1. General approach to a) capability definition and b) arms development & production
EU Member States are fully aware that they do not have enough power to build up their strategic autonomy at national level and that to achieve this objective, they need to act within the EU, first and foremost in the field of defence and, in particular, with regard to their capability acquisitions and armaments industry.
Defence remains a national prerogative. The individual nations are therefore responsible for ascertaining the capability volumes and characteristics they consider necessary for their defence. But since none of the individual European countries is today in a position to go ahead alone with acquisition of the complete arsenal of weapons systems needed in the face of the many and various potential threats, they have opted to collaborate within NATO to organise their defence and coordinate their defence plans. Their weapons system requirements are established on the basis of a joint threat analysis validated by the North Atlantic Council and regularly updated (MC 161) and on operational scenarios devised by the military chain of command. NATO and the nations also engage in periodical consultations to make any necessary adaptations to a resource serving as a reference for new weapons acquisitions. But all joint planning operations within NATO include the American contribution and it is no secret that, in terms of both quality and quantity, America far outranks the other countries. Whence the Europeans heavy de facto dependence on the United States, not least on the armaments front.
On a parallel to this, however, Member States within the European Union (the vast majority of which also belong to NATO) have adopted a similar approach to meet Common Security & Defence Policy needs, in the more restricted area of low and medium-intensity crisis management in territories outside the EU. The defence equipment procurement plans of the European
countries are therefore based on needs expressed within NATO and the EU and on their own specific national needs.
All new armaments programmes start with a description of operational requirements using a special form to indicate the corresponding military characteristics. Forms of this type have to be completed by operations personnel to define the background context and stipulate the desired end results.
It is the role of the national Defence Procurement Agencies (DGA in France) to provide industry with specifications drawn up on the basis of the current status of research and existing technologies (R&T) developed with funding put up in earlier years, contacting those firms that have already completed similar programmes and have kept their products up to the necessary standards by means of R&T funding, including exploratory developments or new design studies.
2. General context and inherent arms contract constraints
Depending on the degree of autonomy required, it may be possible to purchase already existing products, if these are capable of fulfilling all military requirements. In all other cases, a development phase will be required with sums earmarked for the purpose in the R&D budget.
In most cases, this type of operation is performed under a direct contractual arrangement with a national manufacturer or European consortium, that already has or will shortly have a monopoly, for the simple reason that, for complex programmes (where R&D represents more than 20% of total costs), manufacturers are not in a position to put up the funds themselves. This explains the failure of unsuccessful contract bidders in the past to survive.
For less complex programmes, where the market and return on investment are predictable, including in the case of exports, manufacturers may be able to envisage putting up funds for R&D, thus creating stable competition possibilities. This is, however, only feasible for some simple types of equipment, generally for terrestrial or naval uses.
In monopoly contexts such as this, once R&D has been completed with funds put up by one or several States, production costs have to be aligned on export market prices, manufacturers having every interest in exporting their products. In practice, it is US export prices, in which no allowance is made for writing off R&D costs, that dictate price levels.
In particular, to compete with the Americans on the European weapons market, there is no option but to align prices on those of the US.
The challenge is then that of working to this price level.
To begin with, it is necessary to invest in tools and training, the cost of which can be shared between manufacturer and buyers.
Since, according to Wright’s law, the cost of a product decreases as the cumulative production of that product increases, it is important to target large production volumes, which is a strong argument in favour of European programmes.
Experience has, however, demonstrated that the greatest benefits are to be derived from maintaining production process continuity, and that if production schedules are regular, it is possible to operate at market prices, even when producing relatively small quantities. Conversely, production stops and starts will drive costs back to the level of the very first series production units. A similar phenomenon occurs, in space if not in time, when several production lines operate in parallel in different countries.
The advantage of European programmes is therefore not only their larger production volumes but also, and more importantly, their greater continuity. This is why it is not only necessary for military requirements to be jointly defined and industrial processes organised to avoid duplication, but also to establish a process for coordinated multiyear budget planning.
Examples of organisational arrangements avoiding duplication are those adopted by MBDA for the Franco-British SCALP-EG and Storm Shadow missiles, and for Meteor, by Airbus and European engine manufacturers for A400M, or by Dassault for Neuron, in addition to the so-called cross-purchasing method previously used by the United Kingdom and France.
All these arrangements are based on the same principle, namely that of having a single designer/project manager/integrator, and one single manager per sub- assembly.
3. Conclusion and proposals
Of the three requirements mentioned above (common military requirements, good industrial organisation, and coordinated multiyear budget planning), the first will be contingent on the military aspects of the project being endorsed at European level (by the principal European powers). For this, the European States need to commit to common definitions of military equipment on the basis of the threat analyses and potential response scenarios established by NATO and the EU, while remaining within a European frame of reference. This type of procedure has worked in the past, for example, for the Counter-Battery Radar (COBRA) (UK/FR/DE), the A400M military transport aircraft (for seven countries: DE/FR/ES/UK/BE/LUX/TU), and the METEOR missile. It is therefore feasible.
As a step in this direction, it would be advisable to develop a systematic procedure for harmonising the military characteristics of future weapons systems capable of meeting the common requirements of several European States. This is something that could be done under EDA auspices in association with EUMS or within PESCO.
Combined with a common approach to multiyear budget planning, a procedure of this type should be easy to enforce for programmes decided by European institutions, when such exist.
For programmes set in train by one or several Member States, in particular those submitted for EDF co-funding, a national or multinational military requirement and budget plans already exist, but the proposed procedure could enlighten the EDF grant allocation process.
The proposed mechanisms are a transposition at the European level o
f the proven methods used at national level by the existing Military Staffs and Procurement Executives to define Armament programs and organize their multiyear financing.