Guy Rupied, GIFAS
Release Date: 2009-01-23
Many aviators and aerospace industrialists in the United Kingdom see the UK as the only true aviation country. After all, the UK is home to the first true aviation company, Short Brothers, and you can drive twenty miles anywhere in the UK and you will find something that's aviation related. What is the French response?Certainly, the aerospace industry was born in France. No one can dispute that. Even the famous American Wright Brothers started their industrial activity here. Even though they made the first real flight, they were not known in the US, so they came to France to become better known. They established piloting schools and the beginning of an industry, because they had orders for planes and began a kind of production. They were not alone, as there were French pioneers along with them, who together created their own planes and an industry in Europe, right here in France. The Wright Brothers' first flight in the US was not known by many, except in Europe and especially in France, and they became known in the world only after establishing themselves in France. They created the first schools to give out piloting licenses in Le Mans, not very far from Paris, and in Pau, in the southwest of France. But even though some of the famous pioneers of aviation in France actually had American names, in the same years, many French pioneers like Louis Bleriot created their own planes and tried to fly from one point to another and back to the departure point. Henry Farman did that at Issy-les-Moulineaux (near Paris) one hundred years ago in January of 1908. So, we can see that France is 'the nest' of the aviation industry in Europe.
The current financial crisis and credit crunch have potential to have a negative impact on global aviation and aerospace that is much more pronounced than the outbreak of SARS or the impact of 9/11. Just how optimistic is GIFAS about the prospect of its members getting out of this downturn unscathed?
The fact is that today, especially in the field of commercial aircraft, we have a tremendous number of orders that we have never obtained before, which are divided between Airbus, commuter and business jet, and helicopter manufacturers, as well as equipment suppliers. We must have an order book that will keep us busy for the next four or five years - something that has never happened before. The reason you will hear today that the crisis is not too strong is that maybe people are confident it will end within eighteen months or two years. If this is the case, we think our industry will pull through without a lot of damage. There will be some damage, but it cannot be compared to the car industry, for example, which has already faced an immediate and pronounced reduction in sales. For the aircraft industry, the effect of the crisis starts less quickly than for other industries. For us, supply and demand, and really the whole planning process, are very long term concepts. The question that is very difficult to answer is, 'What will be the situation in two years?'
With risk sharing being introduced into the supply chains of the major aircraft manufacturers of the world, how can SME suppliers (especially in the lower tiers) survive and how catastrophic would it be if many close their doors?
The troubles for our SMEs started long before the current financial crisis, when the Euro was so strong. The new situation at a global level does not have an immediate effect on our SMEs, since they've been in a difficult position for the last two years. The prime contractors had to react to the currency challenge, so all the work in streamlining the supply chain began as a result. Today, we work with SMEs to find solutions for them to survive through training and dialogue with prime contractors. Our membership includes the whole supply chain - prime contractors, Tier One suppliers, and SMEs. Our job is to facilitate links and the flow of information. We create tools to communicate more effectively ?we inform SMEs of production volumes at our prime contractors. For the whole supply chain, we are in the process of putting in place an electronic hub for communication and data transfer. This facilitation of communication will include SMEs and prime contractors in other countries such as Germany and the UK, because the European supply chain is so international.
In fact, you have a better competitive platform for exports, for the time being.
It's not like we are driving a car and can turn immediately by turning the wheel. It will take time before we can take advantage of this new situation ?if it lasts at all. We are in the middle of a global productivity improvement, and that has to take all its effects, and then we'll see after some time if we are in a different position.
The UK aerospace industry's core competencies can be summarized as high-tech engines and entire aircraft wings. The Germans find a niche in aircraft cabins. With the long term view in mind, when people think of France, what should they think of, other than the brand themselves like Eurocopter or Airbus?
I should say everything. Historically, we have the industries capable of producing or creating any kind of airplanes, helicopters, or missiles. We keep all these capabilities still today. Now the problem is the cost of the programs, which is why we have European cooperation (and companies). In France, we keep the capability to produce roughly all the range of aerospace products. If you take only the engine activity of Safran, the range of engines produced goes from the very small engines for satellites (you can hold them in your hand), to the most powerful engines for very large commercial aircraft, to helicopter engines through its Turbomeca subsidiary.
Will this product mix be the same in ten, twenty, or thirty years? Frankly speaking, I don't know. With the restructuring of industries, especially in Europe, we see that the building of big companies, like Airbus, is not easy. Airbus is not French, German, Spanish, or British. It's a European company, in which France has a 37% share. Perhaps our activities will change in the future, but still today, in French research centers and production plants, you have all the capabilities to develop those large commercial aircraft. Can we say that today France is specializing in such-and-such kind or products or such-and-such kind of technology? It's not the case today. It could be the case in the future, because it's true that the cost of new equipment is so high, especially in the military sector, that it's not within the scale or scope of one single country to approach. Today, when Airbus starts a new aircraft, they pick up technologies from everywhere even though France is capable of doing everything. In ten, twenty, or thirty years, it is likely that the next generation of combat aircraft will be produced as a collaborative effort of sorts.
Some might find it a bit presumptuous for one country to claim it has the best expertise in every single area?
The problem in Europe today is that if you decide to stop working in a specialty, you lose everything. That's what happened to the British thirty years ago when they decided to stop producing combat planes and they decided to focus on electronics and the missile industry. After that, it was very difficult for British companies to come back in the field of combat planes and to recover their lost image. They could not produce a combat plane alone as a prime and they had to restart only through co-production with other European countries. This case is very well known. It's difficult to make the choice to stop because you inevitably lose so much knowledge that it will be very difficult to recover ten years down the road.
The UK claims to have the largest aerospace sector in Europe and the most international in the world by any measure. Some say there's so much value in the finished Airbus product which is essentially re-exported that originates from the UK, Spain, or Germany, that French industry figures are artificially inflated. What are your thoughts?
If you look at the annual turnover, we are more or less the same size as our British friends. But of course we need to define the parameters of what is included in the aerospace industry ?it is very difficult to come up with a uniformly accepted and utilized standard. For example, if we measure through employment numbers, should we consider direct or indirect employment? I don't really think we can say that there is one industry that is much bigger than the other. Frankly speaking we shall not say that the French is superior to the British, but I also do not think that the British can say they are superior to the French. It's true that if you take their industrial defense activity, I think the UK figure is a little higher than ours, but if you take the whole aerospace activity including civilian endeavors, it's more or less similar from my point of view. Perhaps they also think that they are number one, as far as air shows are concerned. It is true that Farnborough was the best in 2008, but Le Bourget will be the best in 2009.
In the UK, companies like Rolls Royce have more assets internationally than they do in their home country. Are you finding a similar globalization of the supply chain of certain GIFAS members?
I would say yes, but not to the extent of Rolls Royce or BAE Systems which has well over 100,000 employees in the US. While this industry was focused in the home countries in the past, GIFAS' large members are starting to have a multi-domestic approach. Thales is British in the UK, German in Germany, Australian in Australia, and so on, but the center of decision making remains in France since it's a French company.
To what extent are French SMEs following the Tier Ones and the primes?
As prime contractors want to reduce the number of suppliers they use, the SMEs will have to find a way to reorganize in a way that yields the critical mass necessary to face this challenge. Airbus, for example, had somewhere between five and ten thousand suppliers several years back. Their objective is to reduce their supplier base to between three and five hundred. That is really a big challenge. For this, they must have in front of them some suppliers which have the critical size to become this prime contractor that they need. The problem of the SMEs in France ?and probably elsewhere in Europe - is that many are family businesses. It's very difficult to restructure a network of family-owned and operated companies, especially now with the credit crunch. We don't have enough good examples of successful restructuring of such enterprises to gain a critical mass.
What are some good examples of family-owned SMEs in France that are on their way to becoming prime contractors?
Daher, a historic Marseilles-based company, is a good example of growth. They first merged with Lhotellier, another company that started as a family-run SME but then grew exponentially, and recently agreed to purchase EADS Socata, one of the leading industrial partners on aerospace industrial projects in the world. Patrick Daher could explain how they are building their principal activities of developing and producing composite aerostructures as a company that has emerged as a Tier One supplier with a global reach.
In China, the ARJ21 regional jet is almost ready for first delivery with the help of some European participation in the program. In which specific areas do you feel that French technology and expertise can add particular value to new programs, such as the CACC's very large jet program?
Our European-level activities taught us to cooperate and to seek out two-way relationship. They've all grown up through Airbus, Eurocopter, and other European programs, so they're used to working with other nationalities. Our companies are used to doing that, so partnering with local suppliers in China would not be a problem per se. In fact, our corporations are already engaged in industrial cooperation at study and industrial levels in China. For more than 25 years we've had cooperation with helicopters and helicopter turbines (through Turbomeca). We can say that we have expertise in partnering and cooperation and plenty of proof to demonstrate this.
So it's a matter of business culture?
Yes; we can always boast that we have a better technology in such-and-such a field, and it's the job of companies to say that, but French companies are present on programs for the Boeing 787, Embraer, as well as Bombardier. This, in itself, means that their technology is very good, but more importantly it means that we are used to cooperating with different nationalities. We were at the core of building this European aerospace industry, so we know what it means to work with someone else as long-term partners and to succeed. We mean business first, so this is what we do when we're engaged for a long time, and we're looking reciprocally for the same kind of relationship. I would say that this behavior, this state of mind, will make a difference.
In the ARJ21 program, even though Safran (or Snecma) have not been selected to co-develop or co-produce the aircraft or its engine, they have not closed the door on China. They are still producing parts and doing MRO work in what is clearly a long-term commitment. Thales and EADS have the same commitment. Airbus has taken a really bold step in starting the first assembly line outside of Europe. Collaboration on the Eurocopter EC175 is at the development phase, not just manufacturing. We value this kind of relationship - this is where we can make a difference.
The French aerospace industry, one that is clearly export driven, still sends a very small fraction of its products to Asia. Considering that your traditional primary markets are now struggling to achieve zero growth while the BRIC countries, especially China, drive global growth, what are French companies doing to update their customer profile to capture this change in short and long-term growth potential?
We are very dependent on exports, so we are especially exposed to problems caused by the exchange rate between the Euro and the USD. The high percentage of exports in the French aerospace industry is due to a very simple fact ?the only way to maintain the size and strength of this industry is through exports. This is especially the case in the military field where our percentage of export sales is not as high as in the civil field. We need a very significant proportion of exports in order to maintain the present technological level of our industry.
Really, Airbus is what drives the volume of exports. We were late in sending Airbus to China, but they are catching up, and now they are at a 37% share of the market by value. With the A320 final assembly line in Tianjin, Airbus will reach equilibrium with Boeing with a 50% market share as in the rest of the world as a whole. Then, as the local industry in China (and India) picks up and develops we will have sales from our equipment manufacturers and SMEs. Naturally, our presence will grow.
Was there anything that caught your attention at the Air Show China 2008 in Zhuhai?
Yes; the strengths and range of the Chinese aerospace industry. Zhuhai is now meant more to show what the Chinese industry can do. In fact, half of the 2008 air show was Chinese industry. This was not the case ten years ago when foreign companies dominated the stage and 'one million visitors' was the announcement ?more than Le Bourget - but the composition was mostly local residents who had nothing to do with aviation in any form. Things have changed for the better.
But there are now too many aviation trade shows in China: Beijing, Zhuhai, Hong Kong and now two new ones. The Americans complain that the scheduling of the Berlin ILA and Farnborough (UK) on the same year forces participants to choose one or the other. Maybe the Chinese would consider consolidation of all shows into a single show that covers civil, aviation, and space (like Paris Le Bourget Air Show) in order to maximize international interest and participation.
I want to leave you with a funny story. I remember six or eight years ago, Singapore was growing very quickly. The organizer of the air show said that they had become the number two air show in the world. At that time, there was a press conference at the beginning of the air show of all the countries participating in Singapore, and there was a question raised by a journalist to the British delegation. 'What is your feeling in regards to Singapore becoming number two?' And the answer from my colleague, Managing Director of SBAC, was 'I cannot believe that Le Bourget has become number three!'
Do you have a final message to offer to the readers of International Business Daily?
Hu Jintao mentioned French President Nicolas Sarkozy during a recent meeting that 2009 marks the 45th anniversary of the re-establishment of diplomatic relations between France and China. It is in this spirit that I say that France, being at the core of the European aviation industry, can add more value in helping the Chinese create aircraft that are lighter and therefore cheaper to operate and less harmful to the environment. This is where R & D in France is focused now.
| Company: | GIFAS |
| Position: | Managing Director |
| Country: | France |