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SAAB PUTS FAITH IN WIDE BLUE YONDER

03 Jun 04. The FT reported that Saab is the sort ofcompany that should be finding life hard in the post-Cold War era. Coming from a small country such as Sweden, the defence group lacks the size of larger competitors from Europe and the US. And its main customer, the Swedish defence force, is relentlessly cutting spending.

But if Ake Svensson, Saab’s new chief executive is worried about the outlook, he is certainly not showing it. He admits life has changed dramatically since the Berlin Wall came down in 1989 and the terrorist attacks on the US in 2001. But these events have created opportunities, as much as threats, he says. The company’s financial performance has been resilient and its balance sheet is strong.

“Our goals are clear. Saab will grow organically by 5 to 10 per cent a year and generate an operating margin of 10 per cent,” he says.In Cold War days, Saab’s role was to help Sweden defend its territory from possible invasion by the Soviet Union. “Today we are looking to defend Sweden outside Swedish borders,” Mr Svensson says. There is more emphasis on international collaboration. Though Sweden is not a member of Nato, its armed forces play an active role in international peace-keeping and its equipment has to be Nato-compliant.

The immediate challenge for Saab is to reduce its dependence on its home market, particularly with a new round of Swedish defence cuts looming in December. Today a large proportion of orders come from abroad, but the company still depends on Sweden for 50 per cent of its sales. But moving from a cosy domestic market to a fiercely competitive international one is not likely to be easy. “We have to be better and better in selling what we have in our portfolio as niche products on the world market,” Mr Svensson says. The niches include antitank weapons, training systems and camouflage.

Acquisitions are designed to support this strategy. “If you want to be a niche player, it sometimes helps to have a strong presence in a country that might become a big customer,” says Mr Svensson.A second plank of the strategy is increased international collaboration. A good example is an agreement with Dassault of France to develop an unmanned combat aircraft as part of broader European co-operation.

Saab is the product of a merger in 1999 with Celsius, another Swedish defence contractor. The link-up made the company less dependent on aerospace activities, although it remains best known for the JAS Gripen fighter aircraft. The Swedish government has ordered 204 JAS aircraft, and 140 have already been delivered. However, the defence spending constraints mean the delivery programme for the final 64 fighters is almost certain to extend beyond 2007, the date originally agreed. The aircraft has met with limited success so far in export markets, despite a marketing link with BAE Systems of the UK. The South African government has ordered up to 28 aircraft. Hungary has agreed to lease 14 from the Swedish government. The Czech was yesterday considering its own order for the aircraft.

BAE Systems has owned 35 per cent of Saab since the late 1990s, making it the largest shareholder by capital. Some Swedes are disappointed that the collaboration with the UK group has not developed beyond the Gripen, and there are concerns about the conflict between BAE’s role in marketing the Gripen and its involvement in the rival Eurofighter project. Mr Svensson says the Eurofighter is a bigger and more expensive aircraft, but he does not deny it is a competitor. “There is a conflict of interest and the only way to deal with that is through firewalls,” he says. The question of whether BAE Systems will continue as an owner of Saab is not one that Mr Svensson can answer, although he acknowledges that mergers have changed the shape of both groups since the original link-up between them.

“We have seen BAE Systems as a strong, focused and activ

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