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27 Oct 04. As discussed by BATTLESPACE on a number of occasions, Associated Press reports on new moves to integrate European Shipbuilding interests into an EADS-like company. The first moves have been made in the UK with an MoD study to streamline shipbuilding orders into a manageable fashion to give long-term stability to UK yards. However in the long-term, it is likely that a pan-European solution including the UK will happen due to the huge European over-capacity.

European defense companies know they have to unite to keep up, as the gap in military spending between the United States and its NATO allies continues to widen. But a push to consolidate Europe’s fragmented shipbuilding sector — a minefield of national, corporate and labour sensitivities — is proving slow and difficult, particularly as shipyards are centred in high unemployment areas, Scotland and Barrow-in-Furness being prime examples.

France’s approval this week for a merger between the state-owned DCN shipyard and its largest defense company, Thales SA, was widely seen as a key step toward the eventual creation of a naval equivalent to Airbus parent EADS NV. But Europe still has more than 20 major shipyards — compared to six in the United States — and about the same number again of naval defense technology firms.

Most European yards can rely on their governments to send navy contracts their way, but cutthroat competition from countries like Japan, South Korea and Russia in building non-military vessels has badly eroded their profits.

“Clearly in Europe there’s a lot of scope for getting better value for the taxpayer’s euro,” said Alex Nicoll of the London-based International Institute of Strategic Studies. “One way to do that is to get a more consolidated industry so that you’re not funding lots of small companies.” The process is further along in Germany, where an acquisitions drive by steel and engineering group ThyssenKrupp AG has added German submarine maker Howaldtswerke-Deutsche Werft AG to its marine division, along with Sweden’s Kockums AB and Greece’s Hellenic Shipyards SA.

But the obvious next step, a tie-up across the Rhine, is fraught with problems and disputes — not helped by French Finance Minister Nicolas Sarkozy’s difficult relations with Berlin.

The Germans fear French government meddling in the consolidation process, not least because Sarkozy has said he wants to see the unprofitable shipbuilding division of debt-strapped engineering group Alstom SA incorporated into any new entity.

Even if a plan gets off the ground to create a European shipbuilder to rival Northrop Grumman Corp., the prospect of widespread shipyard restructuring and job cuts is enough to make any European politician nervous. Apart from Alstom the Scottish yards of BAE SYSTEMS are particularly vulnerable given that they are situated on the narrow river Clyde, fast becoming unsuitable for building the larger military ships of today. The fact that Harland and Wolf, the now defunct Belfast yard was the only one with any size, apart from the North Sea rig yards, capable of building the new UK carriers was an interesting case in point to the viable future of these yards.

France’s left-wing CGT trade union accused the government this week of seeking to “destroy DCN and hand over this national treasure to French or foreign private investors.” German unions are also on guard. Governments are also anxious to maintain strategic manufacturing capabilities in all defense sectors. But many experts say such notions of self-sufficiency are long obsolete.

“The reality is that there’s no country in Europe that can make everything they need,” said David Mulholland, business editor of British-based Jane’s Defence Weekly. “Since the end of the Cold War it’s been hard to have the market that supports that kind of investment.”

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