European defense companies say austerity budgets, program cuts could harm R&D efforts

By Frank Jordans, AP
Friday, October 8, 2010

Euro defense companies warn against program cuts

MONTREUX, Switzerland — Leading European defense companies warned Friday that cuts to military programs could cause long-term harm to the industry’s research and development capabilities, even as they looked beyond the continent for new business to make up anticipated shortfalls.

Multinational programs such as the Eurofighter jet and Airbus A400M military transport plane were essential to preserving future R&D capacity, said Domingo Urena-Raso, chief executive of Airbus Military and president of European defense industry group ASD.

“It’s not the moment to destroy all these things,” he told reporters on the sidelines of an industry meeting in Montreux, Switzerland.

Governments across Europe have indicated that austerity budgets won’t spare the continent’s defense spending, prompting alarm in a sector long used to strong state support.

In Brussels on Friday, NATO Secretary General Anders Fogh Rasmussen warned that too many cuts would eventually undermine security.

“There is a point where you are no longer cutting fat (but) you’re cutting into muscle, and then into bone,” Fogh Rasmussen said. “We have to avoid cutting so deep that we won’t, in future, be able to defend the security on which our economic prosperity rests. And we cannot end up in a situation where Europe cannot pull its weight when it comes to security.”

He suggested that pooling of resources among allies could be one of the ways out of this situation.

“In NATO, we will streamline our command structure so it delivers what we need but costs less. We also need to look at pooling scarcer resources together, so we can buy and do things together that individually we couldn’t afford,” Fogh Rasmussen said.

Spain is cutting its defense budget for the third consecutive year in 2011, making for a 13.3 percent reduction since 2009.

German Defense Minister Karl-Theodor zu Guttenberg is expected to make long-term budget cuts of at least euro8.3 billion ($11.5 billion) by 2014, while a French government white paper in 2008 called for reducing total Defense Ministry personnel by 54,000.

Italy recently reduced its order of Eurofighter jets by 25 planes to save $2.57 billion, and analysts say defense cuts in Britain could mean dropping plans to buy new aircraft carriers and Joint Strike Fighter jets.

EADS, the parent company of Airbus, also is struggling with technical and financial problems on the A400M military transporter and is uncertain to win a highly politicized $35 billion Pentagon contract for 179 tanker aircraft against a rival offer from U.S. company Boeing.

“Maybe we are now in a crisis period, but we have to maintain a minimum R&D in order to protect our industry,” said Urena-Raso.

ASD’s members, which also include BAE Systems, Dassault Aviation, Saab and Rheinmetall, employ 700,000 people and had a combined turnover last year of euro155 billion ($216.54 billion).

Pier Francesco Guarguaglini, CEO of Italy’s Finmeccanica, said companies were hopeful the industry could increase sales outside Europe, in particular to the Middle East and Brazil.

A shift toward security — including border control and anti-terror measures — also could help the industry survive defense spending cuts, he said.

European security expenditure is expected to match that of defense by 2015, said Guarguaglini. “This opens up for us another important market.”

The aerospace industry is lobbying hard to secure a sizable share of the multibillion dollar European research budget known as FP8, which starts in 2014.

Companies stressed the dual use of their technologies for military and civilian purposes, citing recent earthquakes in Haiti and L’Aquila, Italy, as examples where defense technology had benefited search and rescue operations.

A European satellite observation program known as GMES — for Global Monitoring for Environment and Security — also has seen heavy defense industry involvement, despite being largely dedicated to tracking climate change.

Associated Press writers Raf Casert in Brussels, Ciaran Giles in Madrid, Mary Lane in Berlin, Colleen Barry in Milan and Angela Charlton in Paris contributed to this report.

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