Juan Manuel Eguiagaray Ucelay, EADS
Release Date: 2009-05-12
You were the Spanish Minister of Industry and Energy (1993-1996) during a very interesting period of time, a period of general privatization in the 1990s. How has the overall Spanish industrial landscape changed since then?That is a very good question, because the process has been a very intensive one. At that time, especially at the beginning of the 1990s, we were in the middle of turmoil - economic and industrial crisis. Many of the main companies in Spain, including some of the foreign industrial companies, were in a difficult situation. A certain number of them were maybe considering the possibility of giving up, investing abroad, or simply leaving the country. We were very concerned about that situation. We tried to have a very active political policy on the industrial aspects, so as to foster and enhance the attractiveness of this country for foreign investment. At the end of a period of about two or three years 1993-1996, we were very successful in moving towards a very high rate of growth in industrial activity.
Though in the meantime, we went through a difficult period characterized by very high unemployment rate (23% in 1993) and many industrial crises that I had to combat as my duty. At the same time, we were successful in creating the basis for a new way of managing both political issues and industrial policy, and also to modernize a big part of our industry. Some of the new investments and some of the investments aimed at the modernization of the industrial companies in the country were made during that period (1993-1996), and I think its was a successful policy as a whole. We also conducted the process in a way to orientate the investment not towards the traditional areas of economic activity, but to the most modern and technologically advanced areas of industrial activity. In this sense, for instance, our priority to the aeronautics industry was very important.
I am very proud that we were able get the first national aeronautics plan approved by the government, which was the biggest step in the modernization of the aeronautics industry in Spain and the basis for the creation of completely new technology in this country, the use of carbon fibre technology for the production of parts of planes. Carbon fibre as a new material became the base of the competitive advantage in this country in the aviation industry. This was one of the main advantages considered by the other European countries that today are part of EADS. This was the beginning of the 1990s. We were really pioneering this technology in Europe. We were not the first, as the US was more advanced than Europe at the time, but in Europe we as Spain were part of the pre-EADS Airbus Industries consortium, albeit the smallest part. But even in that consideration, we were able to develop this new technology that, for the first time, was introduced into the Airbus planes. The rear part of the plane, known as the “S19” section, the airplane tail end, was for the very first time developed and manufactured using carbon fibre over the next several years (in 1984 CASA certified and produced the first horizontal tail plane( htp) in carbon fiber for the A320 in Spain. The more it was developed, the more it was spread as a new technology that had to be considered for new planes because of the economic advantage. Not only we were able to modernize another aspect of industrial activity, but as far as aeronautics is concerned, I think that this is the main outcome of that technological plan that we put in place.
The aerospace industry makes a 0.4% contribution to Spain’s GDP through 0.2% employment, so the contribution is clearly bigger than employment. How does this rank against other industrial activities? Has there been any spin-off effect?
Of course, this is not the most important activity in Spain, but the capacity of the aeronautics industry to spread its own capacities to other sectors is very important. For instance, these carbon fibre developments were mainly first created in the aeronautics industry and then spread to many other areas of industrial activity. The space sector, for instance, has its origin in the aeronautics industry and is a mixture of the defence and aeronautics industries.
The importance of aeronautics cannot only be measured by the figure of its contribution to the GDP, but also because of the capacity to develop and participate in the most advanced areas of technological development. It's not a question of employment, even if it is important in some areas of this country, like the slums of Madrid and especially in Andalusia. It is more important as far as it is able to produce a sort of cluster of new activities that are very advanced, technologically speaking.
Highly-skilled human resources are certainly required to create cutting edge technology. The other AEDS countries - France, the UK, and especially Germany – all share the challenge of not having enough skilled engineers to take these activities to the next level. Especially here in Spain, where the lack of mobility of the workforce is well documented, how does the industry deal with this challenge?
This is true, especially as we are importing so many European projects at the same time at the EADS level, that in aeronautics we have expended all of the engineering capacity we have. Our biggest limitation today is related to human resources. There are no more qualified engineers available to the industry in Spain, so companies are stealing engineers, one from another. This is the situation at the moment, not only in aeronautics, but also at other levels. The situation is even worse in aeronautics, because this is a moment in which we are involved in many projects at the same time, not only in broad production to export Airbus planes to the world, but also the development of new models like the A350 and the A400M, new derivatives of old models, and also the A380 which is the biggest plane in the world. These huge projects have required such a quantity of specialized engineers, mental capacity, and skilfulness that we need more human resources and the European faculties are apparently not capable of producing enough talent to meet our needs.
As EADS, one of the strategies we are considering now is to produce more parts of the plane or even the entire plane abroad in some cases. This is part of EADS agreements with the governments of China, the US, Mexico, or Brazil, for instance, for both airplanes and helicopters. We are considering different kinds of agreements with them, but it's not only a question of making the plane, but also on developing engineering departments abroad, and of course China is going to be an important consideration for the future.
While Spain is near 100% utilization of high-level engineering capacity, the Spanish participation in EADS, originally below 5%, then with the A380, maybe closer to 8% of the €12 million plus project, and now with the A350, up to 10% of the €15 million plus project . Through SEPI (Sociedad Estatal de Participaciones Industriales), the Spanish state holding company, which you represent on the EADS Board of Directors, Spain owns 5.49% of EADS. So Spain’s work share is now almost twice as great as its capital shares in EADS…
This comes from the will of the Spanish government and Spanish society as a whole to get involved in the aeronautics industry. The specific skills and technologies I’ve spoken of as well as augmented demand for EADS products from institutional buyers, such as the Spanish Ministry of Defence and various civil customers, have made it possible to have a bigger involvement in the A350 project. Thus, we have improved our share of the workload.
The contribution of carbon fibre composites in EADS’s products is expected only to increase as more focused R & D makes these materials more and more cost effective. This would imply that the Spanish share of EADS projects could continue to grow. Considering the human resource bottleneck, what is your forecast?
I wouldn't say that it depends exactly on human resources only. It's a question mostly of specialization and for the time being, up to his moment, it has been possible to reach this 10%, but growth in this share will not last forever. We are not supposed to go up 20% or 30%, because there is always a distribution of project activities among the EADS member countries. It would not be imaginable that the Spanish industry could surpass the French or German industries, which are much more powerful and important. Still, I think there is some room for growth in some areas. For instance, I'm completely convinced that it could be economically advantageous for some EADS parts which have in the past been made in other parts of Europe to be made in Spain. It has been a question of national responsibility. Some parts of the planes have always been the responsibility of one country or another. This is some sort of acquired right, but if you look at the issue on economic grounds or on the basis of industrial or technological capabilities, it is possible that some things should be changed at EADS.
Just how free is EADS to look at such matters through the free-market lens of business logic?
I think that economic logic is always present in decision making, but this is not a project that could only be considered in terms of a sort of free market. Behind EADS is a strategic European industry; governments are behind it even if the management of the company has to be judged in terms of economic performance. We are very keen on constantly improving our financial performance, management, and behavior of the company, but at the same time, there are some limits that must be taken into consideration. We never forget the importance of the countries that have been our cofounders. This company could not have even been imagined if the cooperation of France and Germany had not taken place. This is a private company but at the same time it’s much more than that due to the significance of the products produced by this sector.
Does your mission on the Board of Directors at EADS, on behalf of the Spanish government, take on a more strategic and less traditional business analysis form?
Well, it’s both. Of course, I have been a member of the Spanish government. The Spanish shareholder is a publicly-owned company, so it's representative of the Spanish government. However, I am not there to represent the political priorities of the Spanish government, but more on commercial grounds, trying to look at the business case for EADS projects. It is also true that many decisions taken must have a certain consideration for the priorities of the government, especially in the defence area, which is not the biggest part of EADS. Many decisions are taken on the basis of relations with customers, which are governments. This is something that is always present, but my role on the Board of Directors could also be developed or taken by some of the others, even if the Spanish participation was something related to a direct company. It could be and it's also something that we have considered. By the way, the Spanish were the first in Europe to privatize our aeronautics companies. The majority of French aeronautics companies were in the public sector, with the exception of Dassault which still has some public participation.
When I was the Spanish Minister of Industry and Energy, we tried to privatize most of the companies that were owed by the government, even in aeronautics. It could be that in the future, the Spanish government could sell its public stake in EADS to private companies - if they are interested. In fact, the Spanish government has always been open to efforts to interest private companies more in aeronautics technology and industry. The problem in this country is that not many private companies have the financial capacity to buy the SEPI stake in EADS.
Mr. Viñolo of ATECMA outlined the big gap between the handful of very successful players who came mostly from your privatization process; EADS-CASA and Indra, for example. Then there's a big void between the top five or so companies – primes – and their supplier base. He identified this as the major challenge right now. How must this issue be addressed? How will Spain ensure full participation in future EADS projects if Spanish SMEs are not able to participate in risk sharing?
One of the things we are trying to enhance now is the creation of new and bigger Tier One companies in the development of new planes. This is the case for Aernnova, which is probably the main company in this area after EADS-CASA in Spain. It is true that the distance to cover now is big, but it is also true that it is an important provider not only for EADS or CASA, but also for Sikorsky and Boeing. It's a company playing at the world level, and now it's growing in a constant upward way, as far as it has obtained a number of contracts for the development of the A350. It's also expanding abroad, beyond Brazil - where it already was – and countries like Mexico and the US.
We are trying to create another important Tier One company, expected to be called Alestis, in Andalusia through the process of a merger of Catalan Ficosa, the Basque Grupo Alcor, and Andalusian SACESA, which was an important provider of CASA and EADS in the past. The aim of this move is to develop their skilfulness, their capacity, and to build on the priority that the Andalusian government has given to the aeronautics industry. This company could join CASA and Aerrnova in size, scale, and business lines, so the timing is right.
There are two additional companies that are growing right now. They are a bit smaller but they are still ambitious enough to grow well into the future. We are very aware that in Spain, we are forced to enhance this process. Just as EADS has done in recent years in France and Germany, we are creating new, big companies that will be providers not only for Airbus and EADS, but will be active on the world level. Up to a certain point, this is also our ambition in Spain.
Who is pushing for these mergers?
Firstly, the market, in which it’s important to recognize that EADS is the main industrial policy maker as the principal buyer. As such, EADS is able to create new conditions for the merging of smaller companies, something that is a necessity. Some of them have to modernize, have to be bigger, and create new financial conditions, or else they are out of the market. They even have to settle in other places. They have to immigrate sometimes to the USD area. This market needs to take into account the foreign exchange issue, an issue which is very important in the competitive dynamics of aeronautics. Airbus has been suffering because of this. All of our wishes are in the creation of a new base of providers in the USD area, so that we don't suffer the effects of the fall of the USD.
At the same time, the Spanish Ministry of Industry & Energy is starting to create new conditions or incentives that promote aeronautics activities. I’m talking about better financial conditions to facilitate the process of technological adaptation that will build on European Union technology subsidies so that industrial activity aimed at the development of aeronautics can be heightened. The regional governments are also doing all they can. Andalusia and Madrid are very active in trying to facilitate and create conditions for the development of these new activities. At the same time, some other regions that weren't involved in aeronautics in the past are more and more interested, as is the case with Catalonia, Castilla La Mancha, and Castilla Leon.
A newfound interest in aeronautics seems logical considering the fate of some more dominant industries in the regions you’ve mentioned. Madrid is still very dominant in aerospace, and while the Basque Country has grown from nothing in less than two decades, does EADS benefit from further spreading out the development of specialized competencies? What does EADS, as the driver of industrial policy in aeronautics, have to say about spreading out activity between so many regions? Doesn’t this go against the concept of scale?
This is not necessarily the case. It’s sometimes an advantage to have different centres in different parts of the country. This also depends on the priorities of each region as not all of them have the same capacity to subsidize industry or a relevant historical record of industrial activities as in areas like Madrid, the Basque Country, and Andalusia. This is also the case in other parts of Europe. For instance, Toulouse may be the core of the French industry but other parts of the country are also quite active. There are many activities, many small industries all over France, which are related to industrial activity in Toulouse. The same holds true in Germany. The creation of centres of technology is different since the dimension is of course an advantage for a certain number of activities, so we are not trying to “spill” the centres everywhere, but healthy competition never hurt anybody. We are trying to create good specialized centres.
But the North, the Centre, and the South of the country have all specialized in carbon fibre technology and aerostructures, right?
Well, yes; this is the core competence of the whole of Spain within EADS. The governments of Spain and Madrid have worked closely with EADS to recently create a brand new centre in Madrid specializing in the development of advanced materials, like carbon fibres, which still have to be developed. We already had several centres with the same specialization, but they were directly related to factories, such as the one in Getafe, close to Madrid, While most of the innovation activities were developed in such a setting in the past, this new operation will focus on focus on technologies and products that are not even commercial right now, but could be in the future. This is our entry into pure primary research within EADS.
You have mentioned that the future of the Spanish aeronautics industry will be determined in part by the success of a new generation Tier One suppliers with a global scope and reach. How important will interaction with China be to the long-term industrial development of the Spanish leaders in aviation?
Everybody agrees that China is going to play a main role in any industry and in any activity. It is probably just a matter of time. While China is now developing just the capacity to assemble planes, at some point in the future their scope will probably expand to develop its own technology for its own planes. This is something that we're going to see; I'm completely sure. Probably, at least in the commercially area, the collaboration among countries and among industry is going to be the rule, so more and more, the providers are going to be shared by EADS and Boeing, and they will also probably be shared in the future by any other manufacturer to appear. I'm completely sure the successful creation and development of new Tier Ones cannot be tied to only one single manufacturer.
How precisely could COMAC, which aims to have to very large jet in the sky within the next decade or so, benefit from the specialized Spanish expertise in advanced carbon fibre technology?
Well, yes; why not? Ten years ago, the Spanish had a unique expertise in carbon fibres, at least in Europe. Expertise is more and more spread out now. France, for instance, is spending a huge amount of money to catch up to Spain in this area. At EADS or Airbus, we have this idea that the planes of the future will be completely made in carbon fibre, so if France is going to maintain its responsibility in the planes at possibly 30% to 40%, it has to specialize and convert to industrial assets capable of treating that sort of material. This effect has been really dramatic in Germany because they were so specialized in metallic parts and the conversion is not very easy. They are suffering a little bit in that process. Still, from the EADS point of view, Spain still means carbon fibres, and the new EADS R&D centre in Madrid is a testament to that. More specifically, Spain is the single European specialist in “S 19” tail ends. This should be of interest to our counterparts in China.
Is there room for a third aircraft manufacturer, such as COMAC, in the world?
I think so, but it depends on the segment of aircraft we are talking about. I do not think that it is something that you could assure at the moment, but surely some things will change if the development of China is as it has been in the past. Even now, if Boeing and EADS are cooperating with Chinese manufacturers, I'm sure that in the future China is going to develop its own capacities, and they are going to be more and more autonomous. China will be a big competition in that sense – the only question is when.
What would be your message to the Chinese government, to COMAC, and to the readers of International Business Daily about the Spanish aeronautics industry?
We all look at the future of China with admiration and we are sure that we are going to share more and more responsibilities. In aeronautics, by necessity, China is going to be one of the main players in the world, because of the size of the country and the population, and the needs it already has with its important fleets of planes. We are sure that we can collaborate in the future. As a member of EADS, we are very proud of having been able to develop some agreements for industrial activity in China. As Spain, we are very keen on being able to provide our capacities and our skilfulness in the carbon fibre area, which is not the property of Spain anymore, but is the property of the companies that own these patents and this technology. I'm sure in the future we will be able to further develop this area together.
| Company: | EADS |
| Position: | Board member |
| Country: | Germany |