Center for Strategic Decision Research

Paris '07 Workshop

The Relationship between Governments and Defense Industries

Ing. Giovanni Bertolone (center), CEO, Alenia Aeronautica

Ing. Giovanni Bertolone
CEO, Alenia Aeronautica

Alenia Aeronautica CEO Ing. Giovanni Bertolone (left) with Lockheed Martin Senior VP Mr. Robert Trice.

"...we need to speak more about flexibility and globalisation than about consolidation in certain
areas—for example, we have to look at what is happening in Russia, what is
happening in Asia, and our collaboration with India..."

I would like to outline one aspect of our topic, “The Relationship Between Governments and Defence Industries,” that I believe needs to be taken into account.


            The first point is that there is no doubt that, increasingly, at every stage of the development of a new programme, we need to look to intimate collaborations, even regarding requirements. While there are a lot of formal rules and procedures now that require a certain behaviour, these procedures must be changed, because the reality is that it is no longer possible to separate the world between customers and industries. This is true for every important phase of every programme, whether it lasts five years or 30.  This must be clear to all companies in the defence industry.

            Let me use as an example the aeronautics field. During the last 10 years, consolidation took place, but de-consolidation was required because the then-current models of collaboration were no longer affordable or deliverable. Now I believe that the level of consolidation is quite deep, which is why in aeronautics we can spend a lot of time discussing the way forward and are able to look at new and flexible models. Industries must adapt themselves so that they can collaborate in some areas and compete in others in pragmatic ways.

            The next challenge for me is to establish rules that will enable flexible joint ventures and collaborations and ways to work in each programme as one unique body. For doing so it will be necessary for the big companies to take on more responsibility toward both customer and supplier. What does that mean? In my opinion, it means that, for example, we need to use our know-how to anticipate next steps and to have a vision of what will really be needed in the future. Since our position is at international level, I think we have to interact actively with our customers early on in order to balance affordability with requirements.

            There are two ways to improve the present situation. One is to let the European and the international agencies move quickly forward; the other is to let industry make the proposals and interact to make progress. I believe we now are in a time in which we need to speak more about flexibility and globalisation than about consolidation in certain areas—for example, we have to look at what is happening in Russia, what is happening in Asia, and what our collaboration is with India. We need to concentrate on the different requirements for security and defence and to actively propose solutions.


            The second point I want to speak about is that the bad word “offset” has to be reconsidered. But in what way? I believe it must be considered in a way that may let local industry become more competitive through its participation in our programme, because, at the end of the day, that means reducing the cost of the programme, making it more affordable. In Finmeccanica and in Alenia Aeronautica, we are trying to develop a way in which we can collaborate with certain countries, in particular Eastern European countries. For example, we have the opportunity not just to sell a product in Turkey but to establish a long-lasting relationship with local industries there and to enable those industries to increase their competences through different kinds of involvement. Now we will launch a master not only with engineers in Turkey but with Greece, Lithuania, Bulgaria, and Romania.  The idea is that we need to change the concept of offset to the concept of valuable industrial return, which gives local industry the ability to be autonomous in supporting programmes during their lifetime, to keep from spending money for nothing, and to establish relationships that let them develop competences and move forward in a way that satisfies them. There is the matter of VPR, there is the matter of transferring know-how, and there are differences between European companies and American companies, but through overview and experimentation I believe we should succeed.

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