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<title>Center for Strategic Decision Research, Peter Struck, Michele Alliot-Marie, General George Joulwan, SACEUR, General James L. Jones, SHAPE, NATO, EU, BDLI, ILA, EADS, Northrop Grumman, Under Secretary Michael Wynne, Assistant Secretary Linton Wells, Ambassador William Burns, NATO Military Committee Chairman General Harald Kujat, General Dynamics, Boeing, Global Security Terrorism, Iraq, Afghanistan, Rainer Hertrich, David Stafford</title>
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<td width="66" height="68"><p><img src="../2004book/logo-kevin-web.jpg" width="60" height="66"></p> </td>
<td width="618"><div align="center"><span class="style5">17th International Workshop on Global Security - Berlin, 2-5 June 2000<br>
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<p align="center" class="style17"><strong>Table of Contents:</strong></p>
<p class="style18"><a href="/2000Book/weissingerbaylon.htm">Workshop Chairman Roger Weissinger-Baylon </a><span class="style217"><strong><a href="/2000Book/diepgen.htm">Berlin Mayor Eberhard Diepgen </a></strong></span><span class="style217"><strong><a href="/2000Book/moede.htm">German Armed Forces Lt Gen Hartmut Moede </a></strong></span></p>
<p align="center" class="style18"><strong>Part 1</strong></p>
<p align="left" class="style18"><span class="style217"><strong><a href="/2000Book/scharping.htm">German Defense Minister Rudolf Scharping</a></strong></span><span class="style217"><a href="/2000Book/adamkus.htm">Lithuanian President Valdas Adamkus </a><a href="/2000Book/balanzino.htm">NATO Dep Secretary Genereral Sergio Balanzino </a><a href="/2000Book/venturoni.htm">NATO Military Committee Chair Adm Guido Venturoni </a></span></p>
<p align="center" class="style18"><strong>Part 2</strong></p>
<p align="left" class="style18"><span class="style217"><a href="/2000Book/haekkerup.htm">Danish Defense Minister Hans Haekkerup </a><a href="/2000Book/mattarella.htm">Italian Defense Minister Sergio Mattarella</a></span><span class="style217"><a href="/2000Book/tsohatzopoulos.htm">Greek Defense Minister Apostolos Tsohatzopoulos</a></span><span class="style217"><a href="/2000Book/tarasyuk.htm">Ukranian Foreign Minister Borys Tarasyuk </a><a href="/2000Book/stutzle.htm">German State Secretary Walther Stutzle </a><a href="/2000Book/wolsytnski.htm">French Vice Chief of Defense Staff Lt Gen Richard Wolsztynski </a><span class="style222"><a href="/2000Book/lanxade.htm">Fmr French Ambassador to Tunisia Adm Jacques Lanxade</a><a href="/2000Book/kislyak.htm">Russian Ambassador to NATO Sergei Ivanovich Kislyak </a></span></span></p>
<p align="center" class="style18"><strong>Part 3</strong></p>
<p align="left" class="style18"><span class="style217"><span class="style222"><a href="/2000Book/ralston.htm">SACEUR Gen Joseph Ralston </a> <a href="/2000Book/smith.htm">DSACEUR Gen Rupert Smith </a></span></span><span class="style219"><a href="/2000Book/ellis.htm">CINCSOUTH Adm James Ellis</a><a href="/2000Book/spiering.htm">CINCNORTH Gen Joachim Spiering </a></span></p>
<p align="center" class="style18"><strong>Part 4</strong></p>
<p align="left" class="style18"><span class="style219"><a href="/2000Book/deleon.htm">US Dep Secretary of Defense Rudy de Leon </a><a href="/2000Book/oliver.htm">US Principal Dep Under Secretary of Defense David Oliver </a><a href="/2000Book/martin.htm">BMDO Dep for Strat Relations David Martin</a><a href="/2000Book/vershbow.htm">US Ambassador to NATO Alexander Vershbow </a></span></p>
<p align="center" class="style18"><strong>Part 5</strong></p>
<p class="style18"><span class="style219"><a href="/2000Book/weston.htm">BAE Systems Chief Executive John Weston </a> <a href="/2000Book/hertrich.htm">EADS Co-CEO Rainer Hertrich </a><a href="/2000Book/crosby.htm">Northrop Grumman President Ralph Crosby </a></span><span class="style209"><span class="style197"><a href="/2000Book/enders.htm">EADS Exec Vice President Thomas Enders </a></span><span #invalid_attr_id="10px 0px 0px 10px"><span class="style197"><a href="/2000Book/lawler.htm">Boeing Vice President William Lawler </a></span></span></span><span class="style219"><a href="/2000Book/zappa.htm">Alenia President Giorgio Zappa</a><a href="/2000Book/trice.htm">Lockheed Martin Sr Vice President Robert Trice </a></span></p>
<p align="center" class="style18"><strong>Part 6</strong></p>
<p class="style18"><span class="style219"><a href="/2000Book/kukan.htm">Slovakian Foreign Minister Eduard Kukan </a><a href="/2000Book/hajdaraga.htm">Albanian Defense Minister Luan Hajdaraga </a></span><span class="style219"><a href="/2000Book/dimitrov.htm">FYROM Foreign Minister Aleksandar Dimitrov </a></span><span class="style217"><a href="/2000Book/naumann.htm">Fmr NATO Military Committee Chair Gen Klaus Naumann</a></span><br>
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<h1 align="center" class="style196 style26 style27 style28">Defense Industry Restructuring and the Implications of ESDI/DCI</h1>
<p align="center" class="style26 style27 style26 style26 style26 style26">Dr. Thomas Enders<br>
Executive Vice President and Member of the Executive Committee,<br>
European Aerospace and Defense Company (EADS)</p>
<P ALIGN="LEFT"><FONT COLOR="#1f1a17"><span class="style24"><span class="style8"><FONT COLOR="#000000">E</FONT>SDI has been a continuing theme of discussion for the Alliance throughout the 1990s. Unfortunately very little serious action or effective implementation has come from this decade of talk by European governments as well as countless conferences and various initiatives. It took the conflict in the Former Yugoslavia, and particularly the Kosovo war of 1999, to shake up European decision makers and initiate meaningful efforts towards structural reform and joint military planning and forces (“separable but not separate from NATO,” as Lord Robertson aptly said). However, whether we have already passed the “point of no return” in our work towards a fully fledged ESDI—leading eventually to joint military forces and joint decision making on war and peace—remains to be seen. Clearly, until 1999 and Petersberg, the ESDI glass was not even half full. </span></span></FONT></P>
<P ALIGN="CENTER" class="style8 style26 style27"> <B>INDUSTRY CONSOLIDATION AS A COROLLARY TO ESDI</B></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> In industry, we can observe the political corollary to ESDI that is being reflected by the aerospace and defense industry’s discussion about restructuring, consolidation, and “Europeanization.” With the end of the Cold War, the demise of the Soviet Union, and the ensuing rapid decline of Western defense budgets, the need for consolidation has become increasingly apparent to defense companies. National consolidation and sector-specific joint ventures were the first response to this challenge. In view of the defense market and political fragmentation so typical for Europe, these were rather low-risk options. However, they still managed to yield significant economic benefits. But by 1996, in view of the mega-mergers in the U.S., it was clear to European industry leaders that national consolidation and joint ventures were inadequate counters to the competitive challenge being posed by U.S. industry. </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> The impetus Kosovo brought to ESDI parallels the same impetus the Boeing-McDonnell Douglas merger of 1996 brought to the consolidation of the European aerospace and defense industry. By mid-1997 the major aerospace and defense companies—BAE, Aerospatiale, DASA, and CASA—were discussing full-merger scenarios. </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> By the end of 1997 the concept of a big multinational aerospace and defense company, titled EADC, was endorsed by three heads of government—the U.K., France, and Germany—and in March 1998 industry presented a blueprint for such a company. Because French industry was handicapped by state ownership and fragmentation, BAE and DASA took the lead and tried to form a nucleus for EADC. </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> Although this effort failed in early 1999, it triggered a wave of consolidation in the ensuing twelve months starting with BAE-Marconi, Aerospatiale-Matra, DASA-CASA, and finally DASA-Aerospatiale-Matra-CASA in December 1999. Within a one-year period six major aerospace and defense companies consolidated into only two, BAE Systems and EADS, with the Italians entering into joint ventures with both. </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> What I wish to point out from this short history of ESDI and EADC is that defense and aerospace industry consolidation is clearly ahead of political consolidation, or ESDI. I would therefore argue that it is not just ESDI that carries significant implications for the defense industry, but also the advanced status of industrial cross-border consolidation, particularly in the aerospace sector, which in turn impacts the formation of ESDI. Put militarily, industry is increasingly operating on the “inner line” vis-à-vis its fragmented national customers. </FONT></P>
<P ALIGN="CENTER" class="style8 style27 style26"> <B>HARMONIZING “EUROPEANIZATION” EFFORTS</B></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> I do not wish to argue that industry would like to perpetuate this state of fragmentation. In fact, the contrary is true. Industry can fully exploit the economic benefits of cross-border consolidation when national customers harmonize their military requirements and procurement policies to the maximum extent possible. </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> In this respect, the initiative by six European Defense Ministers two years ago to elaborate a Framework Agreement for such harmonization, intended to pave the way for cross-border consolidation of the aerospace and defense industry, has been very encouraging. What has been less encouraging is that we are still waiting for this agreement, and the slower pace of such harmonization compared to that of industry is clearly disappointing. </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> Industry and governments are moving at different speeds toward “Europeanization,” and this poses a risk to multinational companies such as EADS. It is also detrimental when governments, for purely domestic reasons, try to turn back the clock of European harmonization and claim that national regulations, for instance, in the export field, should prevail over European regulations. Such behavior is damaging to industry and should not be tolerated by other European governments. </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> So you may be sure that in the future EADS will be at the forefront of the fight against national parochialism whether this be in export or in industry-related areas. For European governments to call for cross-border consolidation and then to subject the resulting integrated company to different regulations in their respective countries is counterproductive to both industry and government efforts. </FONT></P>
<P ALIGN="CENTER" class="style8 style26 style27"> <B>TRANSATLANTIC INDUSTRIAL COOPERATION</B></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> But what about transatlantic cooperation, embodied in initiatives such as DCI and in particular projects such as MEADS? Are they being facilitated or jeopardized by the industrial consolidation taking place on both sides of the Atlantic? </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> As much as ESDI and NATO are meant to be complementary, so should European and transatlantic industrial cooperation be. European governments have to decide where they want to develop and procure autonomous capabilities and where cooperation with the U.S. enhances Alliance cohesion, interoperability and provides the best value for the money. </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> Currently, industry on both sides of the Atlantic is stepping up its search for viable transatlantic business cases. (Example: NG-DASA.) “Fortress Europe” is certainly the last thing we have in mind. Rather, a pragmatic “cooperate and compete” approach—prevalent amongst U.S. companies—will come to characterize the transatlantic business relationship—provided the U.S. Administration and Congress fully embrace the concept of partnership with Europe and reform their overly rigid export and technology regimes accordingly. The late May speech by Secretary of State Albright in Florence and the recent conduct of the U.S. Department of Defense regarding MEADS provide at least some hope. </FONT></P>
<P ALIGN="CENTER" class="style8 style26 style27"> <B>WHAT INDUSTRY NEEDS FROM ESDI</B></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> To sum it up, what does industry need from ESDI and European governments in order to be successful and to deliver better value for the money in the future? </FONT></P>
<UL class="style24 style8">
<LI><FONT COLOR="#1f1a17"> Harmonization in as many areas and amongst as many countries as possible. The Framework Agreement needs to be signed soon, and detailed follow-up action in the areas addressed should ensue without delay. If a six-way approach proves impracticable, two or three “core countries” should take the lead. </FONT></LI>
<LI><FONT COLOR="#1f1a17"> European governments should identify in which areas they want to procure autonomous (ESDI) capabilities and in which areas they prefer transatlantic cooperation. BMD and AGS might fall into the latter category. </FONT></LI>
<LI><FONT COLOR="#1f1a17"> The six-nations Framework Agreement needs a complementary bilateral Transatlantic Framework Agreement between the EU and the U.S. The current bilateral approach and the “categories concept” of the U.S. administration are placing European nations and industry at a disadvantage. </FONT></LI>
</UL>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> ESDI can become effective only if it is backed by viable and competitive defense industries. On the other hand, European defense industries urgently need an agreed-upon political framework to be able to restructure successfully, to operate profitably, and to provide a credible and strong backbone for a common European security and defense. </FONT></P>
<P ALIGN="LEFT" class="style24 style8"><FONT COLOR="#1f1a17"> Providing the necessary political basis is, however, far too important a task to leave to individual governments and their primarily domestic agendas. Europe needs to drive this process—could the High Representative of the EU for CFSP and the WEU Secretary General perhaps take on this role?<br>
<br>
</FONT><span class="style24 style8"><br>
</span></P>
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