By Pierre Tran – French defense industry seeks recovery plan

Paris – The armed forces ministry has asked companies to submit ideas for speeding up orders for weapons, as part of a national recovery plan intended to soften the economic and social impact of the coronavirus crisis, industry leaders said.

Armed with information from industry, the ministry could claim a share of the national recovery plan. The government plans to inject more than €110 billion ($119 billion) into an economy hit by an extended lock down and high unemployment.

A recovery plan for the arms industry was highlighted by the chairmen of the three trade associations, GICAT for land weapons, GICAN for naval systems, and GIFAS for aerospace, when they appeared April 23 before the defense committee of the lower house National Assembly. That hearing was conducted over a video link.

“We are proposing a recovery plan to support the defense industrial and technology base similar to the one adopted after the 2008 crisis which was much less severe,” said Stéphane Mayer, chairman of CIDEF, the trade body which represents the three associations. Mayer is also head of GICAT.

France adopted a supplementary budget of €2.4 billion after the 2008 financial crisis, funding a speeded up order of the third helicopter carrier, the Dixmude, and other arms programs.

Defense executives are concerned their claims for support will be lose out to civil sectors, with unemployment rising sharply in the first quarter, particularly in March, when the lock down started.


Confirming options?

Among the ideas for a recovery plan were confirming options for the Griffon multirole troop carrier, Jaguar combat and reconnaissance vehicle, Serval light multirole troop carrier, Caesar artillery, helicopters, and drones, Mayer said. Industry was in talks with the ministry and Direction Générale de l’Armement procurement office.

There are effectively two recovery plans. The economy ministry is drawing up a macro-economic recovery plan based on deferred payment of tax, loans, and social security, while offering state guarantees for bank loans.

There is also a recovery plan for economic sectors.

“The economics ministry is asking sector by sector to make proposals for the key elements needed to relaunch the economy,” said Hervé Guillou, chairman of the GICAN naval trade association and former executive chairman of Naval Group. Guillou was speaking after the committee hearing closed.

The armed force ministry has asked industry leaders and trade associations to make proposals to relaunch the defense industry and technology base.

Companies are submitting their ideas, which are effectively requests for early orders for equipment, he said. The overall proposition was expected to be ready by May 15.


Political lobbying

This is essentially a political project, as French firms are keen to promote the defense industrial and technology base “as a strategic concern,” in light of the current crisis, an industry source said.

There is a multi-year military budget law, which is not legally binding, and every year there is risk the funding will be diverted, the source said.

“There is arbitrage every year,” the source said.

Among the ideas the defense firms could submit were medical service, and research and development in digital technology, which offer dual civilian and military use.

Defense was unlikely to be seen as high priority in the national recovery plan, an analyst said.

If funding indicated in the military budget law were observed in full that would be “superb,” said François Lureau of EuroFLconsult, a consultancy. “Do not expect more.”


Virus May Hit Exports

France risked losing its share in the world arms market, as German companies had continued working during lock down, Chinese factories were restarting, and US industry was receiving government aid while maintaining large industrial capacity, Guillou told the parliamentary committee.

Maintaining a strong French supply chain was a positive signal to potential export clients, said Eric Trappier, head of GIFAS and executive chairman of Dassault Aviation. The timetable has been shaken in a Swiss competition for a fighter jet.

Airbus, Boeing, Dassault and Lockheed Martin are competing in the Swiss tender.

Finland was holding a fighter competition, for which Lockheed had retained a former head of the Finnish defense forces, Trappier said.

In Finland, Airbus and Boeing had retained as lobbyists respectively a former commander of the defense forces and former defense minister, Helsinki Times reported April 18. Airbus, Boeing, Dassault, Lockheed Martin and Saab are competing in Finland.

A budgetary burden stemming from Covid 19 will move foreign arms deals down the priority list, analysts said.

“An export arms order is a political, economic and diplomatic card to play, and that is not a priority at the present time,” said Loic Tribot La Spiere, director of think tank CEPS. For now, it was not a priority for Switzerland to order a new fighter jet.

For the French economy, there are concerns in sectors such as tourism, education and health service, he said. Defense has slipped down in the priorities list, and internal security was more of an issue.

Arms exports could be hurt by the need for clearance by customs officers, who have been on furlough, said Jean-Pierre Maulny, deputy director of think tank IRIS. A delay in customs clearance held up delivery, which would slow down client payment.

Airbus has cut production of airliners in response to a big drop in air travel, a move which hurts the supply chain, which builds equipment for dual civil and military use. That sparks cashflow problems.


Europe seen as key

“Europe is the real subject,” said Lureau, in view of the need for funding.

There is debate on whether the European Union 2021-27 budget will finance the European Defense Fund, which had been proposed to stimulate cross-border spending on research and technology, and research and development.

The European Commission initially proposed €13 billion for the fund, with Finland proposing €6 billion, leading European Council president Charles Michel to pitch €7 billion, Maulny said. Now, with the ballooning budgets to counter the spread of the virus, there are concerns the fund might be cancelled.

If the fund were dropped, there could be other ways to support the arms industry.

Patrick Bellouard, chairman of EuroDefense-France, a think tank, sent March 29 a letter to Thierry Breton, European commissioner for internal market, calling for support of the technology and industrial base in the light of the Covid 19 crisis.

The think tank called for a European recovery plan in two steps, with an initial rescue of companies, to maintain their factories and most critical capabilities, followed by orders for equipment to relaunch industry after the crisis.

A study of the various means of financial support and financial instruments was needed, with these to be applied to the rescue and recovery plans, the letter said. This would help investment in the European Union.

Studies conducted by the Commission for a “financial toolbox” to be used on production and delivery could be activated with urgency, the letter said.


Funding could be a matter of timing.

Generally, if a project is in the early stages when a financial crisis hits, it will likely be left on the shelf, said a European official. If there is program in progress, it could be slowed down, with funding returned in the medium term.

“It is a maturity issue,” the official said.


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