have a civil application, or turn out to be too expensive to be used in the civil market (normally,
defence products are much more sophisticated). Thus, getting military products to be a success in civil
markets can turn to be more complicated that it appears to be initially, as in most cases defence products
must undergo an adaptation process to make them accessible and useful for civil customers (Martí Sempere, 2011).
On the other hand, with regard to the involvement of LAS companies in non-defence markets, available
data for the year 2009 shows that military vehicles manufacturers are more likely than weapons and ammunition manufacturers to work in both defence and civil markets. Although GDELS-Santa Bárbara Sistemas devotes 100% of its production to the defence market, IVECO, the Spanish second largest military
vehicles manufacturer, only devotes 4.9% of its total production to military products. Likewise, 70% of the
production of UROVESA, the third largest military vehicles manufacturer, refers exclusively to military products (whereas the remaining 30% covers non-defence goods). In contrast, with regard to the main Spanish
manufacturers of weapons and ammunitions, it should be remarked that the largest manufacturers (e.g.
EXPAL, FAEX, SAES, EDB) devote 100% of its production to defence products (Delàs, 2012).
For more information on the Swedish Defence and Security Export Agency see: http://fxm.se/en/
For more information on how the French General Directorate of Armament supports defence exports see:
http://www.defense.gouv.fr/dga/international2/exportations
149
150
180
IMPACT OF EU LEGISLATION (DEFENCE PACKAGE)
The EU is promoting a more integrated and open defence market, which will bring important changes for
the industry. This new context derives into a contradictory position for LAS companies: on the one hand,
openness facilitates the access to new markets and generates new business opportunities; but, on the
other hand, it brings more competition into own domestic markets (Martí Sempere, 2011).
e)
The defence sector as a whole is considered to be a strategic sector from a technological point of view,
as it has contributed significantly to Spain’s technological and industrial development (TEDAE, 2010). Certainly, technological development has an enormous impact on defence systems, as there is a clear correlation between an Army’s technology level and its effectiveness (MoD, 2010).
For this reason, technological requirements in the defence sector, including LAS, are very high and entail
large capital investments. Unfortunately, these requirements are not compatible with the relatively small
size of the Spanish market. Thus, although large companies such as GDELS-Santa Bárbara Sistemas can
afford investing their own resources in R&D activities, the smallest companies in the LAS business fabric can
not easily innovate without public support.
Hence, traditionally, Spanish R&D efforts in the defence sector have been mainly supported by Public
Administrations, and most of the technological development investment carried out by defence industries
has traditionally derived from public customers’ specific orders (TEDAE, 2010). That said, the unfavourable
conditions of the current economic situation and the consequent public budget cuts raise fears of a
backward trend in the innovation capabilities of the defence industry in general, and the LAS in particular
(MoD, 2010). In particular, according to our informants, at the present time R&D public funds would be
more likely to be achieved basically just for two main purposes: soldiers’ safety (development of protection
systems and more secure material and infrastructures) and environmental protection. In addition to this,
the question here is that even if Spanish defence companies have made great R&D investment efforts,
leading European countries are still much more advanced in this field (TEDAE, 2010).
In addition to the above, and when referring to technology and innovation issues in the defence industry,
including LAS, it is necessary to comment of the classic problem of ‘Industrial Offsets’, which can be defined as more or less visible compensations, demanded by customers from suppliers. The EU's efforts to
suppress them and improve transparency only act on the European internal market. In contrast, the buying
countries in international markets, demand off-sets in the contract packages or have laws which impose
them (TEDAE, 2010). Given the high value of technological knowledge in the defence industry, companies
try to protect and keep for themselves key technological issues for the manufacturing of strategic products, as a way to maintain their competitive advantage.
On the other hand, it is worth mentioning that in an increasingly greater proportion, scientific and technological advances are coming from R&D conducted in the civil domain. In this sense, it is estimated that in
the near future the most revolutionary or disruptive technological advances for military capabilities will
come from R&D and innovation developed in the civil sector, which will further encourage progressive
convergence of civil and military R&D (MoD, 2010). Moreover, when looking at R&D budget evolution in
Spain, the comparison between military research budget and civil research budget shows that over the
last years the civil budget has increased much more than the military budget. More precisely, civil research budget increased from 2,627 millions of Euros in 2003 to 8,214 millions of Euros in 2009 (i.e. the available amount more than tripled in that period), whereas military research budget increased just from 1,373
millions of Euros to 1,459 millions of Euros. For this reason, the path for the future in the defence sector, including the LAS, must facilitate synergies between the private and public sector, both civil and defence,
collaborating to maximise resources in the most efficient manner possible (MoD, 2010).
181
Finally, having said this, it is necessary to explain a polemic issue that has affected the Spanish defence
industry over the last years, in relation to public credits to support R&D in this sector. Before the outbreak of
the crisis, during the early-mid 2000’s, the Spanish MoD signed an agreement with the Spanish Ministry of
Industry which would facilitate the development of large defence procurement programmes. In particular,
the Ministry of Industry provided zero interest loans to defence industries as a way to develop R&D programmes. Then, these loans would be reimbursed to the Ministry of Industry when the MoD would progressively pay to the companies for the corresponding defence products, as they were manufactured and
delivered. This financing system facilitated payment delays, and at the same time derived in the false
impression that the MoD could face more projects than real, which derived in huge debts (Delàs, 2012;
Martí Sempere, 2011).
According to several sources of information consulted, at the present time the Spanish MoD owes around
26,000 millions of Euros to the Spanish defence industry for the large defence procurement programmes
agreed years ago. This amount should be progressively paid to companies until 2025. The question here is
that this situation will be even more complicated in the near future, given that defence public budgets are
not increasing accordingly to the amounts owed to defence industries.
Against this background, the MoD is trying to revise and update the defence procurement programmes
signed to reduce their expenses, as a consequence of the lack of funds. The situation is so gloomy that it is
estimated that it will be virtually impossible for the MoD to place new orders in the next 20 years, and even
to pay for maintenance costs of previously acquired material; hence, paradoxically, previous acquisitions
for the modernization of the Armed Forces may cause their future operational inability. With the aim of
soothing the situation, the MoD has proposed three possible ways to follow: the extension of deadlines
(from 2025 to 2030); the cancellation or reduction of some of the contracts agreed, when possible; and
finally, the relief of the 14,000 millions of Euros debt that defence companies owe to the Ministry of Industry
for zero interest loans. Some of the revised procurement programmes include the following products: Eurofighter, NH-90 helicopter, leopard vehicle, countermine armoured vehicles and unmanned aerial vehicles.151
B.5.2.
Employment issues within the National Land Armament Sector (LAS)
Concerning employment figures, the TEDAE Annual Report on Defence and Security shows that in 2010 the
‘Armament, missiles and ammunition’ sector employed a total of 2,130 persons, which doubles the 2009
amount (1,026 employees). Meanwhile, the terrestrial platforms sector has experienced a downward trend
since 2008, with an especially remarkable fall between 2009 and 2010 (1,807 employees in 2009 and 647 in
2010) (see Table B.14). As it can be expected, in both cases employment trends go in line with turnover
evolution.
Table B.14. Evolution of employment (number of employees) (2008-2010)
Subsectors
Armament, missiles, Ammunition
TOTAL EMPLOYMENT IN THE LAS
TOTAL EMPLOYMENT IN DEFENCE AND SECURITY
2008
1,037
2,398
3,435
17,581
2009
2010
1,026
1,807
2,833
20,147
2,130
647
2,777
19,270
Unit: persons.
Concerning the proportion of employment which each subsector means over the total of the defence
and security markets, and according to 2010 data, ‘terrestrial platforms’ is the defence subsector with the
151 See El País, 11 October 2011 and 9 April 2012
http://politica.elpais.com/politica/2011/10/11/actualidad/1318366983_404307.html and
http://politica.elpais.com/politica/2012/04/09/actualidad/1334000027_666264.html
182
lowest employment percentage, with only 3.4% of the total. On the other hand, the ‘armament, missiles
and ammunition’ sector covers 11.1% of the total defence employment. Therefore, it can be said that the
LAS (i.e. ‘terrestrial platforms’ plus ‘armament, missiles and ammunition’) means 14.4% of the total defence
employment. Once again, ‘aerospace’ and ‘naval’ sectors boast the highest percentages (47% and
30.9% respectively) (TEDAE, 2010).
According to the information provided by interviewed ‘GDELS-Santa Bárbara Sistemas’ representatives,
and with regard to age issues, the workforce in the LAS is aging. As an example, it is estimated that the
average age in ‘GDELS-Santa Bárbara Sistemas’ is 52 years. In particular, as explained by the interviewees,
during the mid-2000s (after the privatisation process), many of the oldest workers opted for early retirement, which led to the hiring of several young workers. However, over the recent years, and as a consequence of the economic crisis and the demand reduction, it is not common anymore to take on new
employees. Certainly, as public budgets decrease, new contracts also diminish. This results in the ageing of
the workforce.
On the other hand, concerning workers’ qualification, and according to our informants, employees in the
Spanish LAS sector are highly-qualified workers with a large experience and broad specialised technological knowledge. The defence sector, including LAS, is a technological strategic sector, and a large generator of innovation and R&D. In fact, the high-tech and innovative products manufactured in the LAS require
expert staff to carry out precise and sophisticated tasks. Products are extremely specialised and complex,
specifically adapted to the client’s needs, and production processes are particularly meticulous. As a
result, training is very important, and workers’ high capacities are kept thanks to continuous training programmes. Actually, LAS employees are strictly trained and their knowledge is formally recognized when
developing particularly complex or technologically advanced projects. Generally speaking, the high
qualification and specialization of the LAS workforce make it an appealing working area for potential
workers. In particular, our informants explained that ‘GDELS-Santa Bárbara Sistemas’ is seen as a very prestigious place to work, which boasts large experience and long-standing tradition in the defence market.
With regard to youngsters’ education, the interviewed trade union representative explained that vocational training centres and companies should collaborate more, so that students spend more time in production sites and knowledge is more practical. In this sense, our CCOO Trade Union contact stated that
some kind of ‘apprentice school’ within the company would help new workers to better gain the required
specialised knowledge.
On the other hand, regarding training activities, it is estimated that there is a good training supply,
adapted to the needs of the sector. In particular, the ‘Fundación del Metal para la Formación, Cualificación y Empleo’152 (‘The Foundation of Metal for Training, Qualification and Employment’ in English), specifically aimed at the Metal sector, is run by social partners (employers and workers’ representatives) and its
main objective is to manage training activities specifically aimed at their representative sectors, such as
the defence and security sector.
Finally, concerning Social Dialogue, trade unions play an important role in the LAS and they have a strong
influence concerning social conflicts. Generally speaking, and in comparison to other economic sectors,
the defence sector is characterised by long-standing and well-developed social dialogue practices. Thus,
for instance, trade unions’ influence was essential during the privatisation process of ‘Santa Bárbara Sistemas’, where the selection of GDELS depended on its promise to keep employment levels and working
conditions.
Interestingly also, the interviewed trade union representative explained an issue which is currently being
discussed by ‘GDELS-Santa Bárbara Sistemas’ social partners. This hot topic for Social Dialogue, directly
linked to the economic crisis, refers to the possibility of unifying the factories of Trubia and Oviedo, which
are located at a distance of 10kms from each other. The production site in Trubia is larger and more diver152
For more information see www.fmfce.org
183
sified, and moving all production and employment to the facilities in Trubia would help the company to
reduce costs (e.g. maintenance costs).
B.5.3.
The Spanish LAS is relatively strong and it boasts excellent capacities concerning infrastructure and facilities, experienced and well-trained workforce, etc., which have led to numerous successes and international prominence in some areas of excellence. Nevertheless, the historical limitations of the Spanish industrial policy in defence and the lack of a comprehensive vision of national business interests have fuelled
structural weaknesses emerging from the financial crisis and the implementation of the new procurement
directives in security and defence, leading to more open European markets (TEDAE, 2010).
According to our informants, a very important concern for the LAS refers to budget cuts, which have
brought to an end the era of grand programmes. As well as this, the financing problems derived from the
high debts of the MoD (linked to the zero interest loans provided by the Ministry of Industry) are preventing
the placing of new orders. Altogether, the progressively decreasing public defence budget and the need
for paying back previously agreed large contracts are causing a dangerous fall in domestic demand.
MoD programmes are being delayed, or there is not even a precise date for tenders’ announcements,
which results in an extremely uncertain future for the defence industry, including LAS.
It is worth mentioning here that, according to industry representatives, one of the weaknesses of the defence sector in general and the LAS in particular is its poor public image. Thus, in times of economic recession, when all public budgets must be reduced, the general public opinion is more likely to accept cuts in
the defence policy than in other public areas. Moreover, some industry experts claim that the LAS sector
has even a worse public image than other defence sectors, especially in comparison to aerospace.
In addition to the above, the small size of the defence industry is also seen as a limitation for the sector.
Thus, one of the main hurdles of the Spanish LAS to face new market challenges refers to scale problems
and weaker industrial capabilities, derived from its smaller dimension and stronger dependence on National Public Authorities, in comparison to leading European countries.
Linked to the above, the decline in funds and the limited size of Spanish defence companies have serious
implications for the technological development of the industry, mainly due to the large capital investments that defence R&D requires for maintaining a competitive position in the market (TEDAE, 2010). If
budget cuts and domestic demand reductions remain for a long period of time, the negative consequences for the sector could be irreparable (Martí Sempere, 2011). Moreover, the level of technological
development of national defence industries determines their capacity to collaborate with other defence
companies from leading countries, and it also influences the operability of the Spanish Armed Forces and
their ability to cooperate with allied countries (GEES 2012).
The previously-mentioned problems notwithstanding, looking to the future, there exist market trends that
are bringing business opportunities into the future industrial and employment development of the national
LAS. To start with, nowadays, with large procurement programmes temporarily frozen, the priorities of the
Ministry of Defence are focused on the sustainability of the equipment purchased, so it becomes clear
that the immediate future for the LAS is to develop effective methods for sustaining and modernizing the
weapons systems and vehicles in use. Therefore, sustainability, as well as being an operational necessity,
represents a business opportunity (TEDAE, 2010). In this sense, it is interesting to mention that it is more and
more common for the European Armed Forces to have maintenance services providers available in the
same place where they are carrying out their mission. Certainly, this is a new business area from which LAS
companies should take advantage. However, and bearing in mind budget cuts, it must be highlighted
that if the whole demand of the Spanish MoD refers exclusively to sustainability and modernization services, it might not be enough to cover the fixed costs of the Spanish LAS industry (Martí Sempere, 2011).
184
Likewise, another emergent business opportunity includes the security market, with appealing growing
prospects. Whereas the demand of exclusively military products is decreasing, the security market is growing, as both public and private demand augment (Real Instituto Elcano, 2011). In this sense, although the
security market has its own specific peculiarities, it also shares features with the traditional defence market
(for instance, in terms of technologies and procurement procedures) (TEDAE, 2010). In fact, the MoD estimates that there is a growing blurring line between the security and the defence sectors. Thus, the rendering of services to both civil and military customers could improve efficiency, by taking advantage of synergies. Notwithstanding this, it should be also taken into account that in some cases defence products are
too sophisticated and might not be easily adaptable to civil markets (Martí Sempere, 2011).
Linked to the previous point, it must be mentioned that the concept of defence and security is changing.
In general terms, at the present time main socio-political threats do not exclusively refer to armed conflicts,
but also to terrorism, organised crime, economic and financial insecurity, energetic vulnerability, proliferation of mass destruction arms, cyber-attacks, emergencies and catastrophes, etc. (Martí Sempere, 2011).
All these new threats require new products and services for facing them. This, in turn, means that companies will have to develop new technologies and abilities for designing and providing the required new
products and services, whereas the demand of traditional products and services might stagnate or even
disappear.
On the other hand, exports and internationalisation are a growing trend among defence companies, and
this undoubtedly constitutes a growing business opportunity for the sector. More precisely, emerging countries, which are increasing their defence capabilities for geostrategic reasons, have turned into new appealing markets for the defence industry, including LAS (TEDAE, 2010). As explained by our interviewees,
the argument here is that the competition in new international markets is currently more severe and competitors apply very aggressive strategies, due to the fall in demand in traditional markets and the emergence of new global competitors (Real Instituto Elcano, 2011).
Against this context of increasing internationalisation, it must be mentioned that traditionally Spanish LAS
companies have been more dependent on the national MoD (that is, on domestic demand), whereas
leading European countries opened their defence industry to international markets much earlier. That said,
it is also necessary to take into account that the LAS is a very sensitive sector, in the sense that there are
many political and strategic interests behind it. At the same time, the opening of new markets is a very
slow process, which requires intricate and troublesome administrative processes, and where the support
from the Government is essential.
As an example, and according to what our informants explained, it is possible to mention the difficulties
arisen as a consequence of the International Traffic in Arms Regulations (ITAR) imposed by the US (frequent
obstacle between European Land Systems and US General Dynamics, both part of the same group). As
well as this, the problem of ‘Industrial Offsets’ and the interest for protecting strategic knowledge may also
generate problems in international markets. In this line, the transfer of technological knowledge to new
markets is very risky for the Spanish companies which have not their own R&D capabilities, as they may
lose their strategic competitive advantage. (Real Instituto Elcano, 2011).
For this reason, Spanish industry representatives demand a stronger political representation on the road to
foreign markets. It is worth mentioning here that, even if the Spanish Government is making great efforts to
support the Spanish defence industry in general and the LAS in particular, it seems that it is not enough in
comparison to the most powerful European countries (e.g. the UK or France). For this reason, LAS industries
request further support from Public Authorities, as well as a better coordination between different Government departments.
In line with the above, and as a response to this request from the industry, the Spanish Government has
recently approved a new mechanism to support defence exports, according to the ‘Royal Decree on the
Liberalization of Commerce and Particular Services’, of May 2012. More precisely, the legislation has been
adapted so that the MoD can work as an intermediary in procurement programmes between foreign
185
countries (buyers) and Spanish companies (providers). The reason for this change is to help overcoming
the current challenges faced by the defence industry, derived from the lack of domestic demand, the
increase of demand in some emerging countries, the growing international competition in global defence
markets and the interest shown by some particular countries to deal directly with the Spanish Government
(instead of with Spanish companies). One of the countries which has motivated this legislation change is
Saudi Arabia, with its proposal to buy 200 to 300 Leopard vehicles by negotiating only with the Public Authorities, through a ‘Government to Government’ contract.153
In any case, and whereas the importance of accessing foreign markets is emphasized, it must be also
highlighted that defence products must find their place in the national market with a minimum level of
domestic demand. Certainly, the exporting capacity of LAS companies is conditioned by their domestic
success, and the lack of national demand may have serious implications for the quality or variety of products and solutions to be offered in international markets (Martí Sempere, 2011).
That said, it is clear that defence industries are highly dependent of the Spanish Government. However,
the defence sector lacks a coherent and systematised interaction with Public Authorities, as there is not an
established structure which facilitates permanent cooperation. The support provided by the different governmental areas is not normally coordinated, and this hinders synergy generation. Therefore, it is suggested
that the Public Administration should develop a more cooperative support framework, which allows maximizing technological, industrial and financial opportunities, simplifying the existing procedures (Real Instituto Elcano, 2011).
On the other hand, both our informants and the sources of information reviewed recommend that the
Spanish Government should reform the current public acquisitions processes, by including new criteria
such as innovation, exportability and sustainability, in order to combine operational needs with employment levels maintenance, exports and high value-added industries. As well as this, industry experts suggest
that a new relationship model between the Government (demand) and the companies (manufacturers)
should be established, based on ‘Public-Private Partnerships’ (‘Colaboraciones Pública Privadas’ in Spanish, CPP), where the leadership would be shared between the public and the private sector, and the private sector would even participate in the definition of public needs (proactive approach)154 (Real Instituto
Elcano, 2011).
Thanks to ‘Public-Private Partnerships’, the Ministry of Defence would acquire military equipment through
contracts where private companies would directly assume the responsibility and costs for manufacturing,
financing and maintenance. The payment by the Public Administration to the industry would progressively
take place during the period of use of the equipments provided. This system has been successfully used in
countries such as the UK and Germany, and some of its estimated benefits include savings and improvements in the manufacturing and maintenance of new defence products (Eurodefense, 2008).
As a whole, concerning the expected future evolution of the sector in Europe, our informants estimate that
national markets will be probably defeated by business integration processes. Thus, it is expected that a
number of existing companies will disappear. This will be especially the case of the smallest companies,
with the fewest resources, and the case of those companies offering medium/low quality or too high costs.
In contrast, leading surviving companies will be those with the ability to adapt to new market challenges
and the capacity to take part in international collaboration projects.
For this reason, some industry representatives estimate that it is necessary that the Spanish defence industry
undergoes a business consolidation process leading to larger and stronger companies with enough critical
mass to redirect the international development of the Spanish defence industry, including LAS (TEDAE,
See El Pais 25 May 2012: http://politica.elpais.com/politica/2012/05/25/actualidad/1337962529_671696.html
‘Public-Private Partnerships’ (‘Colaboraciones Pública Privadas’ in Spanish, CPP) are a type of contract by which the
public sector cooperates with the private sector in order to guarantee the financing, construction, renovation, sustainability, etc. of infrastructures and services. In Spain, this type of contract is relatively common, for instance, in transports
infrastructure (Eurodefense, 2008)
153
154
186
2010). In this line, it is estimated that many SMEs will be acquired by largest companies, and it is possible
that in these cases small companies will tend to specialise in determinate products, having the support (i.e.
access to resources) of a larger company. As well as this, mergers are also likely to occur. Certainly, collaboration agreements, largely promoted by current European legislation, could act as a first step for subsequent mergers and acquisitions.
Therefore, in the long term, the restructuring of the sector will probably lead to a few large and generalist
companies, and a relatively large number of small and specialised manufacturers (but lower than today),
with extremely sophisticate products. In this context, the defence strategy most favourable to Spain should
take into account the industry’s main areas of excellence to strengthen and improve its national position.
Thus, the definition of critical industrial capabilities in the defence sector, including LAS, is crucial for the
strategic interests of the sector, so the industry should clearly select the particular market niches where it
wants to specialize or position itself (TEDAE, 2010).
Finally, the main national official programmes and strategies recently approved by Spanish Public Authorities (e.g. PIN 2020, e2i, ETID 2010, Visión 2025), which partly guide the near future evolution of the defence
sector, including LAS, are briefly summarised in Annex 3.
B.5.4.
a)
Annexes
Bibliography

Centre d’Estudis per a la Pau J. M. Delàs, “El Complejo Militar-Industrial. Un parásito en la
economía
española”,
Barcelona,
April
2012.
Available
in
Internet
at:
http://www.centredelas.org/attachments/905_informe12_cas.pdf

Cortes Generales, Diario de Sesiones del Senado, “Comparecencia del Presidente de
TEDAE para informar de la actividad de dicha asociación”, Madrid, 5 November 2009.
Available
in
Internet
at:
http://www.senado.es/legis9/publicaciones/pdf/senado/ds/CS0233.PDF

Eurodefense España. ‘Oportunidades que ofrece la Colaboración Público Privada (CPP)
en el ámbito de Defensa’, Madrid, 2008. Available in Internet at:
http://eurodefense.es/eurodef/contenidos.downloadatt.action?id=6116761

GEES (Grupo de Estudios Estratégicos), ‘El Sector Industrial de Defensa ante los desafíos
del Nuevo Gobierno del Partido Ppopular’, February 2012. Available in Internet at:
http://www.gees.org/files/article/13032012141949_GEES_industDefensa_012012.pdf

Jefe de Estado Mayor del Ejército (JEME), “Visión 2025”, Madrid, November 2009. Available
in
Internet
at:
http://www.ejercito.mde.es/Galerias/Descarga_pdf/EjercitoTierra/Noticias/2010/vision_jeme2
025.pdf

Martí Sempere, Carlos, “Los retos de la Industria de Defensa en la nueva década”,
Instituto Español de Estudios Estratégicos, Madrid, agosto 2011. Available in Internet at:
http://www.analisisinternacional.eu/archivo/viejos/dossiers/doss37.pdf

Ministry of Defence, “La cooperación industrial. Lecciones aprendidas y propuestas de
futuro”, Industrial Policy Books, Madrid, June 2010. Available in Internet at:
http://www.infodefensa.com/wp-content/uploads/SERIENARANJACUADERNO03ISDEFE.pdf

Ministry of Defence, “Criterios Básicos para el establecimiento de la Política Industrial de
Defensa”, Industrial Policy Books, Madrid, June 2010. Available in Internet at:
http://www.portalcultura.mde.es/Galerias/publicaciones/fichero/Cuaderno_ISDEFE_01.pdf
187

Ministry of Defence, “Análisis y conclusiones de las Tablas Input –Output para Defensa“,
Industrial
Policy
Books,
Madrid,
June
2010.
Available
in
Internet
at:
http://www.catedramercados.isdefe.es/documentacion/cpid5.pdf

Ministry of Defence, “Defence Technology and Innovation Strategy ETID – 2010”, Madrid,
September
2011.
Available
in
Internet
at:
http://www.portalcultura.mde.es/Galerias/publicaciones/fichero/Defence_technology_2010
.pdf

Real Instituto Elcano, “Propuesta para la reestructuración del Sector Industrial de la
Seguridad y la Defensa (SISD) en España”, Madrid, November 2011. Available in Internet
at:
http://www.realinstitutoelcano.org/wps/wcm/connect/63b17d80493d596bab39bb9437ec6e
7e/DT182011_Arteaga_reestructuracion_Sector_Industrial_Seguridad_Defensa_Espana.pdf?MOD=AJP
ERES&CACHEID=63b17d80493d596bab39bb9437ec6e7e

Spanish Government, ‘Spanish Security Strategy’, Madrid, 2011. Available in Internet at:
http://www.lamoncloa.gob.es/NR/rdonlyres/EF784340-AB29-4DFC-8A4B206339A29BED/0/SpanishSecurityStrategy.pdf

TEDAE, “Informe Anual de Defensa y Seguridad”, Annual Report, Madrid, 2010.

UGT (Unión General de Trabajadores), “PGE 2012. Primera Aproximación”, gabinete
Técnico Confederal, Madrid, Abril 2012.
Different articles and publications in newspapers and specialised magazines:
http://www.cincodias.com/articulo/empresas/empresas-defensa-urgen-gobierno-impulsar-polonacional/20120403cdscdiemp_13
http://www.tecnobit.es/es/c/document_library/get_file?uuid=deffff47-b46d-4580-882316022dd6e68c&groupId=10156
http://www.revistatenea.es/Revistaatenea/RevIsta/PDF/Documentos/Documento_1055.pdf
http://politica.elpais.com/politica/2012/05/25/actualidad/1337962529_671696.html

•
•
•
•
b)
Interviewed experts
1.
Mr. Miguel Ardaiz Martínez
GDELS General Dynamics - European Land Systems, Headquarters
P.E. Cristalia Edificio 7/8
C/Vía de los Poblados, 3
28033 Madrid, Spain
Main phone number: +34 91 585 01 52
Email: [email protected]
General Email: [email protected]
Website: http://www.gdels.com
2.
Ms. Clara Tebar
International Coordinator
TEDAE (Spanish Association for Defense, Aeronautics and Space Technologies)
C/ Monte Esquinza, 30 - 6º izq
28010 Madrid
General Email: [email protected]
Website: http://www.tedae.org
3.
Mr. Raúl Alvarez
CC.OO. (Comisiones Obreras Trade Union)
188
Defence section of the Industry Federation
C/ Fernández de la Hoz nº 12, 2ª planta
28010 Madrid
Website: http://www.industria.ccoo.es/industria
4.
c)
Mr Juan Manuel García Montaño
General Directorate of Armament and Material
Spanish Ministry of Defence
c/Paseo de la Castellana Nº 109
28071 Madrid
Phone number: +34 91 395 55 01
e-mail: [email protected]
Table 8.1
Main National Official Programmes and Strategies
Name of the
Programme
Brief summary
Integral Industrial Policy
Plan 2020 (PIN2020)
The Ministry of Industry's Integral Industrial Policy Plan 2020 and the associated 2011-2015
Action Plan include all the actions provided by the Government concerning the Spanish
industrial policy, and it is organised around five priorities:
• Improving the competitiveness of Industry
• Encouraging innovation and R&D
• Encouraging growth and dynamism of SMEs
• Supporting the companies' orientation to international markets
• Strengthening the strategic sectors
The PIN 2020 identifies the State's critical industries, where security or defence is not mentioned as a priority. In any case, the PIN2020 mentions the development of a Technology
and Innovation Strategy for Defence, a contractor's code of conduct designed to protect
the industrial fabric of SMEs and the creation of a state instrument, the International Defence and Security Consultancy Firm (CIDyS), to support the exports from the technological
and industrial defence sector.
The State Innovation
Strategy (e2i)
The State Innovation Strategy is the action framework to help change the production model
in Spain, through the promotion and creation of structures that facilitate the best use of
scientific knowledge and the technological development in Spain.
The core idea 2 of this strategy, ‘Encouraging innovation from public demand’, points to the
defence sector as a priority innovative market for the plans of action from public demand.
Under the conditions provided in the e2i, the defence sector could access specific funding
mechanisms and other benefits of innovative public procurement policies.
The Strategy of Defence
Technologies and Innovation (ETID 2010)
The ETID is a Ministry of Defence tool to facilitate the centralisation of R&D activity management, the strategic prioritisation of technological capabilities, and the planning required
for obtaining critical technologies for the national defence capability procurement plans.
The ETID identifies six technology areas:
• Armaments
• ISTAR
• Platforms
• Personal protection
• Protection of platforms and facilities
• ICT
As well as this, the ETID identifies the following challenges that must be tackled in terms of
identifying, promoting and co-ordinating technological innovation:
• Encouraging the participation of SMEs, universities and research centres in Defence R&T.
• Optimising the coordination of the Defence R&T activity conducted within different departments of the Ministry of Defence.
• Improving coordination and maximising alliances with civil R&T, promoting technological
189
progress through the effective pooling of efforts.
Promoting open innovation and collaboration between different defence sector players.
Promoting International cooperation, as an essential means to gaining access to certain
latest-generation defence technologies.
• Encouraging industry’s own investment in R&T.
• Accelerating the transfer of R&T results to Defence systems and equipment.
• Maintaining R&T&i capabilities in adverse budgetary times. To achieve this objective,
aspects such as technology prioritisation, international cooperation and alliances with
civil R&T are crucial.
The core objectives of this first Spanish Security Strategy are:
•
•
Spanish Security Strategy 2011
•
•
•
to analyse the threats and risks to national security,
to identify courses of action,
to define coordination mechanisms.
It has a scope of one decade, but it will be reviewed every five years (or when required by
circumstances).
The document briefly refers to the industrial and technological base associated with security
and defence. In particular, it is stated that it constitutes a key element in Spain’s response
capability to face threats and risks. The Armed Forces, the State Security Forces and other
agents responsible for security need a reliable, competitive and autonomous supplier whose
activity responds to the strategic guidelines established by the National Government.
The effective application of security guidelines requires the adequate organisation of industrial and technological capabilities, as well as the mobilisation of the necessary financial
and material resources. A comprehensive and crosscutting concept of security requires the
inclusion in its strategic definition of the institutional authorities responsible for industrial policy, key industry players and university scientific and technological research centres. Moreover, much of the resulting technological development and innovation will find other applications that will benefit society at large.
Visión 2025 by the Chief
of the Armed Forces
(Jefe de Estado Mayor
del Ejército, ‘JEME’)
(2009)
This document includes key future aspects and recommendations for the Armed Forces. The
document was elaborated taking into account the new context, which requires versatile
Armed Forces to face new emerging threats in a globalized world (terrorism, organized
crime, weapons of mass destruction, etc.), where actions are more likely to be related to
peacekeeping and stabilization.
Both at present and in the medium term, the soldier is considered to be the most valuable
asset within the Army, and all the equipment at their disposal must meet the following principles: interoperability, security and safety, power and mobility. In addition, it will also be
necessary to have more means for the detection and disposal of new threats (i.e. nuclear,
bacteriological, chemical, radiological, etc.), as well as to improve telecommunication
systems to increase security. On the other hand, the logistics network of the future Armed
Forces should be integrated and joint. Finally, non-critical capabilities should be outsourced,
so that the Armed Forces are exclusively focused on their own essential processes.
190
Graph 8.1
Spanish military industry network with the State and Financial Groups.
Source: Dèlas, 2012
B.6. SWEDEN
B.6.1.
a)
Mapping of the Land Armament Sector (LAS) in Sweden
Turnover and recent evolution in time
Given the numbers published by the Swedish Security and Defence Industry (SOFF), which is the main interest group in the Swedish defence sector, the turnover of the whole Swedish defence industry sector was
some SEK 49 billion (current prices). Broken down into sub-sectors the estimated turnover of the LAS is some
SEK 19.6 billion. However, the information gathered during interviews with a representative from the SOFF
and a trade union representative is somewhat contradicting this sum. The numbers they were giving was
SEK 9.7 billion and € 750 million in 2010. However, the discrepancy can presumably be explained by the
fact that the interviewees gave numbers for the major enterprises in the LAS and that the SOFF numbers
are including all companies (that are members of the SOFF) in the LAS. The development of the turnover of
the sector is somewhat hard to give exact numbers for. This is because that the only data compiled for the
sector is done by the SOFF. That makes the data weak in two senses; one is that even if the SOFF members
cover some 96 % of the turnover of the LAS the figure given is not for the whole sector, secondly SOFF have
increased the number of members during the years which also makes the data hard to compare. However, and despite this, the data from the SOFF indicates that the Swedish defence industry as a whole has
grown since 2004, but has been stabilised since 2008. The economic crises 2009 and the aftermaths did not
affect the Swedish LAS to any great extent. The reason for this is that the product cycles in the sector are
long, i.e. the companies had full order books when the crises occurred that lasted during the crises. In
some cases, however, some projects might have been postponed, but that has not been assigned any
significance.
191
b)
The importance of export
The Swedish LAS was to a great extent developed during the cold war due to Sweden’s neutrality that
required a strong defence and a well-developed defence industry that could provide the Swedish Armed
Forces with military equipment. The Swedish LAS has since the end of the cold war gone through some
major changes due to shift in the Swedish military strategy away from being invasion based to be mission
based. Because the current Swedish army does not require as much arms and equipment as before, the
Swedish Government has in order to keep the competence that is tied to the LAS in Sweden, actively
worked to enhance the Swedish LAS reputation abroad in order to stimulate the export, which has been
successful.
Export of Military Products and Services is important for the Swedish security and defence industry as well
as for the Swedish LAS. Of the total sale of Military Products and Services export constituted some SEK 20
billion in 2010155. Of this share export for some SEK 7 billion stayed in Sweden and some SEK 13.7 billion was
exported abroad. If broken down into countries and regions, it can be shown that the single biggest region
for export of Military Products and Services is other European countries, counting a total of SEK 5.8 billion in
2010. Among European countries the two major importers of Swedish Military Products and Services are the
UK (SEK 1.4 billion in 2010) and the Netherlands (SEK 2.1 billion in 2010). Denmark and Finland are the third
and fourth biggest European importers (SEK 0.5 billion and SEK 0.43 billion respectively in 2010). The second
biggest region for export is South Asia, importing Swedish Military Products and Services for some SEK 2
billion in 2010. The region has two major players, and Pakistan imported for some SEK 1.3 billion and India
for some SEK 0.7 billion in 2010. The third biggest destination for export of Military Products and Services is
North America. In 2010 USA imported Swedish Military Products and Services for some SEK 1.25 billion and
Canada imported for some SEK 0.47 billion. South East Asian countries imported Swedish Military Products
and Services for some 1.3 billion in 2010 and countries in the Middle East, Africa South of Sahara and South
Africa imported for some SEK 1.1 billion in 2010 respectively.
Graph B.11. Export by region 2010, SEK billion
7
6
5
4
3
2
1
0
5,8
2
Europe
c)
South Asia
1,3
South East Asia
1,72
North America
1,1
1,1
Africa South of
Sahara
South Africa
Main companies, SMEs and ownership
The main reason for change in the Swedish LAS is due to political decisions. Companies that were state
owned before has been privatised and not uncommonly bought by international companies and listed on
the stock exchange. However, the majority of the companies in the Swedish LAS are Swedish owned. One
major company in the Swedish LAS is the SAAB Group. SAAB acquired Celsius in 2000 and Ericsson Microwave Systems in 2006, which further strengthened Saabs’ position as one of the major companies in the
Swedish LAS. Today SAAB is solely traded on the stock exchange. The British based group BAE Systems is
another major player in the Swedish LAS. BAE systems own the former Swedish companies Hägglunds&Söner that is specialised in military vehicles and AB Bofors that is specialised in weapon systems,
155The
export numbers are not broken down into land, sea and air. However, given that the LAS constitutes some 40 % of
the total sale of military products and services, the export of the LAS can be assumed to be in the magnitude of around
40 % of the total export.
192
now called BAE Systems Hägglunds AB and BAE Systems Bofors AB. Today both these affiliated companies
are owned by the US part of BAE Systems, one of the interviewees says. A third major player is NAMMO,
which is specialised in ammunition and has a joint Finnish and Norwegian ownership. However, as one of
the interviewees’ states, it is hard to single out players in the LAS because many companies are involved in
land, air and sea, and produce equipment that is used in all three sub-sectors. Apart from these major
groups, there are a number of other companies present in the Swedish LAS. Almost all companies in the
Swedish LAS are members of the trade association Swedish Security and Defence industry (SOFF). The SOFF
has 61 members of which 13 are large scale companies and 48 are small and medium-sized enterprises
(SMEs) and they constitute some 96 % of the total turnover in the Swedish security and defence industry.
Main companies in the Swedish LAS
•
•
•
•
SAAB AB
BAE Systems Hägglunds AB
BAE Systems Bofors AB
NAMMO AB
The Swedish LAS is completely privatised and the government is only supporting it by supportive export
activities. When it comes to purchases has the Swedish government the policy that it should be done in
open competition, thus the sector has been opened up for competition.
As described above the SOFF has some 48 SME member companies. The role that these companies have
in the value chain is somewhat hard to describe, they are both suppliers (subcontractors) and are selling
directly to end users. The companies that sell directly to end users are usually developing niched products.
But the main parts of the SMEs are subcontractors. Furthermore, one of the interviewees estimated the
number of subcontractors, apart from the SOFF members, to a number of around 1 000. Of these the majority are SME and are solely subcontractors.
d)
Product specialisation and R&D activities
The product base in the Swedish LAS is very broad, says one of the interviewees. This is the legacy of the
Swedish defence politics during the Cold war, when Sweden should be self-sustained with regard to military equipment and knowledge. Therefore it is hard to single out any product specialisation. However, of
the major companies mentioned above, BAE Systems Hägglunds AB is specialised in armoured vehicles,
BAE Systems Bofors AB is specialised in artillery systems and smart ammunition, SAAB AB is specialised in
command systems and support weapons (e.g. anti-tank weapons and defensive weapons) and Nammo is
specialised in ammunition and pyrotechnical products. Many of the companies are also involved in the
production of dual use products. One of the interviewees estimates that dual use products constitute
some € 150 million in 2010. One example of such dual use product is a net that easy and quickly can be
used to fence off areas.
Product specialisation
•
•
•
•
Armoured vehicles and tanks
Artillery systems and smart ammunition
Ammunition and pyrotechnical products
Command systems and support weapons
The LAS differs from other industries in the sense that it relies on one or few major customers, usually a national government and that the product cycle is rather long, 10 to 20 years. Therefore the companies that
are engaged in research and development need security of supply, i.e. long term contracts, and security
of information, i.e. that no information about the products are leaked. Thus companies in the defence
industry need a stable long term customer in order to develop new products. In Sweden it is the Swedish
193
Defence Materials Administration that handles the acquisition of materials for the Swedish Armed Forces.
The Swedish Defence Materials Administration does both develop materials in their own regime, as well as
contracting private companies, i.e. the Swedish LAS, for the development of new techniques and products. The Swedish Defence and Materials Administration does also engage the LAS in the process of identifying what techniques and products will be needed in the future. As such the LAS is involved in the planning of governmental R&D policies regarding the defence industry.
There are no official statistics published regarding the sums that the LAS is spending on R&D due to secrecy. However, even though self-financed R&D is combined with a high risk due to the long product cycle, private companies do finance R&D themselves. In contrast, the sums that the Swedish Defence Materials Administration pays companies within the LAS in order to develop certain products or techniques are
published. In 2007 SEK 350 million were allocated for R&D in areas where the Swedish Defence Materials
Administration does not carry out own research, and of this sum some 80 % was spent on private companies. This sum was expected to decrease to SEK 300 million in 2008. Furthermore, some SEK 100 million was
spent in 2007 by the Swedish Defence Materials Administration on outsourcing the testing of the applicability of new techniques. Among the companies that acquired the largest allowances are also major actors
within the Swedish LAS. Allotments of the magnitude of SEK 15-30 million was made for the development of
weapon- and protection techniques, where Saab AB, BAE Systems Hägglunds and BEA Systems Bofors
were main receivers. According to the information gathered during the interviews it is clear that the companies within the Swedish LAS are involved in R&D activities. All companies have their own R&D programmes. However, when it comes to major R&D programmes, i.e. the development of new system platforms, no company have the possibility to take on the financial risk themself and must be supported by
governmental means. Usually the cost of R&D is jointly borne by the developer and the customer. SAAB AB
is probably the company that spend most money on R&D, some 20-25 % of the total turnover. But one of
the interviewees actually estimates that this number is representative for the whole LAS. The Swedish government do order specific R&D programmes, but this is altering due to a recent policy change that means
that the Swedish armed forces should buy from the shelf and thereby avoiding R&D expenses.
The Swedish Government has changed its policies regarding how the acquisition of defence materials
should be carried out. Traditionally has the policy of self dependency regarding the supply of military materials been prominent in Sweden, and it has formed the strong Swedish LAS. Today that path is partly
abandoned in favour of more market based solutions. Due to the characteristics of the military materials
market, as explained earlier, this policy change can have negative consequences on the Swedish LAS,
which might lose an important major customer but also funds for R&D, as already experienced. The majority of the success of the Swedish LAS today is based on products developed 10-20 years ago, and the
trade association Swedish Security and Defence Industry commented the new policy as being possibly
fatal for the Swedish LAS in the longer run. The Swedish Defence Materials Administration argues that R&D
will still be the main driver for the future development of the Swedish LAS. They argue, however, that the
LAS can benefit of being forced to seek funding from other sources than governmental. The LAS will be less
vulnerable if product development projects can proceed regardless from whom the funding comes from,
they argue. Furthermore, looser ties to the Swedish government will be beneficial in terms of more national
and international inter-sector and cross-sector collaborations. However, as is discussed further on in the
report, this positive effect is dependent on whether other European countries start to acquire military
equipment in open competition or not.
e)
Restructuring and clusters of activity
With regard to restructuring processes experienced in the sector the two interviewees give a slightly different picture of it. It is acknowledged by both of them that the Swedish defence industry has gone through
a major restructuring process since the end of the 1980´s, and is still doing so. This is due to the shift in the
political and economic reality that occurred with the fall of the Soviet Union. For the Swedish LAS that
meant a shift in being domestically orientated to be completely export orientated. Furthermore, it led to a
shift in ownership from being state owned to be completely privatised. The privatisation has also led to
purchases and mergers. It is here where the picture differs. One view is that the restructuring has not led to
194
any major cuts in personnel, that the focus of the LAS has shifted but stayed the same size. The other view
is that some major cuts in personnel have occurred. The city of Karlskoga has experienced both outsourcing and downsizing, and since 1990 the workforce have gone from 10 000 to not even 5 000. SAAB is another example where major cuts in personnel have occurred during the last decade.
The companies of the Swedish LAS are spread over the country. BAE Systems Hägglund AB is based in the
city of Örnsköldsvik and Nammo AB have production in various places, e.g. Karlsborg and Örebro. However, regarding the Swedish LAS the main cluster is probably around the city of Karlskoga. All of the major
enterprises of the LAS are represented there as well as a large number of subcontractors says one of the
interviewees. However, a few other clusters have been identified. One is around Stockholm. Another cluster has grown up around the city of Linköping and a third cluster can be identified around the city of
Gothenburg.
B.6.2.
a)
Employment issues
Employment and recent evolution in time
According to data from the SOFF, the total number of employees in the Swedish security defence industry
has shown a growing trend since 2004. In 2004 the sector employed some 22.500, a number that kept
steady until 2008 when the number drastically increased to some 30.000 employees. After a dip down to
27.000 employees in 2009, the number increased to over 30.000 in 2010. With regards to the Swedish LAS
one of the interviewees estimated the number of employed to be some 3 700 persons. The other interviewee estimate the number to be between 5 000 to 6 000. But both stress that these numbers are crude
estimations. Furthermore, it is estimated that twice as many are working in the subcontracting field, which
gives a number of around 10 000 to 12 000 employees. How the number of employees has developed the
past 10 years differ between the two interviewees. One view, held by the SOFF representative, is that the
number have been fairly stable and neither moved up nor down. The other interviewee, however, had the
view that the number decreased in the mid-2000s and then increased. Overall he estimated the number
to have decreased during the last decade.
Graph B.12. Employment in the Swedish LAS and subcontractors
5.000
10.000
Swedish LAS
Subcontractors
195
b)
Characterisation of the work force
The Swedish LAS has an ageing problem. A large portion of the employees are born in the 1940s and are
soon about to retire. The sector is also characterised by a need of highly skilled workers. However, the opinion held regarding if the sector has problems in attracting young and skilled workers differs. One interviewee hold the opinion that there is a general lack of young engineers and that is a problem for the
Swedish LAS as well as it is for the rest of the Swedish industry. On the other hand, the other interviewee
expressed the opinion that the Swedish LAS on the whole has no major problems in finding skilled workers.
The reason, he thinks, is that young people are attracted by the high technical level in the sector. However, he states that it is easier for companies in bigger cities to find competent workers than companies in
less attractive areas. The view held regarding training activities differs as well. One view is that training is
carried out continuously in the bigger companies, but that SMEs do not have this capacity and instead
hire competent workers when needed. The other view is that training does generally occur when major
technical changes occur, more sporadically. However, he states that on-going training does also occur
when a new technique is introduced in an old product. In conclusion, training does occur and is both ongoing and sporadic.
c)
Relevant issues in the social dialogue and other employment related issues
In the social dialogue regarding the Swedish LAS the main questions or issues are working time, pay and
gender issues. Issues regarding the working environment are rarely an issue. The Swedish defence industry is
characterised by a generally good working environment. Often is the workplace clean and have a low
noise level one of the interviewee states.
Another employment-related issue pointed out by one of the interviewees, is that it is generally easier to
fire employees in Sweden than in many other European countries. Especially in countries with a strong
defence industry, such as Spain, France and Italy, can it be very expensive to fire employees. In Sweden
the cost is usually just six months of term of notice. Because of this, and because of the fact that the Swedish LAS is to a great extent privately and internationally owned, there is a fear that downsizing might be
preferred in Sweden. This is something that is worrying with regard to employment issues. The general consensus here is not that the politics regarding the Swedish LAS should be more protective, but that other
European countries should open up their LAS and make them more market based as is the case of the
Swedish LAS.
B.6.3.
a)
Qualitative characterisation and perspectives of the sector
Strengths and weaknesses
The Swedish LAS has a number of strengths according to the respondents. One is that the technical level is
extremely high and that the Swedish LAS has a deep knowledge in building system platforms. Within that
area is the Swedish LAS one of the best in the world. Furthermore, the Swedish LAS has the capability in
building cost effective products, much cheaper than similar products in other countries. Also, the Swedish
LAS is good at finding practical solutions on problems; it does not always need to be high tech. For instance, innovative solutions that makes the products easy to maintain. This is the legacy of Sweden being
self-sustained with regard to military products, which developed a tradition in cost effectiveness and in
finding the shortest way in the development process.Another strength worth mentioning is the broad product base, which implies that the sector does not depend on one or a few products.
The weaknesses of the Swedish LAS are the market and the politics. Within the EU an agreement has been
made that suggested that all producers of military equipment should open up their sectors and purchases
of military equipment for open competition. Sweden did implement this directly and thoroughly, whereas
other European countries did not do this to the same extent. In practice, this means that the Swedish LAS
sell their products in open competition and have no shortcut to the domestic market. This is, however, not
196
the case in other European states. The problem of not having the close tie to the domestic market (i.e. the
Swedish government) is that it can have negative consequences regarding R&D, which often need a
strong external co-financer (i.e. the government).
Strengths
•
•
•
•
b)
High technical level
Cost effective
Focus on practical solutions
Broad product base
Weaknesses
•
•
The Politics
The market
Opportunities and threats for the Swedish LAS
As mentioned before, the solution is not to be more protective in Sweden. The Swedish LAS is dependent
on exporting its goods and would not survive with just the Swedish government as the only or main customer. Therefore, the major opportunity for the Swedish LAS is to take market shares in both Europe and in
emerging economies such as Brazil and India. Continuing export successes is the opportunity for the Swedish LAS to flourish. However, the Swedish LAS need more state support, however not completely, but more
than today. In the selling process it is important to have an influential reference customer (i.e. a government), without that is it hard to sell products.
Opportunities
•
•
•
Take market shares
Continuing export successes
Governmental support
The main threats for a continuing success of the Swedish LAS are the lack of a Swedish defence industry
strategy, the politics on EU level and the technological transfer to customers. The lack of a Swedish defence industry strategy, i.e. that the Swedish government does not articulate what R&D they will support;
effectively mean that the companies do not have the guarantee that the development of the product
base will be supported. When today’s products are outdated, this might be a major problem for the Swedish LAS. Other European countries with strong LAS have a domestic defence industry strategy. This is something that EU looks at when dealing with such issues, and as long as Sweden does not have one the Swedish interests will be neglected on EU level. Furthermore, because the Swedish LAS depend on a strong export, they will be disadvantaged as long as other European countries do not open up their markets for
competition but protect their own industries. The third threat is that when selling goods to customers,
mainly emerging major economies, they usually want to be able to learn some about the production and
maintenance. This technical transfer builds up the knowledge base and in the long run the country will be
able to produce the products in their own regime. If the Swedish LAS does not develop better products
continuously, this will ultimately lead to the loss of customers. The main driver of the Swedish LAS is, because it is driven by market forces, the access to open markets. An opportunity for the Swedish LAS would
therefore be that other European countries do the same as Sweden and open up their markets and purchases of military goods to open competition.
Threats
•
•
•
Lack of a defence industry strategy
Weak access to the European market
Technical transfers to customers
197
c)
Expected future development of the Swedish and European LAS
The future of the Swedish LAS depends to a large extent on how the rest of the European countries act.
The Swedish LAS have a couple of strengths, as described before, and is dependent on the access to
export markets. One of the interviewees stated that the European LAS is characterised by over establishment and that the near future will, probably, result in mergers and knock outs, and in fewer employees in
total. Whether this process will affect the Swedish LAS negatively depends on if the sector is able to gain
ground in this restructuring process or not. Because the Swedish LAS have many strengths it has all possibilities to do so, but this depends on whether other European countries open up their markets for open competition or not, he states. If not it is quite possible that the Swedish LAS will be negatively affected. The
other interviewee holds the same opinion.
As briefly mentioned in the section before the European LAS is characterised by over establishment. For
instance there are 16 producers of armoured vehicles in Europe. The interviewees both hold the opinion
that the European LAS on a whole, and in the longer run, will go through major restructuring processes or
will need to do so. One of the interviewees believes that the ownership pattern might change as well,
towards being more privatised than today. The problem one of the interviewees sees that could prevent a
further Europeanization of the sector is that companies in other countries are mainly state owned. And
because the development of privatising and the opening up of the Swedish LAS and purchase policies, as
happened in Sweden, have not occurred yet in the rest of Europe, this might well take long time and be
complicated.
d)
Future demands of the sector
The future demands of the Swedish LAS will, as mentioned before, be the access to export markets, not
least the European market. At the same time does the Swedish LAS need the Swedish government as a
reference customer, which makes it complicated. The Swedish LAS will need a Swedish defence industry
strategy. It is on EU level that the rules must be set. It is important that other European countries open up
their markets for competition and that Sweden does this at the same pace as the others. On the EU level it
is also very important that decisions are made regarding to what content Europe should be self-sufficient in
terms of military products and knowledge. This involves a consensus on how to develop new products and
techniques and how R&D funding should be spent. Europe need clear rules on what will be required from
the industry and how the states should support the industries. Without a strategy like this, and if the market
is opened up totally, the result will be that companies will move to where production is cheapest and
where competent workers can be found. This means that if Europe is not pro-active, the scenario might be
that Europe loose key knowledge and realises this when it is too late. A consensus over these issues has not
yet been made but it is necessary to do so.
Future demands of the sector
•
•
•
•
B.6.4.
a)
Access to export markets
The opening up of the European market
A defence industry strategy
An EU consensus on what role the defence industry should play
References
Bibliography

Swedish Security and Defence Industry (SOFF).Facts 2011-2012 Revised Edition. Stockholm,
2011.
The SOFF is the main trade organisation for the Swedish security and defence industry.
198
They collect and publish data over the Swedish security and defence industry annually.
More information can be found on www.soff.se.
b)

Skr. 2010/11:114. Strategisk Exportkontroll 2010 – krigsmateriel och produkter med dubbla
användningsområden (Strategic Export Control 2010 – dual-usewar materials and
equipment). Stockholm, 10 March 2011

Halabi, Annli and Stolt, Eleonora. Försvarsindustrin i Sverige (The Swedish Defence Industry). Stockholm, 10 September 2008
Interviews

Jan Pie, Secretary General at the Swedish Security and Defence Industry (SOFF). Interviewed 24 May 2012. Contact info: +46 (0)8 782 08 69

Conny Holm, President of the local workers union IF Metallat Electronic Defence Systems,
Saab AB, Jonkoping. Interviewed 24 May 2012. Contact info:
+46 0()709 21 00 20
199
B.7. UNITED KINGDOM
B.7.1.
a)
Mapping of the National LAS
The UK is a major player in the defence and security industry not only in Europe but also globally. According to the UK Trade and Investment Defence and Security Organisation (UKTI DSO) in 2011 the UK retained
its place as the world's second largest exporter of defence and security equipment. Its share of the global
156
defence market was 15% (worth £5.4bn) and put the UK behind only the US with 35%.
In view of this
outstanding record of export success including major platforms, weapons systems, sub-systems, and training and support packages, successive UK governments have actively supported the outward orientation
of the defence industry, not least by setting up entities tasked with promoting exports all over the world. To
157
Likewise,
this end, the UKTI DSO is helping UK exporters in the defence industry to win business overseas.
ADS is the trade organisation advancing the UK Aerospace, Defence, Security and Space industries, both
158
domestically and globally.
According to ADS, the UK defence industry represents 10% of its high technology manufacturing, employs
159
According to UNITE, the
over 300,000 people and generates over £35bn per year to the UK economy.
160
aerospace and defence industry supports over 220,000 indirectly.
The most recent data available show
that, in 2010, the UK defence industry directly employed 109,675 people, including 25,400 graduates and
161
engineers, and 2,700 apprentices and trainees.
Overall, the sector directly and indirectly supports
162
314,000 jobs.
The national LAS should be seen within this context, although according to our informants,
its manufacturing base has not been as important as that of the air, including aerospace, and
navy/shipping. For example, as will be shown later, overall it employs fewer than 14,000 people.
In line with a wider decline in British manufacturing following a period of short-term, boom and bust investment strategy between the 1970s and the 1990s, the LAS, especially the armoured vehicles sector, has
been in a state of decline for some time. According to UNITE, 15 years ago this sector employed 10,00015,000, while it now employs 2,000-3,000 with bleak prospects for the future (see below). On the other
hand, the weapons and munitions sectors are in a relatively stable and healthy state employing about
10,000, i.e. the majority of the LAS-related workforce. It is worth mentioning here that both industry and
trade unions have consistently raised serious concerns about the employment and skills implications of this
long-standing manufacturing decline, not least by highlighting the grave risk of losing cutting edge capabilities, e.g. in design, systems engineering both in terms of advanced manufacturing industrial base and
related skills, etc. It has been argued that once such high level skills are lost, it will be very difficult for the UK
to remain at the forefront of defence-related innovation.
Responding to such concerns, following the 1998 Strategic Defence Review and the 2002 Defence
Industrial Policy the then Labour government launched its Defence Industrial Strategy (DIS) in December
156
UKTI Defence & Security Organisation, (2012). UK Defence and Security Exports for 2011, 26.4.2012,
http://www.ukti.gov.uk/defencesecurity/item/300340.html
157 http://www.ukti.gov.uk/defencesecurity.html?guid=none
158
It is formed from the merger of the Association of Police and Public Security Suppliers (APPSS), the Defence Manufacturers Association (DMA) and the Society of British Aerospace Companies (SBAC). It represents some 900 companies,
including about 700 SMEs, in the defence industry, http://www.adsgroup.org.uk/
159
http://www.adsgroup.org.uk/pages/48690432.asp
160
UNITE, (2011). Unite Response to Ministry of Defence Consultation Equipment, Support and Technology for UK Defence
and
Security,
10.2.2011,
http://www.epolitix.com/fileadmin/epolitix/stakeholders/Unite_response_to_MoD_consultation_final.pdf
161
ADS, (2011a). UK Defence Survey 2011, 12.9.2011, http://www.adsgroup.org.uk/articles/25279
162
Ibid.
200
163 164
2005. ,
As a result, during the 2000s the UK defence industry experienced a period of strategic investment and stability, not least thanks to the DIS which encouraged inward investment into the UK economy
at a level which was unprecedented. The 2005 DIS was the last Defence Industrial Strategy published in the
UK, while the current government has refused to produce one as such despite repeated calls from the
industry. Indeed, in early May 2012, the President of the defence industry’s trade body ADS called for a
new long-term Defence Industrial Strategy. This is deemed crucial in order to stop the UK becoming too
dependent on imported equipment and to allow companies to plan ahead and develop new products.
The argument here is that, contrary to the current UK policy thinking, defence is not a ‘truly’ global market.
Instead, there are a series of national markets, all protected by their national governments to a greater or
165
lesser extent and with controls on cross-border technology transfer.
In the absence of a new DIS, the latest relevant policy development is the government’s White Paper
National Security Through Technology, which the UK’s Ministry of Defence (MoD) launched on 1st February
166 167
2012 following its 2011 Green Paper on the same subject. ,
This long-awaited White Paper sets out the
government’s plans to prioritise investment in science and technology to support the UK’s defence and
security industry, including the LAS, through state-of-the-art technology, equipment and support. Until the
next strategic defence and security review (SDSR) in 2015, it will serve as the public procurement guide for
the government, including the MoD, on how best to invest its £150bn defence equipment budget over the
next 10 years. Crucially, it is just one of the raft of reforms aimed at controlling spiralling defence costs and,
as such, has clear implications about the domestic defence industry, including the LAS.
For example, as a result of the fact that the Paper adopts the open procurement principle as the chosen
method for maximising value for money (VFM), British companies will no longer have priority for
MoD/government contracts. This continues the policy shift which started much earlier and which represented a major departure from the UK government's traditional policy which has been to maintain a British
defence/arms industry onshore to give itself 'military freedom’. One of the reasons behind this change is
the recognition by the UK government that with a globalised defence/arms industry, the argument for
maintaining manufacturing factories in Britain was weakening (see below). In addition, the 2012 White
Paper stipulates that the UK will, where appropriate, buy off-the-shelf (COTS) in both the domestic and
international market, again continuing an existing trend.
Although as will be shown later, some aspects of the White Paper, e.g. the shift away from bespoke towards off-the shelf equipment and open procurement, have been strongly criticised by both unions and
UK companies, it has also been argued that its direction is consistent with the Defence Procurement Directive (implemented in the UK by the Defence and Security Public Contracts Regulations 2011). In both
cases, the message (whether imposed on the MoD or chosen by it) is that, in these economically straightened times, the new order is for open, leaner, better competitive procurement seeking less ‘tailored’
products with specifications set from the start and with less/no bias towards UK sourcing.
Another key policy development with clear and important business and employment implications for the
defence industry in general and the LAS in particular is the Government’s 2010 Strategic Defence Security
Review (2010 SDSR) (see Box B.1 in B.1.4.b) for a detailed breakdown of cuts). The 2010 SDSR also established Future Force 2020 which is the planned future structure for the British Armed Forces (and related
163
Ministry of Defence,
(2005). Defence Industrial Strategy,
Defence White Paper, December,
http://www.mod.uk/nr/rdonlyres/f530ed6c-f80c-4f24-8438-0b587cc4bf4d/0/def_industrial_strategy_wp_cm6697.pdf
164 Ministry of Defence, (2002). The Ministry of Defence Policy Paper No. 5 Defence Industrial Policy,
http://www.mod.uk/NR/rdonlyres/25726BCE-8DD6-4273-BE8D-6960738BEE0A/0/polpaper5_defence_industrial.pdf
165 Marschall, D., (2012). ‘The UK needs a Defence Industrial Strategy for 2020 and beyond’, Defence Management.com, 2.5.2012, http://www.defencemanagement.com/feature_story.asp?id=19730
166 Ministry of Defence, (2012). National Security Through Technology - Technology, Equipment, and Support for UK
Defence
and
Security,
1.2.2012,
http://www.mod.uk/NR/rdonlyres/4EA96021-0B99-43C0-B65ECDF3A9EEF2E9/0/cm8278.pdf
167 Ministry of Defence, (2011). Equipment, Support and Technology for UK Defence and Security: A Consultation Paper,
http://www.mod.uk/NR/rdonlyres/F4ACE80C-BFD7-463D-99A6-2B46098BB0C4/0/cm7989_Eqpt_supp_tech_ukdef.pdf
201
168
equipment requirements).
With particular reference to land forces and their equipment/capabilities
needs, Future Force 2020 foresees the following:
i)
a new range of medium weight armoured vehicles, including Terrier engineer vehicles and the
Scout reconnaissance vehicles and in due course the Future Rapid Effects System Utility Vehicle (FRES UV) which will be the core of the Army’s armoured manoeuvre fleet;
ii)
heavily armoured vehicles, including Warrior infantry fighting vehicle, AS90 artillery and Titan and Trojan engineer vehicles and Challenger tanks, in smaller numbers than now but sufficient to conduct operations in high-threat situations. Significantly, the plan is to reduce the
holdings of Challenger 2 main battle tanks by around 40% as well as heavy artillery (AS90 armoured artillery vehicles) by around 35%. The reason is that precision ammunition allows one to
strike targets with one round rather than using tens of unguided rounds
iii)
protected support vehicles, replacing unprotected versions that are no longer suitable, to
move logistic supplies around the battlefield;
iv)
precision Guided Multiple Launch Rocket System (GMLRS) rockets which can strike targets up
to 70 km away, and Loitering Munitions able to circle over a battlefield for many hours ready
for fleeting or opportunity targets;
v)
a range of ISTAR capabilities including: Watchkeeper unmanned aerial vehicles; man-portable
and vehicle-fitted electronic warfare equipment; deployable surveillance to protect forward
operating bases; and a force protection system to protect against indirect fire such as artillery
and mortars;
vi)
a range of capabilities to counter explosive ordnance and IEDs
The shift in defence policy and equipment procurement focus presented above has clear implications for
the defence industry, including the LAS. In addition, the 2005 DIS had set out the government’s vision for
the defence industry and its sub-sectors. In particular, although it sought to maintain operational sovereignty it also shifted the emphasis on capabilities, i.e. the know-how for certain 'critical' military
technologies, such as submarine manufacturing.
Armoured Vehicles
Building on the principles of the DIS, in June 2009 the former government launched its Armoured Fighting
169
This is one of five Sector Strategies which was put together for the Land
Vehicles (AFV) Sector Strategy.
Systems Sector and describes, inter alia, how the MoD will engage with an appropriately shaped industrial
sector in order to support the delivery of current and future AFV capability. Crucially, in contrast to prevailing practice until then, it adopted as the default approach that the UK will operate as an ‘intelligent’ customer in the global AFV market, especially within the EU and NATO. In other words, it accepted that it was
not necessary to retain industrial capabilities in the UK in order to achieve appropriate operational
sovereignty.
In meeting their operational sovereignty needs, the UK Armed Forces will first look to the open market, and
only if that market is not appropriate, will they secure AFV-related capability within the UK and, if necessary, within government itself. The strategy does not entail the retention of an armoured vehicle production
capability in the UK, but it states that domestic industry must be able to modify armoured vehicles to meet
their needs. According to the strategy, competition should be exploited where it is the most appropriate
mechanism, but where a viable competition cannot be established, and then the British Armed Forces will
seek VFM through the establishment of long-term partnering arrangements.
168
HM Government, (2010). Securing Britain in an Age of Uncertainty – Strategic Defence Security Review, 19.10.2010,
http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/documents/digitalasset/dg_191634.pdf
169
Ministry
of
Defence,
(2009).
Armoured
Fighting
Vehicles
(AFV)
Sector
Strategy,
23.6.2009,
http://www.mod.uk/NR/rdonlyres/993C6B2A-B028-4612-8B6E-451E0C2554AD/0/afvsectorstrategy.pdf
202
The AFV strategy recognises two key activities for the UK’s ability to maintain and operate its AFV fleet: (i)
the ability to understand and manage the structural integrity of the vehicles; and (ii) the ability to repair
and regenerate battle damaged or operationally time-expired vehicles onshore. Crucially, the DIS stated
that there is no absolute requirement to manufacture all of the constituent parts of an AFV in the UK, although it recognised the need to retain an onshore (UK) capability to repair and overhaul AFVs (both for
routine maintenance and in response to operational needs). This has clear implications for the remaining
manufacturing base in the UK which has been on a declining path for some time.
Weapons and Munitions
The weapons and munitions sector is quite strong in the UK, employing about 10,000 half of whom, according to UNITE, work for BAE Systems. However, the picture is one of stability rather than impressive growth, at
least as far as manufacturing is concerned. Moreover, as our informants underlined, the rather small size of
the domestic market requires rather small quantities of arms which, in turn, means that relevant players will
increasingly tend to be arms suppliers (as opposed to arms manufacturers). For example, the Future Force
2020 foresees the restructuring of the army around five multi-role brigades, while as a result of the 2010
SDSR the army will have to cut up to 12,000 from its current 101,300 personnel.
As the 2005 DIS made clear, the retention of all aspects of bulk explosives manufacture was not considered to be necessary, with the exception of Polymer Bonded Explosives (PBX) manufacture and casting
which should be retained. The strategy also sought to retain a substantive and flexible fill, assemble and
pack capability onshore as well as a specialist steels and forging capability. It also exhorts industry to ensure strong supply chain management to support surge manufacturing and assure concurrent surge production across the required range of munitions, especially within the context of a reduced onshore production capability. It also sees as essential to retain onshore (i.e. in the UK) the design authority (DA) role
and its underpinning capability for munitions manufactured in the country.
The major influence on future general munitions programmes is the UK’s policy on Insensitive Munitions (IM)
which are munitions incorporating a number of design techniques aimed at reducing munition vulnerability, and minimising the potential collateral damage. The strategy is clear that the UK should retain its IM
and related energetic materials capability, not least because the country is a proven world leader in IM
and such materials such as Polymer Bonded Explosives (PBX) and Low Vulnerability (LOVA) propellants.
According to our informants, one key factor for the sector’s stability lies in the MoD’s long-term defence
contracting practices in the areas of both basic/general munitions and complex weapons (e.g. missiles,
torpedoes, etc.). For example, in August 2008 the MoD launched the Munitions Acquisition Supply Solution
(MASS) programme, which is a 15-year programme of at least £2+bn with the explicit aim to secure national supply needs from British sources, namely BAE Systems Global Combat Munitions. To this end, MASS
will supply about 80% of the general munitions consumed by British Armed Forces for both training and
170
The set of munitions is very wide, encompassing small arms (5.56 mm and 7.62 mm)
front-line operations.
and medium-calibre ammunition, mortar bombs (81 mm), tank ammunition (120 mm), artillery shells (105
171
mm and 155 mm), and naval gun shells.
The implications for key players in the sector such as BAE Systems Global Combat Munitions are clear. For
example, the MASS which is a long-term partnering agreement between MoD and BAE Systems, requires
the MoD to pay a strategic capability charge of £100m per year to cover most of BAE’s overhead and
retain munitions capabilities in the UK. In return, the MoD purchases ammunition at prices fixed for five
years at a time, although the company must guarantee it will reduce cost annually. Under the MASS deal,
the MoD signals its ammunition requirements three years ahead. Therefore, the company can plan in
170 http://www.defenseindustrydaily.com/MASS-for-Effect-The-UKs-Long-Term-Ammo-Contract-05047/
171 King, B. (ed.), (2010). Surveying Europe’s Production and Procurement of Small Arms and Light Weapons Ammunition,
A Working Paper of the Small Arms Survey, July, http://www.smallarmssurvey.org/fileadmin/docs/F-Working-papers/SASWP10-European-Ammunition.pdf
203
advance how much spare capacity it has available for other customers. Thanks to this stability, according
to BAE Systems some 1,700 jobs will be directly sustained by MASS, including 230 specialist munitions engineer posts.
Indeed, during the last few years, the company has stepped up production of small arms munitions in
particular. For example, with production growth of 300% BAE Systems’ Radway Green factory is producing
1,000,000 rounds of ammunition a day. BAE systems has committed to new investment of over £120m in
order to improve its munitions factories, making them safer, more automated, and more energy-efficient.
BAE Systems now has factories at Glascoed in Monmouthshire, South Wales; Radway Green in Cheshire,
172
Crewe; and Birtley in County Durham.
Another reason for the relatively health of this market are the wars of Iraq (now ended) and Afghanistan,
which generated extra demand for all types of ammunition. For example, according to BAE Systems,
173
However, with the end of
volumes of 81mm mortars and small arms more than doubled in recent years.
the Afghanistan operations in sight and the 2010 SDSR-initiated defence budget cuts, the market is not
expected to grow at least domestically, which means an even stronger export orientation.
Significantly, BAE can already see that the MoD’s projected take for 2013 and 2014 will be down from
previous levels. In a same vein, other munitions such as the 120mm tank shell, have not fared well, not least
because of the drastic cut of the number of Challenger 2 tanks. Similarly, large-calibre ammunition
production will likely never recover as the UK begins reducing equipment levels for the Challenger, AS90
155mm howitzer and other programmes. As was underlined, this production decline is being driven more
by capability and manning cutbacks as a result of the 2010 SDSR. Overall, it has now become clear that
by 2020 the quantities of munitions purchased by MoD will have fallen further below 2013 levels. As a result,
it is expected that by then the MASS deal could stop being just a production agreement. Indeed, the MoD
is beginning to explore whether industry might have a role in providing a more cost-efficient service by
maintaining, storing, transporting and disposing of ammunition.
The overall assessment is that, contrary to that of the armoured vehicles manufacturing which has
experienced a steady decline over the last 20 years, the manufacturing of munitions is expected to be
stable and even experience a slight growth. In relation to arms manufacturing, the 2005 DIS also focused
on complex weapons such as missiles and torpedoes deemed to have superior battle winning precision
174
The UK has over the past 15 years made a significant investment
effects at a reduced level of asset use.
in the upgrade and development of complex weapons. Indeed, according to our informants, the UK has a
strong track record in complex weapons and growing exports to sophisticated defence markets such as
Saudi Arabia and Brazil.
The strategy reiterated the desire to maintain the UK’s ability to design, develop, assemble, support and
upgrade complex weapons. To this end, it accepted the need to retain onshore the relevant knowledge
and experience so that the UK could act independently. This, in turn, means that the UK needs a critical
mass of expertise to develop complex weapons concepts through synthetic environments and the ability
to design and integrate the weapon with platforms and sensors. Linked to this is the need for both expert
knowledge of the conventional and novel warhead and the ability to design the safety and arming functions of such weapons to be retained in the UK industrial base.
That said, the 2005 DIS also stated that unless the UK industry could restructure so that it delivered costeffective solutions, the onshore production capability would have to be reviewed, although it also stressed
172 Defence Equipment and Support/De&S (2011). ‘Ammunition Supplies – The Successes mount up’, desider, Issue 31,
March,
http://www.mod.uk/NR/rdonlyres/600F12CC-DC3A-4F2B-93E8EBAE2D885290/0/20110228desider34_March2011U.pdf
173 http://www.defensenews.com/article/20120325/DEFFEAT02/303250004/BAE-Expand-Exports-Products
174 Complex weapons are defined as strategic and tactical weapons reliant upon guidance systems to achieve precision effects. Tactical complex weapons fall largely into five categories: Air-to-Air; Air Defence; Air to Surface, AntiShip/Submarine (including Torpedoes); and Surface to Surface.
204
that the UK government would continue to pursue operational sovereignty for certain heavy weapons
such as in-service torpedoes. As far as future torpedoes were concerned, the government did not require
a sovereign capability onshore to completely systems engineer them, though it did require the capability
to engineer and integrate the algorithms and homing heads.
In addition to the above, there is also a long-standing and well-established manufacturing base around
other types of weapons, including shotguns, airguns, rifles, sporting and hunting arms, etc. However, due to
the UK's severely restrictive laws regarding gun ownership, including sporting arms, there is only a small
175
That said, its products are seen as of high quality worldcommercial market for such arms within the UK.
wide and is quite active in promoting overseas sales. For example, the Birmingham Small Arms Company,
which was founded in 1861 and bought in 1986 by Gamo, the Spanish airgun manufacturer, maintains
now under the name Birmingham Small Arms Company Guns Ltd (BSA Guns Ltd), a steady flow of air rifles,
176
Similarly, James Purdey & Sons established in
hunting rifles and sporting guns to most parts of the world.
1814 produce custom-made, largely by hand rifles, both double-barrelled and bolt-action and shot177
guns.
Likewise Holland & Holland, founded in 1835, has been manufacturing rifles and shotguns for over
178
150 years.
On the other hand, founded in 1790, Webley & Scott have manufactured firearms (shotguns
179
and airguns) for more than 220 years.
Because of the ‘artisanal’, crafts-based nature of production
work, many of these manufacturers tend to be SMEs, e.g. Holland & Holland employs about 60 staff. A list
of UK firearms manufacturers can be found in Table B.23 in B.2.4.c).
Impact of Crisis and effects of Current National Defence Budget Cuts
Exports excluded, the domestic prospects of the LAS are uncertain, not least because of the 2010 SDSR
which initiated significant cuts in the UK defence budget across the Armed Forces (Royal Navy, British Army
and Royal Air Force). As a result of the 2010 SDSR the MoD will face a cut of around 8% in its budget. However, when the MoD’s current 38bn budget deficit is taken into account, the actual funding decrease will
translate to a cut of around 10% over the next four years.
These cuts have obvious implications for the LAS sector. For example, as mentioned earlier, the SDSR initiated significant MBT tank and heavy artillery reductions, i.e. the holdings of Challenger 2 main battle tanks
will be reduced by around 40% and heavy artillery (AS90 armoured artillery vehicles) by around 35%. According to some of our informants, the Army agreed to such reductions in its heavy artillery and tanks because they are largely seen as weapons of the Cold War. In addition, the SDSR called for a reduction of
both military and civilian manpower. For example, the numbers of serving personnel should be reduced by
22,000 by 2015 (currently the total number of UK’s regular forces stands at 176,810, of whom 108,800 are in
180
This drop in manpower levels will entail reductions in the required equipment and soldier kit,
the army).
including weapons and ammunition. The likely negative impact of the SDSR cuts on the volume of new
orders in the LAS already started to manifest itself. For example, according to recent media reports, BAE
Systems is considering moving more of its defence equipment business overseas as it attempts to offset
181
extensive cuts in defence spending in both the UK and the US, its two main markets.
Moreover, the official defence industry view is gloomy. For example, according to Robin Southwell, the
new ADS president, the defence industry is at best flat-lining, while the current cuts combined with the offthe-shelf purchasing approach of the British government does not augur well for either the domestic
175 For a list of gun manufacturers please see: UK Gun Trade Association, http://www.gtaltd.co.uk/
176 http://www.bsaguns.co.uk/
177 http://www.purdey.com/
178 http://www.hollandandholland.com/
179 http://webley.co.uk/
180 http://www.armedforces.co.uk/mod/listings/l0003.html
181
Daily
Telegraph,
(2012).
BAE
Systems
may
shift
Expertise
overseas,
http://www.telegraph.co.uk/news/uknews/defence/9077806/BAE-Systems-may-shift-expertise-overseas.html
12/2/2012,
205
182
market prospects and/or exports.
As he explained, UK defence manufacturers need British government
contracts to develop products, while foreign states want to see that UK manufacturers, and their products,
are trusted by their domestic government before they buy them. Added to this is the fact that, in the face
of austerity drives and budget cuts in a number of other countries, export-related competition has
intensified with expanding markets, particularly in the Middle East and Asia, being swamped by UK
competitors also looking for an escape from their shrinking domestic markets.
It is worth mentioning here bilateral arrangements such as the Anglo-French Defence Co-Operation Treaty,
announced on 2 November 2010 which promotes collaboration in a range of activities from military operations to equipment acquisition as both the MoD and the French Ministère de la Défense work through the
183 184
rounds of budget cuts instigated two years ago. ,
Apart from the SDSR, another major determinant factor for the future of the LAS is the UK’s military involvement in Afghanistan which is coming to an end in 2015 and which will mean a drop in the cost of operations and required equipment. For example, it is estimated that as a result of the withdrawal from Afghani185
As has been reported, accelerated ‘transition’ in
stan, the MoD will spend £2.4bn less than planned.
Afghanistan will start to manifest itself in rationalising in-theatre equipment and logistic support and an
increase in logistic movement as military materiel is redeployed. As a result, the next few years will see an
enhanced tempo of equipment refurbishment/upgrading and capability enhancement (as opposed to
production). For example, in October 2011 the MoD launched its Warrior Capability Sustainment Programme (WCSP) which will extend the tanks’ service life to beyond 2040. However, both the extent of such
redeployment and its effect on industry has yet to be quantified, although the trend towards transforma186
tion programmes aimed at preserving capability at lower cost is set to continue.
b)
As mentioned earlier the defence industry is an important industrial sector for the UK economy, representing 10% of UK high technology manufacturing and comprising about 9,000 defence companies, including
a large number of SMEs. The industry as a whole employs over 300,000 people and generates over £35
billion per year to the UK economy. However, as will be shown later, the actual employment levels of the
LAS-related manufacturing is quite modest (13,000-15,000) and in some sectors, notably the manufacturing
of armoured vehicles, in decline.
As mentioned in other sections (e.g. mergers and acquisitions) over the last 20 years the defence industry,
including the LAS, has been subject to major consolidation (and privatisation which had however started
earlier). With particular reference to the LAS, and in particular its UK-based manufacturing aspect, this
consolidation is not uniform and shows some variation. For example, according to both our informants and
187
dominates the maravailable documentation, in the manufacturing of armoured vehicles BAE Systems
ket. In 2010, it was the second largest global defence supplier, just after the US firm Lockheed Martin, while
it is Europe's largest defence contractor.
182 The Observer, (2012). UK Defence Firms fear Austerity Drive will shoot down Export Revival, 15/4/2012,
http://www.guardian.co.uk/business/2012/apr/15/uk-defence-firms-export-fears
183 HM Government, (2010). Op.Cit.
184
http://www.mod.uk/DefenceInternet/DefenceNews/DefencePolicyAndBusiness/UkfranceDefenceCooperationTreatyAn
nounced.htm
185 http://www.trust.org/alertnet/news/uk-afghan-pullout-to-save-24-bln-pounds-by-2015/
186 PriceWaterhouseCoopers, (2012). Aerospace & Defence - 2011 Year in Review and 2012 Forecast,
http://www.pwc.com/en_GX/gx/aerospace-defence/assets/aerospace-and-defence.pdf
187 http://www.baesystems.com/
206
In general, at present, the UK manufactures a broad range of defence equipment, with the sector being
dominated by BAE Systems, which manufactures civil and defence aerospace, land (e.g. Challenger
tanks) and marine equipment. BAE, which is a typical example of a prime contractor, produces weapons
systems in nearly every major military category, including aircraft, defense electronics, military vehicles,
naval vessels, artillery, missiles, and small arms/ammunition. For example, according to the 2005 DIS, BAE
Systems had supplied 95% of the UK’s current AFV and was the only onshore (UK) engineer of systems. This
reflects, in turn, not only the dominant position of BAE Systems which some argued plays the role of the
national champion, but also the high concentration of knowledge relating to the existing AFV.
Similarly, in the general munitions sector, BAE Systems has the vast majority of the existing business, although there remain some niche capabilities both in the UK and abroad (see below). World-wide, it employs about 90,000 staff, of whom approximately 40,000 are based in the UK. Indeed, BAE Systems is the
UK’s largest manufacturing employer and employer of professional engineers, employing 18,000 engineers.
188
In addition, it further supports 125,000 jobs either directly or through supply chains.
As a company, BAE Systems operates globally, with particular strong presence in the UK, the US, Sweden
and South Africa. For example, the Viking BVS10 All Terrain Vehicle (Protected) ATV(P) which is the third
generation of articulated vehicles currently used by the British army, is produced by BAE Systems Hagglunds of Sweden, which specialises in the production of amphibious vehicles. BAE Systems makes 20% of
its turnover producing a range of weapons from tanks to submarines in the UK, with the remaining coming
from its global operations, notably the US. The company has a major U.S. subsidiary, BAE Systems, Inc.,
which by itself would be the seventh largest weapons manufacturer in the world.
According to our informants, although there is a web of inter-connections and holding companies within
the global BAE Systems group, the ownership is British, including its CEO and most of the Board. However,
the reporting lines are quite complicated. Specifically, according to UNITE both the UK operations and the
Systems Land Systems Hagglunds in Sweden report to the South African arm of BAE Systems which in turn
reports to the US arm. BAE Systems global operations exemplify the fact that UK-based firms have, tradi189
tionally, had growing operations outside the UK industrial base.
The particular division of BAE Systems which deals with the LAS is BAE Systems Land and Armament, whose
headquarters are in Arlington, Virginia but which has significant operations in the UK, South Africa, Sweden
and North America (see Geographical Spread below for a detailed breakdown of UK sites). Overall, according to BAE Systems Land and Armament data, it employs about 15,000, 3,000 of whom in the UK. Its
Global Combat Systems sites in the UK combine the capabilities of four business units: GCS Munitions, GCS
Vehicles Programmes, GCS Vehicles Support Services and GCS Weapons. Interestingly, according to SIPRI,
as of 2008 Britain has become the world’s leading developer of arms mainly thanks to increased sales by
BAE Systems’ subsidiaries in the US, which account for more than half of its business. Specifically, in 2008
sales of BAE's Land and Armaments group in the US almost doubled, from $7bn to $12bn, mainly because
the Pentagon bought its mine-resistant, ambush-protected (MRAP) vehicles for the wars in Afghanistan
190
and Iraq.
The above discussion notwithstanding, it is worth noting a relatively recent development which was a severe blow to BAE Systems. Specifically, after a contentious and acrimonious bidding process, the MoD has
awarded the first phase of a £4bn contract to build the British Army’s next generation of tanks (Future
Rapid Effect System/FRES) to the UK subsidiary of the US company General Dynamics.191,192 As a result, BAE
188 Heidenkamp, H., Louth, J., and Taylor, T., (2011). The Defence Industrial Ecosystem - Delivering Security in an Uncertain World, RUSI, Whitehall Report 2-2011, http://www.rusi.org/downloads/assets/WHR_2-11.pdf
189 Ministry of Defence, (2002). Op.Cit.
190
The
Guardian,
(2010).
BAE
tops
global
List
of
largest
Arms
Manufacturers,
12/4/2010,
http://www.guardian.co.uk/business/2010/apr/12/bae-systems-weapons-arms-manufacturers
191
BBC,
(2010).
General
Dynamics
beats
BAE
to
win
UK
Tank-making
Deal,
22.3.2010,
http://news.bbc.co.uk/1/hi/business/8580266.stm
192 http://www.generaldynamics.uk.com/
207
Systems announced the closure of its Leicester and Leeds sites, while it was also thought that this development threatened the future of the firm's factory in Newcastle, involving the possible further loss of 600
jobs. General Dynamics UK Limited won the contract for an initial order of 580 vehicles on the proviso that
80% of the manufacture will be completed in the UK, with 70 per cent of the supply chain made up of UKbased companies. This contract is expected to create 200 new jobs at the company's plant in Newbridge,
South Wales, while a further 250 existing jobs will also be safeguarded there. According to our informants,
General Dynamics UK Limited is another important player in the armoured vehicle manufacturing in the
UK. It appears that the BAE Systems and General Dynamics are the two main companies in this sector.
This highlights the fact that the UK domestic LAS is quite open to foreign companies which usually set up
subsidiaries or wholly independent entities in the country. This opening up of the sector to non-UK companies signifies a major paradigm shift in the UK LAS strategy, which until the end of the Cold War, was characterised by a strong focus on national self-sufficiency. For example, the French company Thales is the
193
According to
UK’s second largest defence electronics supplier, employing approximately 8,000 people.
194
195
our informants, Thales is along with MBDA (UK) Ltd , Roxel , QinetiQ196, and BAE Systems among the
main players in the UK complex weapons industry which includes missiles, torpedoes and energy weapons.
This is confirmed by the 2005 DIS according to which Thales is the prime contractor for high velocity missiles.
This opening-up of UK borders to foreign companies is also seen as the result of the defence industry’s internationalisation which has blurred the definition of what comprises the UK defence industry. This, in turn,
means that an increasing number of companies with foreign parentage now have British boards and
197
workforces.
As mentioned above, BAE Systems also predominates in the general munitions market, being the recipient
of 80% of MoD’s total spend. Indeed, since 1987 when BAE Systems bought Royal Ordnance, it acquired
most of the factories which manufactured explosives and ammunition for the British Armed Forces. According to the latest (2005) available data, 92% of the remaining spend goes to 12 other contractors (for a
detailed list see Table B.23 in B.2.4.c)).
Apart from the private sector companies involved in the LAS, it is worth mentioning here the MoD’s De198
This is a wholly-owned UK Government Trading Fund established to support
fence Support Group (DSG).
the Armed Forces and deliver wider defence objectives in support of key industrial strategy requirements
and to be integral in future defence air and land systems acquisition and support solutions. The DSG's mission is to provide expert in-house maintenance, repair, overhaul, upgrade and support services for the UK
Armed Forces' air and land systems. It was launched on 1 April 2008 following the merger of the Army Base
Repair Organisation (ABRO) and the Defence Aviation Repair Agency (DARA) and its four main DSG business streams cover Armoured Vehicles, Land and B (unarmoured or ‘soft’) Vehicles, Large Aircraft and
Electronics and Components. Because of the extensive LAS-related skills and knowledge among the DSG
personnel, private sector companies, eg BAE Systems, Lockheed Martin, General Dynamics, etc., subcontract a considerable amount of repair and/or upgrading work to DSG. For example, it is involved in the
£1bn WCSP targeted at Warrior upgrading as part of a 13-firm consortium led by Lockheed Martin UK
199
The important role of DSG in LAS-related repair and
which was awarded the contract in October 2011.
upgrading work was also confirmed by our informants.
Our informants also discussed briefly the role of PFI in the LAS, especially since it has been used by the MoD
for ‘support’ equipment such earthmoving bulldozers and cranes. Specifically, the 15-year C Vehicle PFI
refers to the C Vehicle fleet which comprises earthmoving plant, Engineer Construction Plant (ECP) and
193 http://www.thalesgroup.com/Countries/United_Kingdom/UK_Home/
194 http://www.mbda-systems.com
195 http://www.roxelgroup.com/
196 http://www.qinetiq.com/
198 http://www.dsg.mod.uk/
199 http://www.defenseindustrydaily.com/WCSP-Britains-Warriors-to-Undergo-Mid-Life-Upgrade-05967/
208
200
rough terrain Materials Handling Equipment (MHE) in use across defence.
In line with the PFI principles,
the MoD does not own but can make use of 2,500 pieces of equipment, of 163 types, capable of undertaking a wide range of combat support, logistic and construction tasks all over the world as part of the
Support Solutions Envelope (SSE). When the equipment is no longer required it is handed back to ALC, the
201
Such arrangements aim to promote maximum use of onshore industry in cost-effective
Service Provider.
service support.
Mergers and Acquisitions
The main characteristic of the UK AFV Industry in the past 20 years has been its rapid consolidation - from
five or more prime companies (GKN Defence, Alvis, Vickers Defence Systems, RO Defence, Marconi Defence Systems etc) to one, BAE Systems Land Systems. Drivers for this consolidation include: low profit margins; the significant number of UK national programmes that have not reached product maturity leading
to gaps in work load; a lack of competitive export products; a decline in the global export market following the end of the Cold War; and changes in national defence requirements and priorities. To this one can
add the fact that BAE Systems purchased Alvis so that General Dynamics, one of its main US competitors
could not do so.
There were three waves of activity in the evolution of BAE System’s defence activities. First, was the consolidation in 1977–87 of the British companies which made up British Aerospace. Second, there were the
acquisitions of European defence interests and of Marconi’s defence business in the late 1990s. Finally, the
focus moved to acquisitions of US companies. In this phase the change in name to BAE Systems reflected
202
the company’s aim of internationalization and its intention to enter the US market.
Thales which, albeit French, is a strong player in the UK, has a slightly different trajectory as regards mergers
and acquisitions. According to SIPRI, it embarked upon a short wave of acquisitions in the early 1990s and
a major wave of acquisitions across the world in the late 1990s. Following the acquisition of the British company Racal, the company’s name was changed from Thomson CSF to Thales in 2000. Interestingly, with this
acquisition, Thales became the second largest contractor to the MoD (after BAE Systems).
In general, it is thought that the AVF industrial model (as well as the typical defence industry model) used
to be based on a largely transactional relationship supported by traditional post-design service support
between the Government and industry, i.e. the companies supplied the equipment to the government
which was responsible for maintaining it. This, as a result of the 2005 DIS which adopted the concept of
through life capability management (TLCM) according to which contractors are responsible both for the
supply of the equipment and its maintenance throughout its operational life.
In contrast, the general munitions marketplace is highly fragmented and cannot be termed a free market.
The last 15 years have seen the pressure of globalisation, the collapse of the Far East market for munitions,
etc. This has resulted in declining volume of requirements, falling R&D funding, considerable industrial consolidation and loss of domestic competition. As mentioned above, 80% of MoD’s spend goes to BAE Systems which under the Framework Partnering Agreement (FPA) supplies the majority of the MoD’s repeat
buys of existing general munitions. The remaining 20% is subject to healthy competition and either covers
niche capabilities and/or low volume products, or simply provides better VFM.
According to our informants, apart from BAE Systems, few other companies are important players in the
203
general munitions market are MBDA (UK) Ltd, Thales, Chemring , etc. In the area of complex weapons
200
Ministry
of
Defence/MoD,
(2008).
British
Army
–
Vehicles
and
http://www.army.mod.uk/documents/general/285986_ARMY_VEHICLESEQUIPMENT_V12.PDF_web.pdf
201 http://www.alcvehicles.com/index.php
202 http://www.sipri.org/research/armaments/production/researchissues/concentration_aprod
203 http://www.chemring.co.uk/
Ammunition,
209
204
apart from BAE Systems other main companies include, Thales, MBDA UK, Rolex, Raytheon , Qinetiq, etc.
For example, MBDA, which started as a joint venture owned by BAE Systems, EADS and Finmeccanica, is a
key player in the missiles sector and MoD’s prime contractor for around half of its 2005 in-service inventory.
Roxel, an Anglo-French Company, formed in February 2003 by the merging of CELERG of France and
Royal Ordnance Rocket Motors UK and based in Kidderminster, Worcestershire, specialises in design, development and mass production of rocket motors, propulsion units, pyromechanisms and gas generators.
It is the world’s third largest designers and manufactures of rocket motors for tactical missiles and the UK’s
only designer and manufacturer of rocket motors. Other main companies which are active in the LAS
sector include Lockheed Martin UK205, Rolls Royce206, Force Protection Europe207 (recently acquired by
General Dynamics), Manroy plc208, etc. For example, Manroy plc the East Sussex machine gun and
ammunition manufacturer is the UK’s largest maker of heavy machine guns, while Lockheed Martin UK is,
inter alia, the prime contractor for MoD’s £1bn WCSP aimed at upgrading the British Army’s Warrior
Armoured Fighting Vehicle. Rolls Royce, which is a major player in defence aerospace and a Tier 1
contractor, is also manufacturing a number of components for the land armament sector. For example, it
makes the engines used in both the Warrior family of seven variants of armoured vehicles and the FV430
family of armoured vehicles.
Geographical Spread
Depending on the particular LAS sub-sector, the geographical spread of manufacturing capacity varies.
According to our informants, the production of armoured vehicles is concentrated in the North/North East
and the Midlands, while the ammunitions sub-sector is more widely dispersed. On the other hand, it seems
that the BAE Systems Global Combat Systems Ltd in Barrow-In- Furness (Cumbria) is one of the key production outfits as regards the artillery sub-sector. For example, in October 2011 the US placed an order for
lightweight M777 howitzers as part of its M777 programme where the manufacture and assembly of the
complex titanium structures and associated recoil components will take place at Barrow-in-Furness.
Indeed, BAE Systems, the dominant manufacturing player in the LAS, has sites across the UK, including
Newcastle, Tyne and Wear (GCS Vehicles); Abbeywood, Bristol (GCS Vehicles); Birtley, County Durham
(GSC Munitions); Bishopton, Strathclyde (GSC Munitions); Farnborough, Hampshire (Global Combat Systems); Filton, South Gloucestershire (GCS Vehicles); Glascoed, Usk (GSC Munitions); Radway Green,
Cheshire (GSC Munitions); Ridsdale Range, Northumberland; (GSC Munitions); Shrivenham, Swindon (GSC
Munitions); Telford, Shropshire (GCS Vehicles); Washington, Tyne and Wear (Land and Armaments); and
Barrow-In-Furness, Cumbria (GSC Weapons).
However, it should be noted that not all these sites are BAE Systems production sites. For example, the
Telford site is the BAE Systems UK Centre of Excellence for supporting military vehicles; the Bishopton site is
home to an Environmental Test Facility for GSC munitions; the Farnborough site is the Head Office for
Global Combat Systems; and the Glascoed site is the head office for Global Combat Systems Munitions. In
contrast, Newcastle is a manufacturing site for the GCS Vehicles business and the Barrow-In-Furness site is a
design and manufacturing site for weapons. The Radway Green currently manufactures approximately a
million rounds of small arms ammunition a day and is Global Combat Systems Munitions’ Centre of
Excellence for the design, manufacture, proofing and supply of small arms ammunition. Indeed, the Rad209
This geographical spread has
way Green is the UK’s only local source of military small arms ammunition.
also significant employment implications. BAE Systems, which is also one of the UK’s largest employers, is
responsible for 80% of all manufacturing related jobs in Barrow-in Furness, 40% in Portsmouth and 70% in the
Ribble Valley.
204 http://www.raytheon.co.uk/
205 http://www.lockheedmartin.co.uk/
206 http://www.rolls-royce.com/
207 http://www.gdls.com/
208 http://www.manroy.com/
209
King, B. (ed.), (2010). Op.Cit.
210
This geographical spread is also common in a number of other LAS companies. For example, in the UKbased MBDA, research and development is carried out at Stevenage, Hertfordshire, while software and
systems engineering takes place in Filton, Bristol, and missile production in Lostock, Lancashire. Similarly,
Thales operates in more than 35 locations across the country.
The above discussion notwithstanding, it should be borne in mind that when it comes to LAS manufacturing locations, these are still clustered in certain places which are characterised by strong supply chains
and networks, especially in relation to advanced manufacturing. For example, 57% of weapons and ammunition manufacturing jobs are located in three Local Authorities, e.g. Birtley, Glascoed, and Radway
210
According to UNITE, the North West of England is home to over 300 defence firms, employing
Green.
17,000 people and accounting for 13% of the UK’s total defence industrial employment. The industry is vital
to the regional economy and includes complex weapons manufacturing in Lostock and ammunition
production in Crewe.
c)
Products
The UK has sizable, open and broadly-based defence industry which delivers a large proportion of the
MoD’s needs. That said, open procurement and the growing trend of off-the-shelf products, capabilities
and solutions mean that some of these are also sourced on the global market. Indeed, the nature of
modern arms production is such that British arms companies source many components from abroad to
build weapons systems. For example, 40% of the value of Britain's arms exports has actually been imported
211
Indeed, UK (alongside Italy, the Netherlands and Sweden) has
to produce the final exported product.
212
been classified as a net defence equipment exporter with substantial import.
The above notwithstanding, according to our informants, the profile and make-up of LAS products presents a more varied and nuanced picture. Specifically, the armoured vehicles sub-sector is highly specialised in that it produces vehicles such as the Challenger 2, Warrior and Terrier which are bespoke vehicles
for the MoD and the UK Armed Forces. In other words, the manufacture of armoured vehicles in the UK has
not sufficiently diversified, which in turn, makes it vulnerable to fluctuations in domestic demand. Indeed,
as was stressed by our informants, the current ‘drying out’ of MoD’s orders of such vehicles due to, inter
alia, the defence cuts resulting from the 2010 SDSR has already had a negative impact on this particular
sub-sector. Specifically, BAE Systems which manufactures such vehicles will in the next 18 months move all
production capability to Sweden. This, in turn, will have serious and negative employment implications for
the 2,000-3,000 workers of this sector, many of whom have valuable advanced manufacturing and engineering skills.
On the other hand, the munitions sub-sector has a more varied, though quite standardised, product portfolio. For example, the specifications and calibre of bullets are quite standard. That said, it is worth noting
that, contrary to the armoured vehicles sector, the UK munitions sector is quite healthy and doing well.
Indeed, as mentioned earlier the UK is a proven world leader in the field of IM and related energetic materials such as PBX and LOVA propellants.
210
Sissons, A, (2011). More than Making Things - A new Future for Manufacturing in a Service Economy, A Knowledge
Economy
Programme
Report
,.
The
Work
Foundation,
http://www.theworkfoundation.com/assets/docs/publications/284_More%20than%20making%20things.pdf
211
Gilby, N., (2009). A Farewell to Arms Exports, November, http://www.redpepper.org.uk/A-farewell-to-arms-exports/
212
Eriksson, A. E. et al., (2007). Study on the Effects of Offsets on the Development of a European Defence Industry and
Market, Final Report of 06-DIM-022, 12.7.2007, http://www.eda.europa.eu/libraries/documents/eda_06-dim022_study_on_the_effects_of_offsets_on_the_development_of_a_european_defence_industry_and_market.sflb.ashx
211
Value Chains
Supply chains are widespread in the defence industry, including the LAS (as with other manufacturing
sectors). Recognising the importance of effective supply chains in 2006 ADS launched the SC21 (21st Century Supply Chains) which is a collaborative programme designed to improve the performance of suppliers
and supply chains in the UK aerospace, defence and security industries. The SC21 programme is a key
213
industry venture and is overseen, governed and managed by ADS on behalf of UK industry.
As of March
2011, over 580 companies had signed up to SC21, with about 100 companies joining the programme every
214
year.
A key element of the SC21 programme is the need for participating companies to commit themselves to implement continuous improvement through a Continuous Sustainable Improvement Plan
215
(CSIP).
Moreover, defence has a multiplier of 2.3, ranking it in the top five UK sectors, above banking and finance
216
This, in turn, reflects a strong UK-based supply chain and
(2.2), telecoms (2.1) and pharmaceuticals (2.1).
a relatively high wage level paid to workers. In addition, for every job created in the defence industry, 1.8
217
jobs are created elsewhere in the economy.
Industry is operating at 73 per cent capacity, which means
218
that it has the capacity to meet fluctuations in both domestic and international market demand.
The
main suppliers for companies in the defence industry operate mainly in the weapons, metal forging, computer services and technical consulting industries.
It has not been possible to identify recent added value data for the national LAS as such; however, there
are some estimates about the added value of the defence industry, including the LAS, as a whole. As a
2009 report by Oxford Economics found, in terms of the UK economy defence is a mid-sized sector, being
219
This
the 15th largest (out of the 27 sectors selected) in terms of value added contribution to GDP in 2006.
has been confirmed by a more recent 2011 report, whereby in 2008, the defence industry maintained its
status as a mid-sized sector in the UK economy, with the defence sector ranking 14th (out of 23 sectors) in
220
terms of turnover.
This makes it comparable to the size of the rental and leasing services, the air transport and the printing and publishing services sectors. Defence ranks a little higher in terms of employment,
coming 11th in the list of sectors and drawing a close comparison to the motor vehicles and manufacture
of machinery and equipment sectors.
The latest LAS-related value added data are based on 2006 Eurostat estimates according to which the
arms and ammunition manufacturing sector generated more value added in the UK than in any other
Member State, accounting for well over one third (37.3%) of EU-27 value added in 2006.
SMEs
SMEs are quite active actors in the defence industry either as prime contractors or subcontractors in the
supply chain. For example, in the year to March 2011, an estimated 42% of MoD contracts were placed
directly with SMEs, representing some £953m or 13.2% by contract value, while many more contribute to
213 http://www.adsgroup.org.uk/pages/91430300.asp
214 ADS, (2011b). SC21 Briefing Paper, March
215 There are two ways of implementing CSIP: (i) Self Starter: A signatory typically uses a Strategic Partner, in most cases,
with support of a Regional Trade Association to gain 50% “match funding” to financially support them when completing
their Manufacturing and Business Excellence diagnostics and CSIP; and (ii) Key Customer Led: Where a customer will
support a signatory with their own resources from initial engagement through to Manufacturing Excellence and Business
Excellence diagnostics to CSIP.
216 Oxford Economics, (2011). Op.Cit.
217 Ibid.
218
Eurostat, (2009). European Business – Facts and Figures, Eurostat Statistical Books, 2009 Edition,
,
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BW-09-001/EN/KS-BW-09-001-EN.PDF
219 Oxford Economics, (2009). The Economic Case for Investing in the UK Defence Industry, Report prepared for the
Defence Industries Council (DIC), August, http://www.oxfordeconomics.com/samples/Defenceuk.pdf
220 Oxford Economics, (2011). Op.Cit.
212
221
MoD’s Defence and Security programmes as subcontractors.
Interestingly, the UK defence sector has
222
more SMEs than France, Germany, Italy, Spain and Norway combined.
Typically, SMEs are niche suppliers of particular materials, products or services, which lie outside the span of
the major prime contractors. A major source of SME involvement in innovation is in the form of ‘spin-off’
ventures, either from the University sector – where they provide a knowledge transfer mechanism from
academia to industry – or from major companies – where individuals set up on their own to take forward
an idea. In addition, in some equipment sectors SMEs are very much to the fore, particularly where there
are immediate capability gaps and operational requirements which cannot be met by the major defence
contractors, and where the scale of procurement is more limited, notably the CBRN and counter-terrorism
223
Indeed, here SMEs may even be the main suppliers.
spheres of activity.
Significantly, the 2012 White Paper seeks to improve SMEs’ access to and participation in MoD contacts by,
inter alia, streamlining its procurement and payment processes, reforming the framework agreement for
technical support (FATS) arrangements, reducing its reporting and administration burden, providing expert
advice to help them export, etc. (see Box B.2 in B.2.4.c)). One key aspiration of the current government is
to ensure that 25% of contracts be placed with SMEs through the coordination of departmental action
plans. Notwithstanding this focus on SMEs, there are some concerns about how feasible is for the MoD to
improve its engagement and collaboration with SMEs against a backcloth of cuts in both military and
224
civilian personnel.
Moreover, according to UNITE, the fallout of these cuts on big Tier 1 companies which may decide to
move away from the UK could have a devastating effect on SMEs which undertake much of the innovative work in the manufacturing sector, since they are in a position to respond quickly and creatively to
225
demands from such companies.
d)
Markets
The UK defence and security industry, including the LAS, is particularly outward looking and export oriented
226
For example, it is estimated that 55,000 of UKand seen as a key lever for growth and employment.
227
based jobs are sustained solely on the strength of defence exports.
Indeed, in the defence industry the
UK is the number one exporter in Europe, second only to the US globally. The UK's most important markets,
228
outside the EU, are the Middle East, the Far East, the US and India. In particular, in 2010 apart from the UK
the largest defence sales market was the rest of the world (including the Middle East and India) at £4.6bn,
229
Due to tight export regulations and
followed by the EU and the US at £2.5bn and £2.3bn respectively.
arms export controls, the UK defence industry cannot export to China, while there are severe export restric-
222 ADS, (2010). Briefing on the UK Defence Industry ahead of the Strategic Defence and Security Review, 20.8.2010,
http://www.theengineer.co.uk/Journals/1/Files/2010/9/15/ADS%20defence%20briefing%20August%202010%20%20FINAL.pdf
223 Ministry of Defence, (2006). Defence Technology Strategy, 17.10.2006, http://www.mod.uk/NR/rdonlyres/2778799042BD-4883-95C0-B48BB72BC982/0/dts_complete.pdf
224
Morrison, G., (2012). ‘National Security Through Technology – Worth the Wait?’, Intellect, 3.2.2012,
http://www.intellectuk.org/blog/2012/02/03/national-security-through-technology-worth-the-wait/
225
UNITE,
(2010).
The
Strategic
Defence
and
Security
Review
2010
Position
Paper,
http://www.unitetheunion.org/pdf/UniteA4PositionPaper.pdf
226
Department for Business, Innovation and Skills/BIS, (2011). Trade and Investment for Growth, February 2011,
http://www.official-documents.gov.uk/document/cm80/8015/8015.pdf
227
http://www.telegraph.co.uk/finance/newsbysector/industry/defence/8244152/UK-defence-industry-in-numbers.html
228
229
ADS, (2011a). Op.Cit.
213
tions in relation to Russia. With particular reference to land defence exports, the UK is third in the world
230
behind the US and Russia.
According to the UKTI DSO, the top land export customers for the UK include
the US, Saudi Arabia, Malaysia, United Arab Emirates, Pakistan, Australia, Canada, Switzerland, France,
Sweden, etc.
In terms of export sectors, equipment related to air defence and security take the lion’s share (80%), while
231
Figure 1 in Annex 3 provides a detailed
that of land and sea amount to 12% and 8% respectively.
breakdown of exported products. For example, in 2011 weapons and ammunition exports amounted to
£64.42m, while vehicle exports to £26.42m. Indeed, the UK has for a long time promoted defence industry,
including LAS, exports, e.g. arms exports, through export subsidies and a dedicated government sales
organisation (UKTI DSO). An outward looking and export orientation of the sector is deemed critical
because it, inter alia, enables longer production runs, thus bringing cost savings to the MoD budget.
Moreover, exports are increasingly seen as a way of offsetting the fall in domestic demand as a result of
the 2010 SDSR and ensuing defence budget cuts.
In general, the UK defence industry, including the LAS operates in a highly globalised market place, which
is also seen as helping contain defence spending, especially in the face of reduced military budgets. As
mentioned earlier, in an effort to keep costs down, the UK government (along with other governments)
have opened up their procurement, so that overseas companies can compete for contracts, including
arms contracts. This has, in turn, enabled a more globalised supplier base, as UK companies are no longer
necessarily dependent on their own government for business. For example, for BAE the US Pentagon is a
much bigger customer than the UK’s MoD. In 2008, it ranked fourth in the Pentagon's list of awarded contracts and was the only non-US company in its top 10 contractors.
However, it was underlined by both the documentation and our interviewees that such a globalised
production and supply chain is not devoid of challenges. Specifically, when the UK purchases LAS-related
equipment and capabilities abroad, one key provision is that it should be able to modify and adapt it to its
own requirements, which in turn, requires technology transfer. This can be an obstacle and examples
where mentioned where the purchase was not completed because of IPR, patent and technology
transfer issues, i.e. the foreign company not wishing to be involved in the technology transfer. In addition,
in some cases the government when purchasing weapons systems from international major companies
seeks access to the relevant technology, i.e. technology transfer and/or local production can be a
condition of major arms deals.
Dual Use
Modern warfare involves high-tech weapons controlled by sophisticated communications and sensor
systems, so increasingly the arms industry uses commercially-available systems, such as digital signal
processors and microwave chip technology, in its hardware. Many mainstream technologies have
become dual use and many traditionally civil companies have become suppliers to the arms industry. This
is a long-standing trend in the UK, e.g. in 1999 the UK Defence Diversification Agency (DDA) was set up
and was tasked with promoting technology transfer from defence to civil sectors. Indeed, the UK is one of
seven EU countries which hold a National general export authorisation (NGA) for the export of controlled
232
It should be noted, however, that the
dual-use items (asset out in Annex I to Regulation 428/2009).
reverse, i.e. deploying civilian technology for military applications, has proved more challenging as was
233
exemplified by the development of a new tactical radio for the UK army.
That said, a number of LAS
companies are actively involved in dual use defence technology, equipment and solutions. For example,
230
UKTI
Defence
&
Security
Organisation,
(2011).
Global
http://www.ukti.gov.uk/uktihome/search.html?search=artillery&sort=ByScorej
Land
Defence
Exports,
October,
231
232 http://ec.europa.eu/trade/creating-opportunities/trade-topics/dual-use/
233 http://www.eurofound.europa.eu/emcc/content/source/eu06019a.htm
214
BAE Systems produced vehicles for UN peacekeeping work which were classified as dual-use military and
civilian products. Our informants also confirmed the trend of the defence industry, including the LAS, to
develop multi-market capability of defence technology applications.
e)
Technology and Innovation
The defence industry, including the LAS, has been among the most innovative sectors in the UK and at the
forefront of developing new technologies. According to ADS, its total R&D investment in 2010 amounted to
£1.66bn and its spend in research and technology to £90m. Indeed, with a ratio of 8% of annual R&D ex234
penditure over annual sales, the defence industry is one of the most R&D intensive sectors in the UK.
Successive governments have actively supported R&D in this industry. For example, in 2006 MoD published
235
The DTS outits Defence Technology Strategy (DTS) which set out its R&D priorities for the next 20 years.
lines three main approaches: (i) investment in specified technical work or development of expertise (e.g.
software Systems Engineering Institute); (ii) joint MoD/industry planning to deliver approved strategies (e.g.
radar); (iii) formation of communities of interest to better understand and plan for future (e.g. signal processing). It also outlined the main research areas for the different sectors. For example, the main
arms/weapons-related research areas included (i) modularity/open architectures; (ii) directed energy
weapons; (iii) network enabled capability integration; (iv) tuneable and precision effects; (v) insensitive
munitions; (vi) countering difficult air targets; (vii) TCLM; etc. More recently, in February 2012 the MoD published its White Paper which once again recognised the importance of technology in maintaining and
improving the sector’s competitiveness and leading edge worldwide. As a result, despite the current tight
fiscal situation and the defence cuts announced in the 2010 SDSR, the White Paper ring-fences a minimum
of 1.2% of the defence budget for investment in science and technology, at more than £400m a year.
The MoD’s R&D activities include the development of technology, systems, and architectures as well as
design, test and evaluation. Most R&D supports the Concept, Assessment and Demonstration phases of
236
the equipment acquisition cycle (CADMID ), and enables through-life technology insertion. According to
existing data, in 2007 the breakdown of the MoD’s DIS-related spend in the LAS was as follows: complex
237
weapons (4.6%); armoured fighting vehicles (2%); and general munitions (0.5%).
In contrast, the bulk of
the MoD’s R&D spend was channelled to air/fixed wings (38.2%) and maritime (16.2%) projects.
Within this context, the LAS, with some government support, has been quite active in R&D and has been
part of the so-called technology trees which typically comprise large organisations, SMEs, research technology organisations (RTOs) and/or Universities. A successful example is the 2193 Mine Hunting Sonar Technology Tree which developed the 2193, a high-frequency active sonar, brought into service in 2005. This is
manufactured by Thales and installed on Hunt class mine countermeasures vessel. It is a highly innovative
design and can detect mines with small acoustic signatures at depth. A critical element of this technology
tree is the involvement of four niche SME suppliers of specialised sonar technology elements, and two
238
According to the DTS, as of end of
universities under a programme led by DERA (now QinetiQ) Winfrith.
2006 there were a total of 36 technology trees in the UK defence industry.
Not surprisingly, universities and RTOs (alongside the private sector) are key drivers for innovation. Their
involvement is two-fold: (i) equipment procurement-led involvement (see previous example); and (ii) in239
volvement in longer-term research through the MoD Research Programme , Defence Technology Cen234 ADS, (2011a). Op.Cit.
236 Concept, Assessment, Demonstration, Manufacture, In Service, Disposal
237
Ministry
of
Defence,
(2007).
Maximising
Defence
Capability
http://www.science.mod.uk/strategy/documents/max_def_cap_thru_randd.pdf
239 http://www.science.mod.uk/
through
R&D,
October,
215
240
tres , etc. In this case, the linkage to the equipment supply chain is more tenuous, as the universities are
not undertaking research aimed at supporting a specific requirement but are exploring emerging technologies. Overall, there are a number of successful science to business collaborations aligned to the aerospace and defence sectors, e.g. Roll-Royce’s Research and University Technology Centres which include
241
This reflects the fact that big Tier 1 companies
the Advanced Manufacturing Research Centres (AxRCs).
within the sector are crucial to the R&D and technological innovations, although SMEs are also quite innovative.
Our informants also pointed to some other LAS-related innovative products which have been designed
and developed in the UK. For example, considerable innovation by UK armoured vehicles manufacturers
has been directed towards light armoured protection/patrol vehicles. To this end, Ocelot, which was created by Warwickshire-based Force Protection Europe and Ricardo, a British automotive engineering company, is an armoured vehicle scheduled to replace the controversial Snatch Land Rover used by British
242
The latter had been criticised for not offering troops in Afghanistan enough protection
Armed Forces.
against improvised explosive devices (IEDs). According to our informants, it is indicative that this innovative
vehicle was created by a company whose origins lie not in defence manufacturing, but in Formula 1
which is one of the most successful and forward looking sectors in the UK. Similarly, the Osprey body armour which is made of ceramic ballistic plates and manufactured by the Coventry-based company NP
Aerospace is considered amongst the best personal protection equipment available to troops world243
This is at present used by the UK Armed Forces in Afghanistan.
wide.
Moreover, thanks to, inter alia, its strong focus on state-of-the-art technology and innovation, the defence
industry’s productivity is 15% above the UK manufacturing average. According to the MoD 2005 estimates,
the average defence industry labour productivity is £55,000 value added per employee, while this techno244
More recently, according to the Government’s
logically intensive sector contributes nearly 0.5% to GDP.
latest (2009) Value Added Scoreboard the aerospace and defence sector added £12bn in value to the
economy and the average value-added per employee in the industry was £61,200, which compares well
245
with the automotive sector at £54,800, construction at £50,800 and the electronics sector at £41,900.
According to Eurostat, in 2006 the UK recorded higher wage-adjusted labour productivity ratios for arms
and ammunition manufacturing than for machinery and equipment manufacturing as a whole.
It has not been possible to identify the added value for the LAS sector in particular. However, a 2010 study
on the BAE Systems contribution to the UK found that in 2009 the company added £3.3bn to UK GDP, generated net exports of £4.9bn, imported 1.7bn in goods and services, paid £653m in taxes and channelled
246
In addition, according to the company’s own estimates each of its
close to £900m into R&D activities.
employees contributes over £78,000 to the UK economy based on productivity levels compared to the
national average of £42,200. This is 34% higher than the estimated average for the manufacturing sector at
£58,300.
B.7.2.
Employment Issues within the National LAS
The small size of the UK LAS makes it difficult to analyse it using official data sources. The UK’s Office for
National Statistics (ONS) recommends a general rule of not using LFS estimates where cell sizes are below
10,000 due to high sampling variability and the high standard error associated with such figures (10,000
240
241
242
243
244
245
246
http://www.science.mod.uk/engagement/dtcs.aspx
http://www.rolls-royce.com/technology_innovation/uni_research_centres/
http://www.bbc.co.uk/news/uk-11388724
http://www.defencematters.co.uk/message-one/
Ministry of Defence, (2005). Op.Cit.
http://webarchive.nationalarchives.gov.uk/20100908131539/innovation.gov.uk/value_added/
Oxford Economics, (2010). The BAE Systems Contribution to the UK in 2009
216
equates to an unweighted sample size of 25 and a relative standard error of roughly 20%). Given the size
of the LAS (under 14,000 employees) any subdivision of the sector into multiple categories inevitably leads
to a substantial number of unreliable estimates.247 As such, it is not possible to obtain reliable estimates for
variables such as qualification levels, training levels or occupational structure. Nonetheless, we supply
information for overall employment, changes in employment in the last three years, age, gender, working
time pattern and pay.
Employment
The LAS employs a relatively modest number of workers, especially compared with other sectors of the
defence and aerospace industry (see Introduction). Specifically, as Table B.8 shows the LAS represents a
relatively small proportion of overall UK employment, with less than 14,000 employees in 2011, which is
roughly 0.05% of all UK employment. Of the total LAS workforce, most are employed in the manufacture of
weapons and armaments. It should be noted that the actual LAS-related employment figures are likely to
be higher due to the extensive use of supply chains. In other words, the table below reflects those who
work directly in the LAS, while there are others who work in companies whose product portfolio is more
varied, but which are also suppliers to the LAS, e.g. by providing components.
Table B.15.
Employment in the LAS
Number employed
Weapons and armaments
Military fighting vehicles
Land Armament Sector
All sectors
12,165
*
13,766
29,203,165
% of Employment
0.04
*
0.05
100
Source: LFS 2011
As Table B.16 shows, employment in the sector appears to have fluctuated slightly since 2009, with a fall in
LFS figures in 2010 and an increase in 2011. The downward trend is in line with 2009 Eurostat estimates according to which the number of employees in the arms and ammunition manufacturing sector in 2006
amounted to 16,600. Although this was the largest in EU-27, it accounted for only 17% of the sector’s overall
248
employment levels in the EU, less than half its share in value added terms.
Table B.16.
LAS Employment 2009-2011
Year
2011
2010
2009
All sectors
Number employed
13,766
10,378
14,756
29,203,165
% of Employment
0.05
0.04
0.05
100
Source: LFS 2011
As with other manufacturing sectors, the majority of workers in the LAS are male. Specifically, although in
the economy as a whole there is a relatively even split between male and female workers, in the LAS almost 73% are male (see Table B.17). This may reflect the fact that a large proportion of LAS-related jobs are
in engineering where the UK has the lowest proportion of female professionals in the EU (just 8.7% in
2011).249 Likewise, manufacturing, including the LAS, is a sector with a traditionally higher concentration of
male workers.
247 Office for National Statistics/ONS, (2011). Labour Force Survey User Guide: Volume 1 – LFS Background and Methodology, August
248 Eurostat, (2009). European Business – Facts and Figures, Eurostat Statistical Books, 2009 Edition,
,
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BW-09-001/EN/KS-BW-09-001-EN.PDF
249 http://www.theengineer.co.uk/opinion/comment/why-arent-there-more-women-engineers/1009440.article
217
Table B.17.
Gender Breakdown in the LAS
Male
LAS
All sectors
Female
72.95
53.55
*
46.45
Source: LFS 2011
In relation to the age breakdown, Table B.18 suggests those employed in the sector tend to be slightly
older compared to those employed in the economy as a whole. Specifically, the average age of those
working in the LAS is 46 which is five years higher than that for the economy as a whole. This slightly older
age profile was also confirmed by our informants, some of whom also raised concerns about the future,
especially since, until recently, the take up of science, technology, engineering and. mathematics (STEM)
subjects, has been rather modest. Although this is now changing with more young people opting for STEM
subjects, there may still be issues around workforce development, talent management and succession
planning in the sector in the future. As was underlined by our informants, at present there are considerable
STEM-related skills gaps across the economy, including the defence industry, and a current lack of STEM
graduates. This, in turn, means that a large number of engineers currently employed in the industry, including BAE Systems, have come from abroad.
Table B.18.
Average Age in the LAS
Average Age
LAS
All sectors
46
41
Source: LFS 2011
Mean hourly pay in the sector is above the average for the economy as a whole. This may be indicative of
above average skill and qualification requirements in the sector as well as with an occupational profile
more oriented towards highly skilled work (see Table B.19). Indeed, the LAS is closely associated with advanced manufacturing and high level skills, including design and systems engineering skills.
Table B.19.
Hourly Pay in the LAS
Hourly Pay
LAS
All sectors
£15.04
£10.18
Source: LFS 2011
In contrast to the economy as a whole where over one fourth of workers are employed on a part-time
basis, employment in the LAS sector is predominantly (92.13%) full-time (see Table B.20).
Table B.20.
Employment Status in the LAS
Part-Time (%)
LAS
All sectors
*
26.93
Full-Time (%)
92.13
72.98
Source: LFS 2011
Knowledge, Skills and Competences
The defence industry, including the LAS, is one of the most important clusters of high-tech manufacturers of
military vehicles, equipment and components. As such, it is firmly placed within advanced manufacturing
and engineering for which high-level and, in many cases, very specialised, skills are required. These include
high level knowledge and skills in advanced manufacturing and engineering (systems, quality, integrated
logistics support, software development, database, testing and integration, mechanical, electrical, advanced materials/composites); design and development; systems integration; test architecture/simulation;
218
programme and proposal management; software development; contracts/subcontract and supply chain
management; finance/pricing/cost engineering; ICTs; etc. It should be noted that systems engineering
skills within the defence sector cover a quite wide range of skills, including design and development, ca250
pability integration, platform integration, systems integration and system-of-systems integration activities.
In addition, the current focus on upgrading and modifying defence equipment also requires ‘whole sys251
tem’ knowledge and a wide range of skills.
It is also worth noting that, as the 2005 DIS underlined, the
systems engineering challenge in defence equipment is increasing, as platforms have longer planned in252
service lives, but technology, especially electronics, continues to evolve rapidly.
According to our informants, in view of the fact that for some time now the UK has not invested in any new
major AVF, (the last one, Warrior having been developed in late 1990s) combined with the prospect of no
development of new platforms means that certain skills will be more important in the future. Since this will
involve in-life technology and mid-life upgrades, technology insertion and refurbishment of existing (rather
than new) equipment, relevant skills such as systems integration, ability to integrate onto the platform
AFVs’ critical subsystems, including electronic architecture, sensors and integrated survivability solutions.
Moreover, skills relating to the repair and overhaul of AFVs onshore are also vital. In general, skills to upgrade, maintain and manage military capability on a through life basis will become increasingly important.
Although as mentioned in the previous section, due to the small numbers, it has not been possible to provide a detailed breakdown of the levels of skills and qualifications for the LAS workforce, according to
UNITE the UK defence industry has a tradition of high level skills requirement with over 30% of employees
253
According to the
educated to degree level and more than 11% involved in research and development.
latest ADS defence industry survey, in 2010, 59% of employees held a university degree or equivalent, while
254
technicians accounted for 16% of the total workforce.
It should also be noted that the UK policy has for
some time placed strong emphasis on maintaining and enhancing both high-tech systems engineering
255
and system integration skills. .
The defence industry, including the LAS, has a long-standing tradition of investing in training and skills development. That said, according to our informants, the LAS faces a challenge as regards technician skills.
Indeed, responding to the UK’s perennial problem of rather weak and inadequate intermediate level
technical and practical skills, companies seek to improve technician skills by offering apprenticeships (e.g.
256
For example, the BAE Systems Advanced Apprenticeship proHigher Apprenticeship in Engineering).
gramme is one of the largest such schemes in the UK. At any one time, the company has up to 1,000
257
young people employed on its numerous training programmes.
According to UNITE, the defence (as
well the aerospace) industry has a strong commitment to the development of young people within the
258
sector and, in 2008, employed around 2,700 apprentices.
More recent data show that in 2010 appren-
250 Taylor, T. and Campbell, J., (2011). Challenges in the Generation and Support of Front Line Forces, A Report
for Prospect, January, http://www.prospect.org.uk/dl/22759_5940285441.pdf/as/2011-00021-Leaflet-booklet-Challengesin-the-generation-and-support-of-front-line-forces-Version-11-01-2011.pdf?_ts=232337&_ts=232337
251 Ibid.
253 UNITE, (2011). Op.Cit.
254 ADS, (2011a). Op.Cit.
255 Cauzic, F., Colas, H., Leridon N., Lourimi, S., and Waelbroeck-Rocha, E., (2009). A Comprehensive Analysis of Emerging Competences and Skill Needs for Optimal Preparation and Management of Change in the EU Defence Industry,
Eurostrategies Report for the European Commission, 20.5.2009
256
Advanced Manufacturing Sector Skills Councils/SSC, (2009). Skills and the Future of Advanced Manufacturing, A
Summary Skills Assessment for the SSC Advanced Manufacturing Cluster, December,
http://www.cogentssc.com/research/Publications/ADVMFG_FINAL_March2010publish.pdf
257
http://www1.baesystems.com/Apprentices/index.htm
258 UNITE, (2011). Op.Cit.
219
tices and trainees in the defence industry accounted for 2% or 2,690 of the workforce, of whom 1,447 were
259
employed in the land and naval sectors.
Both the documentation reviewed and informants interviewed for this study expressed concerns about the
future prospects of the LAS-related skills base, at least as regards certain sub-sectors. As mentioned above,
the main challenge stems from the fact that for some time now, the government does not place major
orders which require new designs, while the open (global) procurement and off-the-shelf purchasing approach can act as a disincentive to industry to invest in high level skills. For example, according to the MoD
its forward programme and the sharp decline in design work in its programmes make it difficult to see how
industry can retain the skill base required for the key AVF capabilities.
Anticipating Skills Changes
The defence industry, including the LAS does not have a dedicated Sector Skills Council and/or Observatory as such. Rather, defence industry skills-related issues are covered by the Sector Skills Council for the
260
Advanced Manufacturing and Engineering sectors (Semta).
Significantly, recognising the negative employment impact that the 2010 SDSR entails for the defence
industry, including the LAS, a number of initiatives have been launched with the explicit aim of retaining
and redeploying highly skilled advanced manufacturing workers who may lose their jobs. To this end, on 21
October 2010 the Business Secretary Vince Cable announced the formation of the Skills and Jobs Retention Group (SJRG). Chaired by Allan Cook, Semta’s Chairman, the remit of this industry-led group is to ensure that, where there are industrial changes as a result of the 2010 SDSR, high value skills in the defence
sector be effectively retained and redeployed in advanced manufacturing sector, e.g. civil aerospace,
261
In doing so, it seeks to provide a forum for companies across UK manuautomotive, energy and marine.
facturing and engineering to work together to make the most of the skills that may become available for
redeployment.
More recently, on 13 July 2011 Minister for Business Mark Prisk announced the launch of a new national
web based system, Talent Retention Solution (TRS), will help match skilled employees facing redundancy to
262 263
UK companies in growing sectors of advanced manufacturing and engineering which are recruiting. ,
TRS comes as a result of work undertaken by the SJRG and Semta to support defence engineers who may
have lost their job as a result of the 2010 SDSR or more generally within the current difficult economic climate. TRS, which is also supported by trade unions such as UNITE and Prospect, puts skilled individuals looking for work and companies searching for new employees in direct contact with each other through the
web-based programme ‘CWeb’. TRS, which is industry-led and, since January 2012, fully funded by business, seeks to actively support redeployment and recruitment across advanced manufacturing and engineering sectors.
According to our informants, it is rather early to assess its effectiveness but one could surmise that, since in
the UK demand for skilled engineers far exceeds supply in most sectors, TRS may prove an effective job
matching tool. However, it was also pointed out that geographical mobility may be a barrier since usually
10-20% of job-seekers, including highly skilled ones, are willing to move in a different geographical location.
As far as the LAS is concerned, with the planned move of the remaining BAE Systems armoured vehicle
production base to Sweden in the next 18 months and the possible loss of employment for 2,000-3,000
259 ADS, (2011a). Op.Cit.
260 http://www.semta.org.uk/
261 Department for Industry, Innovation and Skills/BIS, (2010). Industry-led Group to help redeploy High Skilled Defence
Workers, BIS Press Release, 21.10.2010
262 Department for Industry, Innovation and Skills/BIS (2011). New System launched to retain Highly Skilled Employees
across Advanced Manufacturing and Engineering Sectors, BIS Press Release , 13.7.2011
263 http://www.talentretention.biz/single.htm?ipg=12275
220
workers, one big challenge would be to use the TRS and other relevant tools in order to ensure the retention and redeployment of their advanced manufacturing skills.
Social Dialogue
According to our informants, contrary to other EU countries, there is no LAS-related social dialogue at sectoral level (although the trade unions would welcome it). However, the degree of information sharing and
consultation at company level (workplace) is extensive and growing. UNITE, the biggest trade union in the
UK which represents defence/LAS workers, is currently working towards creating a more formal social dia264
logue arrangements in the defence industry, including the LAS, alongside aerospace and shipbuilding.
Apart from UNITE another union which is active in the sector is Prospect, the largest union in the UK representing professional engineers, whose members are engineers, scientists, managers and specialists in a
265
number of sectors including defence.
It has not been possible to find LAS-related data in relation to union representation. However, according to
the Trade Union Congress (TUC), 69% of those working in public administration and defence were covered
266
by collective agreements in 2009.
B.7.3.
Qualitative Characterisation and Perspectives of the National LAS
The state of the UK defence industry, including the LAS is currently in a state of flux, not least because according to our informants, the MoD is still considering various options as to the direction of defence equipment. For example, to date the MoD has not decided the future balance between light, medium and light
armoured vehicles. This reflects a long-standing trend in the UK which suffers from historic indecision in its
267
However, this trend to indecision and ensuing uncertainty combined with
defence and security reviews.
chronically long delays in MoD’s procurement and, more recently, budget cuts, means that it is difficult for
the industry to plan for the future, invest in both R&D and industrial infrastructure/capacity, make mid to
long-term decisions about employment and skills requirements, etc. (see below). This is particularly
pertinent to the defence industry, where new technology can take around 15 years to develop from scientific theory to final product application. It has been argued that a defence strategy setting out the longterm direction of travel as regards military equipment is necessary, since it will allow companies to plan
their R&D accordingly.
Moreover, the forthcoming withdrawal from Afghanistan will mean that certain equipment deployed there
will come back (‘come into call’) which will need to be maintained, repaired or upgraded onshore. This is
likely to have implications for the LAS sector in that the volume of orders will definitely decrease. On the
other hand, as a result of both the Iraq and Afghanistan wars, the industry was used to responding quickly
to both normal procurement tenders and Urgent Operational Requirements (UOR) bids. According to
some informants, the ability of the LAS to respond to short-term procurement needs as exemplified by UOR
can also be regarded as one of its strengths.
As far as the LAS manufacturing base is concerned there are concerns about its future prospects within an
environment of severe fiscal tightening and budget cuts domestically and fierce competition and an uncertain economic climate internationally. As has been argued, the current UK policy focus on open pro264 http://www.unitetheunion.org/
265 http://www.prospect.org.uk/
266 Trade Union Congress/TUC, (2011). Unions, Collective Bargaining and Employment Relations Project, ESRC Research
Bulletin Number 1, March, http://www.strongerunions.org/wp-content/uploads/2011/03/TUC-ESRC-Research-Bulletin-No1-March-2011.pdf
267 Chatham House, (2010). The Economics of UK Security and Defence Policy, Meeting No. 3: The Strategic Defence
and Security Review: Does it all add up?, Chatham House in collaboration with McKinsey and Company, 15.11.2010
http://www.chathamhouse.org/sites/default/files/public/Research/International%20Security/1110sduk_mtg3.pdf
221
curement, international competition and off-the-shelf equipment has left key industrial sectors without
268
future development pipelines.
This has been confirmed by our informants who also expressed concerns about the further erosion of the
defence, including LAS, industrial base and loss or depletion of design, systems engineering and other
advanced manufacturing skills which will be very difficult to recover in the future. This should also be seen
within a context of a long-term decline in defence spending where according to ADS, the industry’s trade
body, 20 years ago was around 10% of government spending and 4.5% of the GDP, while in 2011 it was 5%
269
of government spending and around 2.3% of the GDP.
Moreover, hopes that the current government’s hope that export orders will sustain the UK's defence industrial base are likely to be misplaced since, as has been argued, exports do not typically exercise the most
high-value design engineering skills in an enduring way. Linked to this is the fact that, since in many cases,
the driver for growth has been overseas markets, notably the US Pentagon, the current US-led defence
cuts and reorientation of its entire defence policy are likely to have a negative impact on the UK’s LAS. This
trend of defence contractors facing a market which on the macro level is contracting and/or changing
rapidly is wider. For example, in contrast to the past where export markets such as the Middle East would
import LAS products manufactured in the UK, at present they increasingly require for these to be produced
locally by their nationals, especially young workers, albeit using the design and technology developed in
the UK. That said, it is worth mentioning that, according to our informants, the UK defence industry has
embraced the idea that they have to share some of their technology with the export countries, eg Turkey.
According to our informants, the MoD’s historical trend to over-specify its defence equipment
requirements and to opt for bespoke solutions targeted at the rather small domestic market and British
Armed Forces may also limit the scope for exports, at least as far as certain types of equipment is
concerned. In other words, less bespoke equipment would be much easier to export. Linked to this is the
quality requirements required by the MoD, which combined with the small size of the domestic market and
Armed Forces (as well as the off-the-shelf purchasing), tend to weaken the business case for maintaining a
manufacturing base onshore. For example, as was explained, the MoD has historically sought the
development and purchasing of the best equipment for the British Armed Forces. This quest for superior
quality, however, has had clear cost implications, ie the cost per unit tends to be quite high, especially in
view of the rather low production volumes due to the small size of the market. As a result, weapons
manufactured in the UK may, in some cases, be too expensive and technologically advanced to mass
export to overseas markets, which may want a more basic and simple weapon.
The trend towards off-the-shelf purchasing of military equipment combined with that of enhancing/upgrading existing capabilities at lower cost (as opposed to designing and producing new products
onshore) means that the scope for LAS related manufacturing expansion is rather limited, albeit to varying
degrees. For example, the future production of certain AFV looks uncertain, especially with the planned
move of BAE Systems’ production capacity to Sweden. On the other hand, there may be some scope for
light vehicles. Moreover, the Future Force 2020 also foresees the need for a new range of medium weight
armoured vehicles including the Terrier engineer vehicle and FRES reconnaissance and utility vehicles. It
also plans the replacement of unprotected vehicles by protected support vehicles to move logistic sup270
Even so, it should also be noted that the scope for ‘new’ production is
plies around the battlefield.
268 Gibert, J. (2012). ‘Management not Money is key to achieving Future Force 2020’, Defence Management.com,
28.3.2012, http://www.defencemanagement.com/feature_story.asp?id=18846
269
Daily Telegraph, (2011). Defence Job Cuts could hit 33,000, warns Trade Body ADS, 27/9/2011,
http://www.telegraph.co.uk/finance/newsbysector/industry/defence/8790686/Defence-job-cuts-could-hit-33000-warnstrade-body-ADS.html
270
Cabinet
Office,
(2011).
Fact
Sheet
7:
Future
Force
2020
–
British
Army,
https://update.cabinetoffice.gov.uk/sites/default/files/resources/Factsheet7-British-Army.pdf
222
moderated by the fact that the future fleet of such vehicles is likely to include some of the Mastiffs, Wolf271
hounds and Buffalos currently in theatre (Afghanistan).
In any case, until the MoD decides what type and quantity of vehicles it will need in the future, any forecasts for this sub-sector are risky. According to our informants, the other LAS sub-sectors, e.g. munitions are
more stable and expected to remain so, without however registering any major growth. For example, the
MoD has allocated about £7bn to support precision-guided weapons programmes for the three armed
services, including precision Guided Multiple Launch Rocket System (GMLRS) rockets and Loitering Munitions.
The above developments may signify a paradigm shift, or rather the acceleration of an existing trend
whereby the LAS moves from a production focus towards the provision of support services, upgrading/capability enhancement, etc. While the traditional, platform, and equipment-based defence market
in the UK will remain under intense pressure due to, inter alia, deep defence budget cuts, the scope of
delivering service-based capabilities is growing. For example, according to an assessment by PriceWaterhouseCoopers, in the UK, the whole of the defence support services market is projected to be worth an
272
estimated £16bn per year by 2020, or approximately 75% of total MoD spend.
Moreover, the current focus on systems integration will continue as will the drive to sustain what has already been produced (as opposed to designing and developing new platforms). The UK LAS has also
shown to be capable of innovation, e.g. light vehicles, composites, advanced materials such as ceramic
materials, protection systems, soldier equipment, insensitive munitions and energetic materials such as
Polymer Bonded Explosives (PBX) and Low Vulnerability (LOVA) propellants; etc.
In the pursuit of both economies of scale and synergies as well as new markets, the LAS is expected
(alongside the rest of the defence industry) to be increasingly seeking to form partnerships, both in the EU
and beyond. However, the expectation is that this will be realised more through bilateral, business-tobusiness collaboration as opposed to a more EU-wide approach. This is seen as a different approach to
that adopted by France which relies heavily on EU research programmes, or Germany which tends to rely
to funding provided by regional government. In any case, the trend for sector consolidation will continue
apace and will also result to fewer production facilities onshore. The industry will continue to focus on advanced, specialised and high end manufacturing. As was stated, ‘any metal bashing required for the
production of equipment will not be done in the UK’. Moreover, the focus will be more on systems integration and upgrading.
The employment prospects for the LAS sector are not particularly promising, especially as regards the AFV
manufacturing sector which has been in decline for some time. For example, the UK has not designed and
produced a heavy armoured vehicle for a long time, which in turn means that the relevant design and
engineering skills are at risk of withering away. The risk of the existing skills base erosion was stressed by all
informants, especially against the UK’s focus on off-the-shelf purchasing and open procurement as well as
a considerable drop in R&D spend. Indeed, only yesterday (31/5/2012) BAE Systems announced the closure of its site at Newcastle-upon-Tyne at the end of 2013, which is currently making Terrier vehicles for the
273
Significantly, according to BAE Systems the proposal to close the Newcasarmy, with the loss of 330 jobs.
tle site, which has been a defence manufacturing site since 1847, followed a business review which concluded that there was no prospect of new UK armoured vehicle manufacturing work once production of
the Terrier ends next year. On the other hand, the skills base concerning light armoured vehicles is more
secure, not least because of the marked increase in sustainment and modification work resulting from
271
Ashbourne-Walmsley, A. (2010). The SDSR: Why the Coalition Government Cut Where It Did, RUSI,
http://www.rusi.org/downloads/assets/Ashbourne-Walmsley.pdf
272 PriceWaterhouseCoopers, (2012). Op.Cit.
273 The Guardian, (2012). BAE Systems to axe 600 Jobs, 31/5/2012, http://www.guardian.co.uk/business/2012/may/31/baesystems-job-cuts
223
both their extensive use in Afghanistan and the shift towards that type of vehicle within the context of
274
Future Force 2020.
Similarly, the arms and munitions sub-sector which has been stable, is likely to remain so. That said, the BAE
Systems also announced yesterday (31/5/2012) proposals for shedding up to 280 jobs at three BAE sites in
Radway Green, near Crewe, Washington in the North East and Glascoed in South Wales as a result of
275
major efficiency improvements and reductions in the amount of ammunitions required by the MoD.
This rather pessimistic forecast is also based on the fact that, as a result of both current defence cuts and
long delays in the MoD’s equipment procurement processes, according to our informants, the industry has
lost confidence in the domestic market, which is now rather small to warrant any major investment. For
example, the MoD started to consider the specifications and operational requirements for its next generation of AFV (FRES) in mid-1990s, but started commissioning in late 2000s. This has, in turn, meant that the
industry could not maintain the research, design and engineering capacity while waiting for the FRES programme to go ahead. In general, the MoD’s defence acquisition has not enjoyed a good reputation over
276
the years.
All informants stressed the fact, that although the LAS may not be employing large numbers of staff, the
skills and qualifications profile of its workers are high and associated with advanced manufacturing and
engineering which, if they are lost, would be a major blow for the UK economy. This is all the more important in view of the current government’s expressed aim to recalibrate and rebalance the UK economy
away from the dominant financial services sector to other sectors, including advanced manufacturing.
Finally, our informants underlined the need for the UK to develop a new defence industrial strategy with
clear long-term objectives for all sectors of the defence industry, including the LAS.
B.7.4.
a)
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March,
http://www.strongerunions.org/wp-content/uploads/2011/03/TUC-ESRC-ResearchBulletin-No-1-March-2011.pdf

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February, http://www.rusi.org/downloads/assets/RDS_Tyler_Feb09.pdf

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http://www.ukti.gov.uk/uktihome/search.html?search=artillery&sort=ByScore

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and
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ndustry%20(JN504)%20Final.pdf
227
b)
List of Interviews
The Table below shows the key UK informants interviewed as part of this study.
Table B.21.
Key UK Informants interviewed
Name
Prof Trevor Taylor, [email protected]
Tel: +44 (0)20 7747 2600
Ian Waddell,
[email protected]
Tel: +44 (0)7768 931 269
Dr Colin Roberson,
[email protected]
Tel: +44 (0)1926 817 712
Position
Organisation
Department of Management
Emeritus Professor (Cranfield)
and Security (Cranfield Uni) &
& Professorial Fellow (RUSI)
Defence Management (RUSI)
National Officer for
Aerospace & Shipbuilding,
UNITE
incl Defence Industry
Time/Date
of Interview
3pm, 10/5/2012
2pm, 11/5/2012
Company Director
Advanced Defence Materials
Ltd.
10am, 4/5/2012
Mark Phillips, [email protected]
Tel: +44 (0)20 7747 2607
Research Fellow, Military &
Intelligence, Land Operations and Capabilities Programme
Royal United Services Institute/RUSI
4pm, 14/5/2012
Gordon Lane,
[email protected]
Tel: +44 (0)20 7091 1141
ADS (Trade organisation for
Managing Director, Defence
Aerospace, Defence, Security
& Director Land ADS
& Space industries)
c)
2pm, 21/5/2012
Other Relevant Information
Box B.1
Defence Budget Cuts as a result of the 2010 SDSR
AIR FORCE
•
Some air force bases will close and 5,000 RAF personnel will lose their jobs over the next five years
•
The Harrier jump jet and Nimrod reconnaissance planes will be scrapped
•
Some squadrons of Tornado jets will be saved, but the Joint Strike Fighter and a modernised Eurofighter will form the basis of the RAF fire power and there will be extra money for unmanned
planes
•
The air transport fleet will be upgraded with A400M and A330 aircraft, replacing the Tristar and VC10 from 2013
•
Extra 12 Chinook helicopters to increase flexibility
ARMY
•
The Army will have to cut up to 12,000 personnel, an increase on the 7,000 originally announced in
October
•
40% of tanks and 35% of heavy artillery will be scrapped. One deployable brigade out of six will be
lost
228
NAVY
•
The navy will lose 5,000 personnel, taking numbers down to 30,000
•
It will get a new fleet of Astute-class nuclear-powered submarines
•
Its surface fleet will be cut from 23 to 19
•
The Ark Royal, launched in 1985, has been decommissioned
•
The construction of two new aircraft carriers, HMS Queen Elizabeth and HMS Prince of Wales, will
go ahead. But one of them will be mothballed rather than entering service
TRIDENT
•
The government says £750m ($1.2bn) will be saved over four years on the Trident nuclear deterrent
missile system by cutting the number of warheads on each submarine from 48 to 40 and reducing
the number of missile tubes from 12 to eight
•
Nuclear warhead stockpiles will be cut from 160 to less than 120
•
The final "main gate" spending decision on Trident will also be delayed until 2016 - after the next
general election
MINISTRY OF DEFENCE
•
The Ministry of Defence will lose 25,000 civilian staff by 2015
•
It will also have to renegotiate contracts with industry and sell-off "unnecessary" buildings and assets
Source: BBC, http://www.bbc.co.uk/news/uk-politics-15123711
Box B.2
MoD’s Measures to support SMEs in the Defence Industry
•
To enable firms to meet potential bidders, the MoD’s Next Generation Estate Contracts Team is
running special networking sessions and has created an online 'Potential Bidders Directory' which
provides contact details for organisations with a registered interest in each contract, so that SMEs
may approach them.
•
It reduced by 75% (to £10,000) its threshold for advertising opportunities and now advertises lower
value contracts, which may be more attractive to SMEs, on the Contracts Finder website.
•
It has revised internal guidance to ensure that SMEs are not rejected on the basis of rigid turnoverto-contract value ratios without proper assessment of their actual capacity and potential.
•
A dedicated SME group in the new Defence Suppliers Forum has been created, chaired by a MoD
Minister, to provide a better 'voice' for small suppliers.
•
The Centre for Defence Enterprise has successfully provided access to the Defence for Innovation
SMEs, and the 2012 White Paper builds on this to broaden its remit to cover security and seek ways
to provide even more support to SMEs, particularly in bringing potential products to market.
Source: MoD, http://www.mod.uk/NR/rdonlyres/4EA96021-0B99-43C0-B65ECDF3A9EEF2E9/0/cm8278.pdf
229
Table B.22. Main Contractors by Domain-Specific Capability at Platform System Level (DIS, 2005)
Type of Equipment
Armoured fighting vehicles
Non-embedded C4ISTAR
Complex weapons
Fast-Jet combat aircraft and maritime
patrol fixed wing
Helicopter
Strategic airlift (C-130)
Submarines
Complex surface warships and Royal
Fleet Auxiliary
CBRN
Name of Company
BAE Systems
BAE Systems, Thales, EADS, General Dynamics, Lockheed Martin, Northrop Grumman, Raytheon, Selex Communications, VT Communications,
Ultra Electronics, BT, EDS, Fujitsu, LogicaCMG, QinetiQ
MBDA(UK), RSL, Thales, BAE Systems UWS
BAE Systems
AgustaWestland UK
Eurocopter (Puma and Gazelle)
Marshall of Cambridge
Babcock Naval Services Ltd, BAE Systems, KBR (including DML)
Babcock Engineering Services Ltd, BAE Systems, KBR (including DML),
Thales, VT
Smiths Detection, General Dynamics UK, SERCO Assurance, EDS
Source: Ministry of Defence, (2005). Defence Industrial Strategy, Defence White Paper, December,
Table B.23. Main Contractors by Type of Munition (DIS, 2005)
Type of Munitions
Large Calibre Training Ammunition, Extended Range Bomblet
System, Naval 4.5” Gun Prod HE and SUP, 120 Tank CHARM 3
Training Round, 81mm Mortar, 30mm Aden TP, 30mm DSRR Training Round, KCB/KAA Naval Rounds, Small Arms Ammunition,
BLADE, DU Demil, Munitions Global Post Design Services, Naval
Proof Yard, SX2 Explosive
Aircraft counter-measures
Mines & explosives
Phalanx ammunition
105mm Illuminating
Smokes and Marine Marker pyrotechnics
General pyrotechnics, including smokes
66mm Anti-tank rocket
Aircraft counter-measures
General pyrotechnics including Smokes, Illuminating, EOD stores
Packaging
Technical support services
Name of Organisation
BAE Systems
Chemring Countermeasures
Troon Investments Ltd
General Dynamics
Bofors Defence Ltd
Denis Ferranti Meters Ltd
Rheinmetall Waffe Munition
NAMMO
Wallop Defence
PW Defence
Austin Hayes Ltd
QinetiQ
Nobel Enterprises
Source: Ministry of Defence, (2005). Defence Industrial Strategy, Defence White Paper, December,
230
Table B.24. The Main UK Army Equipment
Type of Equipment
Model
Main Battle Tanks (MBT)
Reconnaissance (Recce)
345 x Challenger 2
320 x Scimitar (tracked)
11 x Fuchs NBC Recce (wheeled)
200 x Panther (wheeled - 200 more on order)
Armoured Infantry Fighting Vehicle (AIFV) 550 x MCV 80 Warrior (tracked - 200 more in store)
Armoured Personnel Carrier (APC)
380 x Bulldog (tracked - AFV 432 type)
700 x AFV 432 (tracked)
495 x Spartan (tracked)
147 x Saxon Patrol (wheeled)
250 x Mastiff (wheeled)
130 x Jackal (wheeled)
166 x Vector (wheeled)
Towed Artillery
135 x 105 mm Light Gun
Self Propelled Artillery (SP Arty)
134 x 155 mm AS 90 (40 more in store)
Multiple Rocket Launcher (MRL)
42 x 227 mm (G)MLRS
Mortars (Mor)
600 x 60 mm Light Mortar (possibly 1,500 in store)
470 x 81 mm Mortar (including 112 SP)
Anti-Tank (Atk)
300 x Javelin ATGW
60 x Swingfire ATGW (SP on Striker)
1,000 x MBT LAW (estimate)
Low Level Air Defence (LLAD)
84 x Stormer with HVM (tracked)
24 x SP Rapier Fire Units
145 x Starstreak LML
Army Aviation
66 x Apache AH Mk 1 (attack)
100 x Lynx (utility)
42 x Gazelle (utility)
Unmanned Air Vehicles (UAV)
54 x Watchkeeper (deliveries commenced)
100 plus x Hermes 450 (our estimate)
Desert Hawk
Source: UK Armed Forces, http://www.armedforces.co.uk/Europeandefence/edcountries/countryuk.htm#Summary
231
Table B.25. List of UK Firearms Manufacturers
Name of Manufacturer
AA Brown & Sons
Accuracy International
Anderson Wheeler
Atkin Grant & Lang
Birmingham Small Arms Company Guns
Ltd (BSA Guns Ltd)
Boss & Co
Charles Hellis & Sons
Cogswell & Harrison
Dickson & MacNaughton
E.J. Churchill Gunmakers
Frederick Beesley
Graham Mackinlay & Co Gunmakers
Holland & Holland
Holloway and Naughton, Ltd.
James Purdey & Sons Ltd
John Rigby & Co (HQ in US but manufacturing in the UK)
London Gun and Rifle Maker
Longthorne (Gunmakers) Ltd.
P V Nelson Gunmakers Ltd
Rangemaster Precision Arms Ltd
Ronald Wharton
Watson Bros
Westley Richards
William Evans
William Powell
William & Son
William Evans Gun & Rifle Makers
W.J. Jeffery & Co.
W. Richards (L’Pool) Ltd.
W W Greener
Viking Arms Ltd
Website
http://www.doubleguns.co.uk/
http://www.accuracyinternational.com/
http://www.andersonwheeler.co.uk/
http://www.atkingrantandlang.com/
http://www.bsaguns.co.uk/
http://www.bossguns.co.uk/
http://www.hellis.com/
http://www.cogswellandharrison.com/
http://www.dicksonandmacnaughton.com/
http://www.ejchurchill.com/
http://www.frederickbeesley.org/
http://www.glasgowgunmakers.co.uk/
http://www.hollandandholland.com/
http://www.hollowaynaughton.co.uk/
http://www.purdey.com/
http://johnrigbyandco.com/about
http://www.londongunandriflemaker.co.uk/
http://www.longthorneguns.com/
http://www.rangemasterprecisionarms.com/
http://www.bunduki.co.uk/
http://www.watsonbrosgunmakers.com/
http://www.westleyrichards.com/
http://www.williamevans.com/
http://www.william-powell.co.uk/
http://www.williamandson.com/
http://www.williamevans.com/
http://www.wjjeffery.co.uk/
http://www.wrichardsguns.co.uk/
http://www.wwgreener.com/
http://www.vikingarms.com/
Source: http://waoline.com/detente/sport/hunt-/ArcheryLinks/ArmsLinks.htm;
http://www.guntrader.co.uk/WebLinks/
232
Graph B.13 UK Security Exports by Product Type 2011
Source: UKTI Defence & Security Organisation, (2012). UK Defence and Security Exports for 2011,
26.4.2012, http://www.ukti.gov.uk/defencesecurity/item/300340.html.
233