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GERMAN DEFENCE REVIEW CUTS

GERMAN DEFENCE REVIEW CUTS TIGER ORDER AND RETIRES AIRCRAFT

21 Feb 03. Reuters reports that Germany’s defence minister announced military
cutbacks on Friday, including fewer orders for a key combat helicopter, to
free up resources for a new focus on overseas missions rather than homeland defence.

Defence Minister Peter Struck told a news conference his budget would be frozen at about €24.4bn($26.4bn) from 2003 to 2006. To free up cash for badly-needed new hardware and higher pay for more professional soldiers, he said cuts were needed elsewhere.

Savings would be made by forgoing buying a second tranche of Tiger combat helicopters, retiring Tornado fighter aircraft and Albatros tornado boats and reducing operational costs, he said.

The German defence freeze comes as other NATO allies, notably the United States, Britain and France, are increasing their military spending. Germany spends less on defence than any other major NATO member at just 1.5 percent of national income in 2001 compared with a European NATO average of 2.1 percent.

Struck, who has been working on a review of defence spending since he became minister last July, also presented new strategic guidelines for the Bundeswehr armed forces that acknowledged a shift from the military’s traditional focus on territorial defence towards multilateral operations and conflict prevention.

“Planning will be more clearly orientated to the demands of multinational operations,” Struck said. “We are guaranteeing that the Bundeswehr remains efficient so that Germany can act in foreign policy.”

Despite a dramatic increase in Germany’s contribution to international military operations in recent years, with 10,000 troops now involved in such missions, attempts to rein in the national budget deficit means defence spending has been capped.

Allies have urged Germany to hike defence spending or risk undermining its international commitments and a planned joint European rapid reaction force. But Struck announced new cuts on Friday, including forgoing buying 30 Tiger combat helicopters.

Struck said this should save about €700m. A defence ministry spokesman said this would bring Germany’s total Tiger order down to 80. The Tiger is made by Eurocopter, a unit of European aerospace group EADS (Paris:EAD.PA – News; Paris:EAD.PA – News).

Struck said about €1.7bn would be saved by taking out of service 80 to 90 Tornado fighter aircraft by the end of 2005. Ten Albatros torpedo boats would also be retired by the end of 2005, but Struck could not say how much that would save. Struck said the money saved should go towards projects like the purchase of new armoured personnel carriers, tactical air defence missile systems and unmanned reconnaissance aircraft.

Shares in EADS were hit by this, its biggest military order cutback of the year on Friday, underscoring tough times that have forced Europe’s largest aircraft maker to make cost-cutting plans.

Set to announce 2002 results on March 10, EADS (Paris:EAD.PA – News; XETRA:EAD.DE – News) is grappling with risks to 2003 earnings threatened by a weak dollar, soft demand for military and commercial planes and an unprofitable space sector.

Aircraft makers face a grim 2003, with a record slump in airlines not expected to ease and military sales hit by defence spending cuts across Europe.

Germany slashed an order for Tiger military helicopters to 80 from 110 on Friday as Defence Minister Peter Struck announced the latest in a string of military cost cuts to hit EADS.

The move wiped €700m($758.5 million) off the order book at European Aeronautic Defence and Space Co NV (EADS).

“Against revenues of 30 billion (euros) a year, it’s not an immediate concern, but it’s obviously not good news,” said a London-based defence analyst.

Cost cuts announced internally this week by Noel Forgeard, chief executive at commercial aircraft unit

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