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EUROPE LOBBIES FOR CLOSER U.S. TIES

11 July 02. European arms firms want to work on an equal basis
with U.S. peers on major contracts, a leading industry lobby said on Thursday, evidence of growing unease at the yawning gap in defence spending either side of the Atlantic.

“We are ready to start, on a balanced basis, a new defence programme in
partnership with U.S. companies,” said Jean-Paul Bechat, president of European industry body AECMA, at a news conference.
The U.S. defence budget is already twice that of European countries combined, and President George Bush has proposed a 13 percent hike in the U.S. military budget to $394bn.

Mainland European arms firms are frustrated by 20 years of falling domestic budgets, and have met with little success in bidding for U.S. work. In an attempt to shock governments into action, the companies have long warned that persistent underfunding will undermine their technical capability, leaving nations with little choice but to buy U.S. weapons. That may have already begun. Lockheed Martin Corp’s (NYSE:LMT – News) F-35 combat jet, known in its project form as the Joint Strike Fighter, is years away from production but has already seized a chunk of European government funding that could have been spent on Eurofighter GmbH’s Typhoon.

Bechat, who is also chairman of French state-owned aero engine maker Snecma ,
said ventures in which U.S. and European firms have an equal stake and bid for transatlantic projects would be a better solution for the nations involved. “JSF, when it is joined by some European states, is becoming some kind of
transatlantic programme, but it is nothing like European programmes such as the Eurofighter, which is made and designed within Europe,” Bechat said. “We would like transatlantic cooperation to be on the basis of a balanced partnership.”

The European pioneer in U.S. cooperation is Britain’s BAE Systems Plc
(London:BA.L – News), which has made best use of close UK historical and political ties to America to win major U.S. contracts, including a key role and 14 percent share in the F-35 programme.

It also owns 37 percent of the smaller Eurofighter project.

France spends close to what the UK does on defence but its companies, including Franco-German giant EADS (Paris:EAD.PA – News; XETRA:EAD.DE – News) are still treated with suspicion by the Pentagon.

Thales (Paris:TCFP.PA – News), the French defence electronics giant, has gone farthest among continental firms, forming a joint venture with U.S. missile firm Raytheon (NYSE:RTN – News) in the sensitive areas of radar, command and control centres and weapon detection.

In another development, on July 12th, French Finance Minister Francis Mer said in an interview published on Friday that his government could proceed with privatisations as early as this autumn.

In some of the new French government’s most explicit comments to date about its privatisation plans, Mer told French financial daily Les Echos that aero-engines firm Snecma was among the most advanced candidates.

Mer also welcomed a euro near parity with the dollar, and said recent market volatility had been excessive.

“That the European currency is near parity is good news to me,” he said, citing the impact of a rising currency on inflation.

He also said he was encouraged by French economic growth in the second quarter of this year and saw no reason why an upward trend would not continue in the second half of the year.

Comment: Europe may have at last recognised that the U.S. defense giants now dwarf their European counterparts. This recognition that Europe should join in transatlantic developments may only delay the eventual U.S. domination of Europe’s defnce markets unless more spending is evident and the French in particular free up their market. The announcement that Snecma is to be privatised may bring Rolls and Snecma together but one complication is the strong Snecma/GE technology partnership in engine developments part

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