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INCREASE IN FRENCH GOVERNMENT DEFENSE SPENDING

INCREASE IN FRENCH GOVERNMENT DEFENSE SPENDING – NEW CARRIER CONFIRMED

11 Sep 02. The French government said on Wednesday that it will increase defense procurement spending between 2003 and 2008 to bridge the gap with the U.K., Europe’s biggest spender on military hardware.

French Defense Minister Michele Alliot-Marie said France intends to spend an average of EUR14.6bn per year to acquire defense equipment during the six- year period and would allocate seed funding toward research for a second aircraft carrier.

The launch of a second carrier could translate into a spree of orders for French defense contractors such as Direction des Contructions Navales, Thales, European Aeronautic Defence & Space Co. NV or Dassault Aviation. (See THALES PROFITS SURGE SIX-FOLD, above).

The increased procurement budget would compare with an estimated EUR12.5bn in 2002. Alliot-Marie said defense spending would climb to above 2% of France’s annual gross domestic product in 2008 from around 1.8% in 2002.

“At the end of 2008, we will be in the same league (with Great Britain),” Alliot-Marie told reporters at a press conference. Defense spending accounted for around 2.5% of GDP in the U.K. last year. Alliot-Marie said the government aimed to do away with previous practices, under which France often launched ambitious defense procurement programs but eventually cut defense spending because of budget constraints.

She said the ministry will make a final decision on whether the second carrier will be nuclear powered and on whether to cooperate with the U.K. on the project by June 2003. The Ministry will plough EUR600m into designing the second carrier between 2005 and 2008, she noted. Defense Ministry officials said a sister ship of the Charles de Gaulle would cost a maximum of EUR12bn.

Comment: The possibility of a second French carrier has been discussed on a number of occasions in our editorial and indeed by our industry guru, John Reed and naval Editor, Antony Preston. It looks increasingly likely that the second French carrier will have some commonality with its UK CVF counterpart and be conventionally powered (See BAE SYSTEMS DROPS 26% – ’03 FORECAST AT RISK). What BAE SYSTEMS should note is the co-operation of the French and US Common Engagement Capability-equipped (CEC) Hawkeye aircraft during the Afghan conflict whiuch would give Thales an advantage. The logical progression to ensure the effectiveness of CEC and co-operation would be for CVF to have a similar system with similar combat systems. A second French carrier would also give Thales a huge price advantage for combat systems. The likelihood that the second carrier could be a joint UK/French carrier has also been mooted but this has yet to be confirmed.

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