PARIS --- Even as they basked in the glow of the record-breaking orders booked during the Paris Air Show, French aerospace and defence manufacturers were abruptly shaken back to reality on June 23, when incoming President Nicolas Sarkozy served notice of impending cuts in defence spending, a major overhaul of the defense procurement machinery, and a radical review of ongoing weapon programs.
Sarkozy’s warning, made during the June 23 official luncheon with industry chief executives at the show, came at the end of an industrial policy speech whose main points were well received. These include promises of a 25-percent increase in public R&D funding; of increased pressure to ensure European access to US and Chinese markets; a pledge to bolster the euro’s competitiveness by acting on exchange rates, and finally the promise of an industrial policy for the aerospace and defense sectors. These are areas in which French and European aerospace chiefs have long been calling for governments to adopt pro-active positions to defend their industry.
But, on the subject of defense procurement, Sarkozy proved much less accommodating. He pointedly failed to repeat his election promise to keep defense spending to 2% of Gross Domestic Product (GDP), and called for a bottom-up review of all weapon programs, including ongoing ones, since defence procurement “clearly continues to suffer from insufficient controls and from a mismatch between programs and requirements.”
He added that France must also change the way it buys its weapons. “There is no obligation to retain a system that has had its share of failures,” he said; defense procurement decisions should be the result of a prioritized expression of capability requirements, and “not just a catalogue of weapons.”
France’s new government is conducting an audit of defense procurement programs, and its conclusions are expected in early July. This will serve as the basis for a “bottom-up” overhaul of weapon acquisition programs, and initial changes to individual programs might come as soon as late August, when government departments will receive initial notification of their 2008 budget envelope.
Sarkozy also said that weapons programs should be rationalized among European allies, as Europe cannot afford to continue duplicating them as is the case today. “With defense budgets adding up to much less than the US budget, Europe cannot afford the luxury of funding five separate surface-to-air missiles programs, three combat aircraft programs, six attack submarine programs and about 20 armored vehicle programs,” he said.
Sarkozy’s comments at the air show echo similar warnings from Defense Minister Hervé Morin, who during the week had begun to lay the ground work for major cuts in defense spending. On June 21 at the air show, he cautioned industry chiefs that “the current level of defense spending will be very difficult to maintain.” Morin noted that procurement spending would have to increase by 43%, or 4 billion euros, between 2009 and 2011 just to meet existing commitments, which is clearly unrealistic. “I must warn you that we will have to make a certain number of difficult decisions and tough choices” he said.
There has been no indication yet of which programs might be cut or axed. During his June 21 tour of the air show, Morin jokingly referred to excessive operating costs of the Rafale fighter and of the future A400M transport aircraft, while on June 20, during a visit to the French aircraft carrier Charles de Gaulle, he noted that no final decision had yet been taken to build a second carrier.
He however reversed himself in a June 25 interview with French radio, in which he said that “in principle, we will have a second aircraft carrier,” which is necessary if France is to maintain the capability to deploy an amphibious group at all times. The Charles de Gaulle entered its 18-month nuclear refit period on June 25, and its next one is scheduled for 2014.
One possibly good piece of news for French manufacturers was Morin’s promise to help them sell their products on the export market. “If I can help you, I will as much as I can,” Morin told industry CEOs on June 21, adding that he plans to act as their traveling salesman on foreign markets.