Interview with Dr Thomas Enders, Toulouse

No sign of anything that could be called a “European defence” on the horizon The future of Europe’s Defence Industry

Interview with Dr Thomas Enders, CEO, EADS, Toulouse

The European: Dr Enders, you have been CEO of EADS since 2012. Your company is about to be reorganised under the name of Airbus. What is the reason for this? Tom Enders: Firstly, around 85 percent of our business is aeronautics, roughly 70 percent of our revenues come from Airbus alone; Secondly, more than 90 percent of our backlog comes from Airbus commercial aircraft. Thirdly, 80 percent of our overall sales is commercial, defence represents only about 20 percent of what we do – and it has little chance of increasing as government budgets are flat at best. Finally, we must significantly increase our financial performance to continue investing in growth and innovation and to meet our shareholders’ expectations for returns. From these findings it was only a small step to our main conclusions: we need to integrate and restructure our defence business, which today is scattered over all four Divisions, and the space business. And we need to give the company and its divisions the best brand available in order to succeed on global markets. Only the Airbus brand can do that trick.

The European: So the outcome of your strategic review was that you wish to maintain your defence sector in the hope of better times to come, but that for the moment it will have to lean for support on other business units. What would it take for your defence branch to start seeing the light at the end of the tunnel?

Dr Thomas Enders

Tom Enders: Yes, we want to stay in defence and space. And what we are doing is clear evidence of this. We are creating a new Division with Airbus Defence and Space, which currently generates revenues of 14 billion euros and which employs some 45 000 people. To put it into perspective: we own the largest defence business in Europe. But, clearly, in the current business environment, we cannot sit idle. We’re consolidating in order to reduce costs, increase profitability and have better leverage and competitiveness on the international markets. Our European markets will remain important but we will reduce our dependence on them.

The European: I don’t see any new flagship project forthcoming, unless the EU, above and beyond drawing up the theoretical documents, were to provide some real impetus, for example by launching a comprehensive strategic programme for an EU

owned and operated system of UAS with HALE and MALE. Do you think the EU is ready for such a programme, given that it would lack the necessary structures? And would that be a solution? Tom Enders: I do not see a flagship project on the horizon either – and thus we have to adapt. As for UAVs, I think industry made the case earlier this year at the Paris Air Show, saying that we are ready to cooperate if European governments are serious about launching such programmes. Serious means backed by adequate funding and, probably just as importantly, harmonised requirements and certification procedures.

T he European: What could be done to resolve the problem of fragmentation? Many efforts have been made over the years to get a grip on the European defence market, but without much success so far. Could the Commission’s recently published Communication “Towards a more competitive and efficient defence and security sector” show the way ahead? Tom Enders: In industry, we are taking action time and again in order to become more competitive and efficient. I don’t necessarily see that on the political level, though. I am not a politician, which is why I am in no position to tell decisionmakers what to do. But as a manager I don’t see how our national defence procurement policies can sustain the industrial base in the long run. With all due respect, maybe we need fewer reports and finally more concrete steps to harmonise defence procurement policies EU-wide. After decades of talk, there is still no sign of anything that could be called a “European defence” on the horizon. On the contrary: I think governments, today, are further apart on foreign, defence and security policy than ever before during the last 20 years. And this comes at a time when none of the European nations have enough means to sustain national foreign, defence and security policies that can be taken seriously on a global level.

Dr Thomas Enders has been CEO, EADS Toulouse, since 2012. He was born in 1958 in Neuschlade, Germany. He studied Economics, Political Science and History at the Universities of Bonn and Los Angeles (UCLA). He earned his PhD 1987. Enders is a Reserve Officer (Major) of the German Bundeswehr. From 1989 to 1991 he was member of the MOD Bonn Planning Staff and joined MBB/Dasa. After the creation of EADS he was appointed CEO of the EADS Defence and Security Division, was nominated Co-CEO of EADS in 2005 and CEO Airbus in 2009, Toulouse.

The European: Do you see any danger of Europe losing technological leadership in the field of security and defence, and if so what might be the consequences for the Common Security and Defence Policy? Tom Enders: Absolutely. We spoke about UAVs earlier. Here, I see us 10 or 15 years behind the US and Israel. Roughly 40 percent of the flying inventory of the US military today already consists of UAVs. If I look to Europe my guess is that the number of UAVs employed by our armed forces is in the single-digit range. That is a pivotal technology sector where we are trailing significantly behind our allies and are on the brink of losing track indefinitely.

The European: You tried to merge BAE and EADS, but the nations were not able to share your vision. Do you think that a new Commission might one day be able to organise a restructuring of this sector, or should this be left up to market forces and to the initiatives of far-sighted industry leaders? Tom Enders: The attempt to combine the businesses of EADS and BAE was a decision which I and my counterpart at BAE, Ian King, took. We saw it as an opportunity, not a necessity. A unique window of opportunity had opened last year and it was worth trying. But for such a big operation to succeed, all

Dr Thomas Enders with Hartmut Bühl in the A400M plant in Seville on 30 September 2013 photo: Credit - Jürgen C. Rosenthal, Bonn

stars have to be aligned and that unfortunately wasn’t the case last year. So consequently Ian King and I pulled the plug on the project. The political objections that made us stop the merger were of very parochial nature, especially in Berlin. That certainly does not bode well for future European projects.

T he European: You referred to the importance of technology research. The Lisbon Treaty opts clearly in favour of incorporating military defence into EU-funded research. But I see a lot of hesitation in the European Parliament and the Commission. Does the defence industry really want and need access to such research programmes? Tom Enders: Yes, state-of-the-art technology and innovation are what keeps you ahead of your competitors. I don’t want to judge whether military defence has to be part of EU-funded research. That is a political decision. However, one thing’s for sure: European governments will have to fund R&T and R&D if they want to launch new future-oriented defence programmes and preserve a healthy, competitive industrial base. Slogans like “smart defence” are not helpful in this respect. They obscure the reality and provide a smokescreen behind which European investment in defence is further curtailed.

The European: Let us talk for a moment about the role of the European Defence Agency (EDA), created as an enabler for cooperation and a creator of capabilities. What view does the industry take of this instrument that is not being sufficiently funded by the nations and how could EDA become more efficient? Tom Enders: The creation of the European Defence Agency is nothing but window-dressing as long as it doesn’t have the necessary mandate. In theory, it could be a game-changer in terms of harmonising European defence procurement policies. But as you rightly say, to date it has been given neither a powerful mandate nor the appropriate funds. That means the European Defence Agency does not come anywhere close to fulfilling its original promise. And, frankly, I don’t see that changing anytime soon.

The European: The Heads of State and Government will be meeting in December. Do you believe that this will give fresh impetus to the CSDP and the industry? What hopes do you have of this summit? Tom Enders: I would hope so but won’t bet on it. And this is not my main concern. At EADS, we are undertaking the necessary steps to restructure our defence and space activities to the best extent possible in order to address the challenging situation on the home markets and to increase our international business outside Europe. That is what counts for me!

(Edit/hb) On 30 September 2013 a ceremony was held at the Airbus production site in Seville, Spain, to mark the handover of the first A400M military transport aircraft to the French Air Force. The next two in this series of 174 aircraft are scheduled for delivery to Turkey in October.

The CEO of Airbus Military, Domingo Urena Rasu, made a moving speech in the presence of the Spanish Crown Prince, commending his co-workers on this achievement: “(…) We celebrate what Europe is able to achieve when getting its act together (….). It has been a bit of a bumpy road at times, but with the new agreement signed in 2009, we have made the necessary steps to secure the future for this magnificent aircraft. (…) We celebrate that the A400M is reporting for duty: the best that Airbus can offer based on the Airbus civil and military experience and what will be THE reference in airlift capability for the next decades to come (…)” The handover of the first aircraft, 10 years after the signing of the contract for this seven-NATO nation flagship project managed by OCCAR, brings to fruition an endeavour that several times nearly foundered due to technological and financial challenges. EADS CEO Dr Thomas Enders alluded in his speech to how close a call it was for this aircraft, now the most modern in its category worldwide being delivered to seven NATO countries at the rate of two per month.

Domingo Urena Rasu during his speech

Source: airbus Military

Spanish Crown Prince Philippe, with reference to the efforts that some nations must make in order to remain true to this project and to Europe, said he hoped that the European spirit that made it possible to build the A400M would prevail. The purchase of this aircraft in times of financial uncertainty will burden the buyers’ budgets into the late 2020s, with consequences for the procurement of other of equipment. An exciting question is how the A400M will perform on export markets: doubtless it holds many positive surprises in store.

The Common Security and Defence Policy There seems to be a lack of will, not only among the political leaders of the EU Member States, but also within the European institutions, to make progress on the Common Security and Defence Policy. With Member States focusing all their energy on their own domestic problems - the economic and financial crisis in particular - there is clearly little room left for broader strategic thinking.

from Arnaud Danjean MEP (France), Chairman of the Subcommittee on Security and Defence (SEDE), Michael Gahler MEP (Germany), EPP Group Coordinator in SEDE and European Parliament Rapporteur on defence industrial policy, Krzysztof Lisek MEP (Poland), Vice-Chairman of SEDE, Brussels/Strasbourg

When the European Council meets on 19-20 December 2013, it will be the first time since 2008 that European defence policy is given top priority. Since that time, the European situation has developed into a very challenging one: Europe has 19 types of armoured infantry fighting vehicles and 14 types of battle tanks, compared to only one of each in the US, and the member states are forced to cut deficit spending. The US focus is shifting to Asia and the EU needs to address a rising number of old threats and new risks. With all this in mind, the heads of state and government must take the necessary decisions on establishing the stronger Union defence policy that we called for in our joint policy paper entitled “Towards a stronger Union defence policy”, issued on 3 September 2013. We called for: • regular formal Council meetings on defence; • the activation of the new provisions of the Lisbon Treaty in the field of security and defence; • the setting up of a permanent EU headquarters for civilian and military missions;