The Role of Smaller Industries in the New Global Defense Doctrine

Mr. Alberto Fernández
Chairman and CEO, CASA

Globalization is the leitmotiv of the nineties. Mass markets have turned global very rapidly, the result of increased levels of income, the explosion of information technology, the movement of capital, and the disappearance of trade barriers. Because of these changes, industry has adopted a more global configuration so that it can compete yet serve its customers efficiently.

TURNING DEFENSE INTO A GLOBAL INDUSTRY

The defense arena, despite the radical changes it has experienced, has not been able to follow the pace set by the commercial markets. Few countries are able to say that “global thinking” is the basis of their defense doctrine.

While joint defense policies between states are an intermediate step towards a global defense in the same way that industrial cooperation is a step towards a more integrated global defense industry, the overall process, both at the governmental and the industrial level, is dragging. This delay is caused by national pride and sovereignties, supply problems, cultural differences, national regulations, and employment issues, all inherent to the nature of defense and all difficult to resolve.

But clearly there is another problem. There are very few producer countries, but consumer countries are all around the world. Or, as somebody said, there are large countries with larger and larger industries, and then there is the rest of the world with small industries. Will the small countries have to accept having their defense needs covered by the “producer” countries without any involvement of their own national industries? Will there be no life for small industries? In matters of defense it seems that small is no longer beautiful.

A PLACE FOR SMALL DEFENSE COMPANIES

In Spain we believe that there is a place for small companies and that all countries should be both consumers and producers of defense products. The way to make this happen is through cooperation first and through integration eventually. In some ways we are doing this already. We are seeing all types of vertical and horizontal alliances and joint ventures that are aimed at achieving economies of scale, sharing development efforts, and improving market performance. This progressive approach has begun with limited cooperative programs and will end with strategic collaboration involving numerous nations.

The Example of CASA

One example of a small business involved in partnering programs is Spain’s CASA, which would be considered small in both budget and size. After the Spanish Civil War, CASA produced the Heinkel 111, a German-designed plane under license but re-engineered with Rolls Royce Merlin engines—one of the first cases of cooperation among Germans, British, and Spaniards, though the product was never in great demand.

At the end of the 1960s, CASA produced 70 F-5 aircraft under license from our friends at Northrop. This was a very positive experience for both parties, followed by our work designing the C-212 A/C for which Germany’s MBB designed the wing. More than 100 of these aircraft were produced by IPTN in Indonesia, helping that company become established and grow. That cooperative venture was followed by our work on the jet trainer C-101 for which MBB again designed the empennage and which was produced under license in Chile.

Success brings more success; we next decided to design and produce the CN-235 jointly with the Indonesians. This was very successful for both companies, and the work continues today; currently there are more than 230 CN-235s flying throughout the world. A license has also been granted to produce the plane in Turkey by TAI, and they have already delivered 52 of the aircraft.

Today we are a 13% partner in the Eurofighter, which, believe me, is a blessing to our industry. We are also a partner, since 1972, in Airbus, for which we design and produce all the tailplanes for airbus aircraft. Additionally we are working with Airbus to put together the A400M.

All in all, approximately 90% of our business volume is done as part of some form of international cooperation; only 10% is completely done in Spain by CASA. We are a company of 7,400 employees only, so you can see that there is life—a good life—for small companies. CASA has learned that cooperation—either extended from large businesses or extended by us to other small businesses—is great business for all parties.

POLICIES AND PRIORITIES FOR INCREASED COOPERATION

To make cooperation work, however, a few very important rules must be followed:

• Each country’s Ministry of Defense and industry must be in absolute agreement and fight for the same objectives. This is not often the case.
• Everyone involved must be open-minded, tolerant, and patient. Managers must not impose their viewpoints on others; we all have to listen and understand.
• While most parties’ cooperation objectives are usually different, this can still enable win-win deals. Diverse objectives are a good thing.
• The parties involved should not try to do everything nor attempt to cooperate no matter what, but rather specialize and look for their niche.

In addition, the aerospace industry, especially in Europe, must focus on three priorities:

• To satisfy the customers’ requirements to the maximum extent possible. Said requirements are driven today by the reduction of defense budgets and the changes in the military scenario. This will result in fewer and fewer programs and a need for more sophisticated products.
• To keep increasing industrial cooperation and joint developments. Although requirements will not be harmonized into a single set for each weapon system in the medium term, industries must do their best to propose collaboration programs wherever and whenever possible. Such programs must include not only operations but also time scales and budgets.
• To create or consolidate “centers of excellence” as an intermediate outcome of the industrial rationalization process and as an embryo of future consolidation. Centers of excellence are the flagships of the industry and illustrate the technological, financial, and human efforts that have been made over the last decades.

These three priorities must be channeled into a joint process aimed at achieving a distribution of products, services, and areas of specialization and that will consider in a fair and realistic manner the national technological, financial, commercial, and employment aspects involved.

As we work towards being competitive in the marketplace, we must avoid duplications and allow each industrial partner to play the role it deserves, based on excellence, capacity, and financial contribution. It is back to the basics: In order to survive we must be competitive in everything we do, and that means being the best in quality, price, and delivery.