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Mr. Gilles DESCHARS
Raytheon - International Country Manager for France

Transatlantic Competition or Cooperation? The Future of the EU and US Defence Markets -
A Raytheon View

Lecture in the Great Debate seminar " European Armaments Industries, ESDP, and Transatlantic Cooperation", PARIS, 29-30 March 2001

TRANSATLANTIC COOPERATION

Over recent years, we have seen some willingness from both US and European Defense companies, to forge transatlantic links. Several cases were unsuccessful like the famous tentative from the French Thomson-CSF to acquire the US Loral Missile manufacturer. Each time one of such events was envisaged, we have seen veto raised by the government who owned the "selling" company. Major concern was to keep Defense Industry under local Government control. With European Community build-up, we have seen an attitude change and even European countries pushing toward more cooperation between countries. This Defense Industry consolidation first started independently in each continent. Now this job being done, the countries are pushing toward a transatlantic approach.

An example of what Raytheon and Thales (formerly Thomson-CSF) have done during past two years is a good case we can spend time on

Thales Raytheon Systems Company
What:

  • An equally-owned transatlantic joint venture (JV) encompassing air defense command and control centers (ADCC) and ground based radars (GBR).
  • The companies will have equal ownership of the JV Company and will contribute 49 percent of their respective businesses (ADCC & GBR) to the JV. In the United States, Raytheon would retain a majority ownership of 51 percent in each business unit it contributes to in the JV. Likewise, in Europe, Thales would retain a majority ownership of 51 percent in each business unit it contributes to the JV. The JV Company would own the remaining 49 percent of each entity.
  • For fiscal year 2001 the new enterprise is forecast to have pro forma revenues of approximately $500 million to $700 million (600 million to 750 million euros) and 1300 employees worldwide.
  • ACSI (Air Command Systems International) will be 100 percent owned by Thales Raytheon Systems. ACSI was formed by Thales and Raytheon in December 1996 for the pursuit and execution of the NATO ACCS LOC1 (Air Command and Control Systems Level of Capability 1) program.

Why:

The goal is to enhance Raytheon's and Thales's positions as leading horizontal defense electronics companies in a global marketplace characterized by large, vertically integrated global primes.

  • Air Defense Command and Control (ADCC) and Ground Based Radars (GBR) are perceived as growth markets in the near term with governmental customers planning technological and associated financial investments in the next 15 years to:
           - Upgrade/replace air defense systems, some of which date from World War II
           - Detect and engage new ballistic and cruise missile threats
  • Expand the national air defense perimeter range by incorporating high performance long-range radars into their systems
  • Both Thales and Raytheon intend to broaden worldwide market access. Customers will benefit from access to a stronger player in both ADCC and GBR that can compete for programs worldwide, and develop innovative new products through combined research and development, engineering investments and engineering talent.
  • The creation of a JV takes Thales and Raytheon beyond a program-by-program relationship to a product line arrangement. It will create a long-term, stable relationship to achieve synergies impossible in any individual program pursuit. The JV anticipates reducing operating costs by leveraging joint research and development, marketing and sales efforts, parent company purchasing relationships, and best practices learned from one another.

The companies also plan to play a leading role in supporting NATO interoperability objectives. For instance, the Raytheon-Thales joint venture ACSI (Air Command Systems International) is the prime contractor for the NATO ACCS Loc 1 contract. This work will enable Raytheon and Thales to build a common architecture for the alliance's air command and control system. The ACSI Joint Venture will be an operating element of Thales Raytheon Systems Company.

Examples of Current Thales/Raytheon Programs:

This transatlantic joint venture is between two companies that have a longstanding shared experience, with a history of common projects both within and outside the perimeters of this new JV including:

  • ACSI for the NATO ACCS LOC1 contract. This overall program will provide NATO with a fully interoperable, common air operations command and control system to support all offensive and defensive air operations, as well as military air traffic control, command and control resource management, and airspace management for NATO countries in Europe. The ACCS LOC1 is a replacement for the existing NATO air command and control system -- the NATO Air Defense Ground Environment -- installed in the 1970s. ACSI has been awarded contracts worth over $625 million.
  • FLORAKO air defense system for Switzerland, which is being implemented and funded incrementally. In December 1997, a Raytheon-Thales Consortium received a Phase I award for prototyping and risk reduction activities. A Phase II /III contract, which included the core system design, new primary and secondary surveillance radars, Air Defense hardware equipment and software and new voice and data communications, was awarded in November 1998. The Phase IV/V contract, awarded in November 1999, includes new multifunction military radars, new monopulse secondary surveillance radars, modifications to military radar sites and integration of the new radars into the FLORAKO system.
  • UK CVF future aircraft carriers program. The Thales international team made up of prime contractor Thales, Raytheon Company, Lockheed Martin and BMT Defence Services Ltd has been awarded a study contract in competition for the Assessment Phase of the Royal Navy's Future Aircraft Carrier (CVF) programme.
  • Airborne communications systems developed in cooperation for British MoD. This includes Thales's SATURN (Secure Anti-Jam UHF Radio for NATO) technology. The same equipment has been selected for the UK Army's WAH-64 Apache helicopter communications upgrade.
  • Long standing cooperation on the ESSM (Evolved SeaSparrow Missile) program.
  • Sonar field: numerous common programs, including ALFS dipping sonar for the US Navy.

Which barriers Raytheon and Thales had to face.

One of the first reactions came from US administration who asked "why you Raytheon had picked a French Company to team with ?". It's true that France has been, and probably still is considered in the US, as the "trouble maker" boy in the classroom. But there's some explanation for that. France is by far the most advanced high tech country after the US, and has always claimed for independence vis--vis US technology. France and its industry is sometime an embarrassing competitor for US companies, But that's also explaining why a US and a French company might be interesting in sharing their technologies. Both companies being well balanced, the deal is easier to realize. Each company has the ability to bring, to its geographical area of influence, the best of its expertise but also the best of the sister company who was previously prohibited in doing so due to the competitive position of both companies.

The major concern US government raised was their fear for technology leaks outside the NATO and "friends of US" countries. In fact US administration didn't knew exactly about France Defense export policy. Over past two years several teams came from US administration to visit, audit and understand French Administration procedures. Not only US understood Export Policy, but also learnt procedures they're considering to apply within their administration.

An other problem was the application of the US FCPA (Foreign Corrupt Practice Act) which at that time was just introduced in Europe via the OCDE administration. Several audits within Thales and French Administration cleared the situation.

An other example of Transatlantic cooperation : Evolved Sea Sparrow Missile (ESSM).

ESSM is a successor missile to the highly successful RIM-7 family of short range self defense missiles. Currently in development, it is a coordinated effort with numerous nations in the North Atlantic Treaty Organization (NATO). This coordinated effort allows all NATO countries to have the same self-defense capability and at the same time, reduce the cost to each country associated with developing and testing new systems.

ESSM is under development by Raytheon Company's Missile Systems business unit in Tucson, Ariz., for the U.S. Navy and 10 member nations of the NATO SeaSparrow Consortium. Partner nations in the program include Australia, Belgium, Canada, Denmark, Germany, Greece, Italy, the Netherlands, Norway, Portugal, Spain and Turkey. Under current plans, more than 4000 missiles will be delivered over a 14-year period.

"Since its inception in 1968, the Seasparrow Project has grown to become the Alliance's most successful cooperative armaments project. With 13 participating governments, Seasparrow has firmly established a premiere example of international cooperation. It thus played an important part in maintaining our collective defence," Secretary General Javier Solana wrote in a congratulatory message.

Conclusion

The current trends in defense equipments are pushing Procurement Agencies to look after higher performance systems, more sophistication, inducing higher costs. At same time Defense Budgets are decreasing, or at least, remaining flat. This automatically induce an increase in need for International Cooperation. First step started with cooperation between European countries. It seems reasonable to see this technology trend pursuing its route, and consequently forcing Europe and US toward more cooperation

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