Defense Industry Trans-Atlantic Forays Feature Deals That Preserve Local Jobs

Article excerpt

U.S. defense contractors seeking to expand their business in Europe must fight their marketing battles on two fronts, say industry experts.

Their challenge is both to satisfy military customers' needs for advanced, affordable technology and to assuage politicians' fears of losing local jobs.

The upshot for U.S. allies-such as the United Kingdom-is that their military establishments are often caught in the middle of a tug-of-war between their purported goal to field military equipment that is compatible with U.S. weapon systems and government efforts to preserve the national industrial base.

As the world's preeminent aerospace providers head to the 1998 Farnborough Air Show in England next week, many U.S. firms are gearing up to compete for a host of defense projects where costefficiency and technical performance are just as important as who does the work.

To win British defense contract awards, for example, U.S. industry must be prepared to offer a proposal with British "content," says Peter McKee, managing director of the U.Kbased subsidiary of Raytheon Systems. The parent company is based in Lexington, Massachusetts.

"We are a U.S. company but in the United Kingdom we are a British company and we run programs from the United Kingdom," says McKee in an interview. "The idea is to be as British as possible.

"If you don't provide local technology and work content locally, American companies find it difficult to win contracts," he asserts.

Raytheon's U.K. branch is vying for the British Ministry of Defence airborne standoff radar program, an aircraftbased system with a synthetic aperture radar and moving target indicator that provides ground surveillance in a standoff mode.

McKee believes Raytheon has a shot at winning this award not because it has U.K. partners but because of the efficiencies that U.S. industry brings to the table.

"Efficiency is big" not just as a Europeversus-the United States issue, he says, but also as a goal sought within Europe, where there are various levels of efficiency. A classic example, says McKee, is the French industry matched against its British and German competitors. The French, claim critics, have slowed down the consolidation of European defense suppliers because its industries are largely government owned.

The quest for European integration, he says, is driven by industry's desire to gain economies of scale. In the United States, that desire led to a barrage of corporate mergers and acquisitions that left the Pentagon with only three major contractors.

The inefficiencies found in European firms, meanwhile, have also resulted from divergent national requirements. The Eurofighter combat jet program is a case in point.

The four-nation Eurofighter, designed to fulfill European requirements but also to compete in the global market against U.S. fighters, is an example of "working inefficiently," says McKee, because the program is more about creating employment than about pushing the technology envelope.

Another heating competition between U.S. and European defense firms involves an air-to-air missile for the Eurofighter. According to McKee, there are two choices: "Do you go for the quickest turn-around and lowest cost or do you make a political acquisition in order to preserve the industry in Europe?"

Although Raytheon has been aggressively buying up defense contractors in the United States, the company's European presence is more focused on partnering with local firms rather than attempting outright mergers. "You are running into some very dangerous waters when you say you want to be vertically integrated so you can provide everything on the system," says McKee. "That would compromise innovation and not provide the best service to the customer."

Private Investment

To bolster its chances of winning contracts in the United States and overseas, companies are increasingly investing more of their own money in the development of new technologies, says John Weaver, Raytheon's executive vice president for business development and engineering. …