Unlock the publisher’s digest free
Roula Khalaf, editor -in -chief of the FT, selects her favorite stories in this weekly newsletter.
The bellicose rhetoric of the United States on the need for Europe to play a more important role in the defense unleashes a new gathering in the defense actions of the continent. The request for tanks, soldiers and ammunition is a fact. Less clear is whether the industry is able to capitalize on it.
US defense companies have done a tidy job to manage public spending in solid investor yields, through high research and development spending, economies of scale and a practical deployment of technology. But Europe is a fragmented landscape, with different countries which are obtaining in different specifications. The lack of cooperation costs the block between 25 billion euros and 100 billion euros per year, the European Commission has calculated.
What European companies have on a scale is at least partly due to the American market, which represents both fifths of sales at Bae Systems, or more than Europe and the UK combined. At Airbus, it contributes more than a fifth, and to Leonardo more than a quarter, in 2023.
The creation of a unified American style market of nearly 30 countries will not occur. But unified standards and specifications are perfectly possible; At least one country pocket (generally smaller) is in harmony on rifle specifications. This could be prolonged, allowing more effective use of capacity and expanding scale economies.
Likewise, the facilitation of joint investments beyond borders would strengthen supply chains and, ultimately, reduce unit costs. Defense manufacturers are counting on a band of parts and components and would benefit enormously from the agglomeration on a European scale.
The high -end consolidation is the fancy fabric. Collaboration is not. Grouped resources, whether manufacturing platforms, R&D or joint purchases, all of them help with capacity and costs.
There is also a precedent. Take the MBDA missile manufacturing joint venture led by BAE Systems of the UK, France’s Airbus and Leonardo of Italy. The trio is also involved in the consortium producing the flagship fighting aircraft of Eurofighter. Leonardo and Germany Rheinmetall combine to develop and market the new Italian main battle battle reservoir thanks to a 50-50 joint venture.
The challenges to all of this are the Legion and the gaps remain. Regarding software, Europe has light years behind the United States; After all, the technological industry of this country was generated by the Pentagon. The German Drone and Defense Helsing start -up, worth 5 billion euros, turns alongside the America’s Palantir – a market capitalization of $ 270 billion – and its start -up Spawn Andundil, would have fired for an assessment of $ 28 billion.
However, the momentum of the industry has increased since Russia invaded Ukraine. Far from simply collecting large orders, European manufacturers have introduced efficiency gains in factories and supply chains. The delivery times for the equipment have already improved, according to industry sources. They are also tightening new processes, such as 3D printing.
More acceleration is possible. After all, if Ukraine could build a production of zero drones to 4 minutes and more – While fighting a war – it should not be beyond the pillars of Europe to start connecting the gaps and preparing for a rush to the orders.
Louise.lucas@ft.com
