European Defense Market Integration: The Aerospace Sector in 19871999

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European Defense Market Integration The
Aerospace Sector in 1987-1999
The Fletcher School of Law and Diplomacy Tufts
University

• PhD dissertation defense
• by
• Sorin Lungu
• (March 29, 2005)

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Agenda

• Objectives relevance
• PhD dissertation structure
• Analytical framework
• Interview sources
• Conclusions
• Future research agenda
• QA

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Objectives relevance

• Objectives
• Examines to what extent the EU, industry,
  and leading national governments contributed to
  the consolidation that happened in Europes
  defense and aerospace sector in 1987-99, while
  examining the role that perceptions of economic
  security played in this process.
• Indirectly, it addresses the great question
  of whether the creation of the EADS was EU
  (national governments and/or the Commission)
  driven, or if it was the industry that actually
  spurred the event.

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Objectives relevance

• Relevance
• Explores the changing patterns of
  governance in Europes aerospace and defense
  sector since the end of the Cold War.
• Investigates which factors and actors were
  the most influential in this process, and why.
• Evaluates what political, industrial,
  economic, and technological circumstances enabled
  certain actors to bring about the consolidation.
• Assesses whether the corporate sector played
  a catalytic role in speeding up the dynamics of
  change and integration in European defense
  industrial policies.
• Concludes by reflecting to what extent
  Europe had by the end of the 1990s the
  competitive and defense technological base that
  might lessen the risk of a fracture in
  transatlantic relations.

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PhD dissertation structure

• Literature review (cross-disciplinary analytical
  framework)
• Economic security and the European aerospace
  and defense sector in 1987-99
• Power, techno-economics, and transatlantic
  relations Airbus Industrie, Galileo and the
  European RMA in 1987-99
• Corporate strategies, financial performance, and
  relations with the national governments from the
  late 1980s to the mid-1990s DASA, BAe,
  Aérospatiale, Dassault Aviation, and the
  Matra-Lagardère group
• EADC is dead, long live EADS! the European
  aerospace and defense sector in 1996-99
• Analytical conclusions (the newly emerged pattern
  of governance in Europes defense and aerospace
  sector in 1987-99) and future research agenda

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Analytical framework

• The restructuring of the European
  defense industry is far from being a simple pro
  rata adjustment of supply to changes in demands
  arising from objective changes in the security
  environment. It is inextricably bound up with
  the development of institutions, policy paradigms
  (in both the military and the industrial
  domains), business networks, and relationships
  between companies and governments.
• John Lovering, Which Way to Turn? The
  European Defense Industry After the Cold War, in
  Anne Markusen and Sean Costigan, eds., Arming the
  Future A Defense Industry for the 21st Century
  (New York Council on Foreign Relations Press,
  1999), 342.

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Analytical framework
A redefined post-Cold War relationship among
technology, economic security international
affairs
Dual-use technology, strategic industry
strategic trade policy
THE EUROPEAN AEROSPACE DEFENSE SECTOR
(1987-99)
Structural power international state-firm
bargaining theory
Transnational networks corporate governance
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Technology, economic security international
affairs
Relevant factors in assessing shifts in
transatlantic relations during the 1990s

MILITARY TRANSFORMATIONS (CAPABILITIES RMA)
INTERNATIONAL STRATEGIC ENVIRONMENT
POST-COLD WAR TRANSATLANTIC SECURITY ECONOMIC
RELATIONS
ECONOMIC, TECHNOLOGICAL DEFENSE INDUSTRIAL
FACTORS (DUAL-USE INDUSTRIES, TECHNOLOGY
POLICIES CORPORATE STRATEGIES)
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Technology, economic security international
affairs
Rand Corporations view of new generators of
national power in the post-industrial age (2000)

EXTERNAL DIMENSION Dominate cycles of national
innovation in leading sectors
DOMESTIC DIMENSION Develop hegemonic potential
and effective military capabilities

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Structural power international state-firm
bargaining theory

• It is the power to shape and
  determine structures of the global political
  economy within which other states, their
  political institutions, their economic
  enterprises and (not least) their scientists and
  other professional people, have to operate
  Structural power, in short, confers the power to
  decide how things shall be done, the power to
  shape frameworks in which states relate to each
  other, or relate to corporate enterprises. The
  relative power of each party in a relationship is
  more, or less, if one party is also determining
  the surrounding structure of the relationship.
• Susan Strange, States and Markets (New York
  Basil Blackwell, 1988), 21-22.

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Structural power international state-firm
bargaining theory
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Structural power international state-firm
bargaining theory
Stranges and Stopfords triangular diplomacy
model
Government-Government
Company-Company

Government-Company
Adapted after Figure 1.6 presented in Susan
Strange and Michael Stopford (with Michael
Henley), Rival states, rival firms Competition
for world market shares (Cambridge Cambridge
University Press, 1991), 22.
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Structural power international state-firm
bargaining theory
Lawtons pentagonal diplomacy model
EU Commission-Firm
Firm-Firm

State-Firm
EU Commission-State
State-State
Adapted after Figure 2.1 in Thomas Lawton,
Technology and the New Diplomacy The creation
and control of EC industrial policy for
semiconductors (Aldershot Ashgate Publishing
Company, 1998), 18.
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Transnational networks corporate governance
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Transnational networks corporate governance
Anglo-Saxon vs. Continental European corporate
governance
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List of interviewed people

• GERMANY
• Dr. Hans Ruehle (former Minisiterialdirektor and
  Head of the Plannungsstab, German MoD in 1983-92
  and former Head of the NATO MRCA/Tornado Agency).
• Dr. Thomas Enders (VP Defense and Civil Systems,
  EADS).
• Hans Olaf-Henkel (former President of the
  Federation of German Industries between 1995 and
  2000)
• Werner Dornisch (Head of Berlin Office of Diehl
  Stiftung Co, member of the Board of Directors
  of Diehl Gruppe)
• Vice-Admiral Ulrich Weisser (retired, German Navy
  former Head of the Plannungsstab, German MoD in
  1992-98).
• Dr. Hans-Heinrich Weise (Ministerialdirektor,
  Abteilung Ruestung, German MoD).
• Peter-Wolf Denker (Head Political Affairs
  Germany, EADS).
• Joerg Leister (Head Berlin Office for Political
  Affairs Germany, EADS)
• Stefan Hess (Head Space and Defense Section,
  German Aerospace Industries Association)
• Dr. Holger Mey (President Institute for Strategic
  Analysis, since Summer 2004 VP EADS Germany
  Defense Security Systems)

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List of interviewed people

• FRANCE
• Patrice Hummel (VP Policy Strategy EADS Hq).
• Admiral Jean Betermier (retired, French Navy -
  personal adviser to the CEO of EADS).
• Ingénieur Général de lArmement Alain Crémieux
  (retired, French Armament Agency, former Armament
  Attaché in London and Washington, former Armament
  Counselor to the French Ambassador to NATO)
• Dr. Christian Harbulot (Director of l'Ecole de
  Guerre Economique and one of the persons which
  was very active in redefining the concept of
  economic security in France in the post-1990
  setting).
• Patrick Barraquand (VP Marketing Eurocopter,
  EADS).
• Dr. Jean-Paul Hebert (a well respected French
  academic in the field of defense industrial
  issues from CIRPES).

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List of interviewed people

• OCCAR
• Stephen Logan (Program Coordination and
  Prospective Cooperation Section Leader).
• NATO
• Robert Gregory Bell (NATO Assistant Secretary
  General for Defense Support). 
• Richard Williams (Head PfP Coordination and
  Support Section -- Armaments Planning, Programs
  and Policy, Defense Support Division). In
  1992-96 was the Head of the Defense Cooperation
  Section at the U.S. Embassy in Paris. 
• Diego Ruiz Palmer (Head, Council Operations
  Section -- Crisis Management and Operations
  Directorate). In 1991-97, he led the Armaments
  Planning Section, responsible for the
  harmonization of the defense procurement plans of
  the Alliance member nations. Served in 1997-99 as
  Head of the NATO Armaments Review Task Force,
  aimed at reforming armaments cooperation
  processes, and as Chairman of the review's civil
  and military working groups. In 2000-01 was
  International VP Central and Southern Europe,
  Northrop Grumman International.
• Bob Reedjik (Head Planning and Policy Section --
  Defense Support Division). 
• Michael Ruehle (Head, Policy Planning
  Speechwriting Section -- Political Affairs
  Division).
• Captain James Moseman (U.S. Navy - U.S. Mission
  to NATO). Currently Director, Europe and NATO,
  Northrop Grumman International.

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Conclusions New BAe/BAE Systems (January
1999)
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Conclusions EADS (November 1999)
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Conclusions Aérospatiale Matra (February 1999)
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Conclusions
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Conclusions The new pattern of governance in
Europes aerospace defense sector (1987-99)
Politics The decreasing role of the
European nation state in the international/Europea
n economy The increasing power of national
industrial champions and supranational/transnatio
nal organizations like the European Union (in
particular the European Commission). o     What
is the object of European integration to set up
a rival to the United States or a partner in its
global hegemony? The Europeanization
of the aerospace and defense industry influenced
certain operating parameters of the transatlantic
relationship.
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Conclusions The new pattern of governance in
Europes aerospace defense sector (1987-99)
Markets The trade-defense linkage is
identified as an area of great concern in Europe
since the mid-1990s. The defense
market becomes a global one. The
representative European companies seek to
transcend their national origins and to maneuver
for survival and supremacy in a global arena.
They try to make themselves still larger
and reap the economies of scale by purchase or
merger or, failing these, by joint ventures,
alliances, and partnerships.
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Conclusions The new pattern of governance in
Europes aerospace defense sector (1987-99)
Firm strategies The internationalization
of technology and economy leads to the lessening
of state control and increasing privatization
measures. European arms companies are
no longer workshops for national armed forces
but corporations driven by market imperatives
(the technological race with the U.S.).
The representative European companies seek to
transcend their national origins and to maneuver
for survival and supremacy in a global arena.

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Conclusions The new pattern of governance in
Europes aerospace defense sector (1987-99)
Firm strategies European aerospace
defense firms try to make themselves still larger
and reap the economies of scale by purchase or
merger or, failing these, by joint ventures,
alliances, and partnerships.
Increasingly powerful European companies
determine in a substantial manner the ways of
restructuring, while the respective national
governments underwrite their strategies and
decisions.
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Conclusions The new pattern of governance in
Europes aerospace defense sector (1987-99)

• Finance
• Aerospace and defense firms are increasingly
  affected by the globalization of finance
• Forced to open to privatization and became
  dependent on the international mobility of the
  capital.
• Shareholder value and profit maximization
  establish themselves as buzz-words (in
  particular after the mid-1990s) in Europes
  aerospace and defense sector.
• The control of Europes aerospace and defense
  sector passes into the hands of a very few, but
  large companies who are overwhelmingly private.
• The preservation of the French states interests
  in the aerospace and defense industry relies
  increasingly on the interlocking of
  cross-financial links between the key players of
  the French armaments system and substantially
  less on the ownership of defense companies by the
  state.

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Conclusions Ownership in the French aerospace
defense sector (2000)
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Conclusions The new pattern of governance in
Europes aerospace defense sector (1987-99)

• Technology
• The aerospace and defense sector becomes directly
  concerned and affected by internationalization of
  technology and economy.
• The European nation states ability to manage
  military and commercial technology in the context
  of the U.S.-promoted RMA is heavily challenged.
• Moreover, EU members do not undertake impressive
  efforts for acquiring those capabilities that
  would allow them to project military power
  globally in competition with the U.S. (not least
  for the costs associated with doing so).
• By the end of the 1990s there was no coherent
  EU-level response to the dual-use technology
  paradigm.

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Future research agenda

• Dissuasion in the transatlantic allied context
  since the end of the Cold War?
• Did European elites take the deliberate decision
  to trade-off military capability for economic
  competitiveness?
• To what extent, and in what circumstances, is
  parity or inequality in technological and
  industrial capabilities a significant factor in
  the health of a long-term political partnership?
• To examine the extent to which the degree of
  parity or inequality in technological and
  industrial capabilities (in both the military and
  civilian sectors) has become politically
  sensitive since the 1980s for the transatlantic
  relationship.

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QA