PARIS: Russia’s invasion of Ukraine has dragged the rest of Europe into a “war economy”, prompting many countries to dramatically increase their defense spending. And with increased spending comes increased opportunity – and has sent European industry scrambling to try and find ways to meet potential demand.
French President Emmanuel Macron set a clear milestone when he opened the 15th biennial Eurosatory land armaments exhibition a week ago, becoming the first head of state to do so – himself a statement of when and how the influx of defense spending, with roughly 150 billion euros ($158 billion) pledged by European nations since the start of the Russian invasion could have major national impacts for political leaders.
His remark that “spending a lot to spend elsewhere is not a good idea” was clearly aimed at European countries buying from the Americans, such as Germany, which days after announcing a 100 billion euro injection of funds ( $105 billion) in defense quickly announced that it would buy up to 35 American F-35 fighter jets.
For all our coverage of Eurosatory 2022, click here.
“We need to spend a lot, but we need a European strategy for industry and innovation because it’s good for our industries and our industrialists, it’s good for jobs in our countries , it’s good to have a dual innovation capacity that our economy needs, and it’s good for our strategic sovereignty,” Macron said.
“We need to strengthen a European defense industry and have a much stronger and more demanding defense industrial and technological base in Europe,” the president stressed. In a clear reference to the United States, he warned that if this was not done, Europe would create a future dependency just like the one it had built on Russian oil and gas. And so, he insisted, it is vital for European industry to “simplify” its collective offer “to build real European offers, to have a real European standard”.
The French president urged the industry to “go faster, think differently about production rates, ramp up (…) in order to be able to reconstitute more quickly [stocks of] essential equipment for our armies, our allies and those we want to help.
European industry certainly seems ready to step in. Eurosatory broke its previous attendance record, with preliminary figures released by organizer COGES indicating that more than 100,000 people came to the five-day exhibition (professionals only) where 1,730 companies from 63 countries – no Russians this time – were showing their wares. Between 220 and 250 official delegations visited.
But a number of executives at the show expressed concern that the idea that European industry can evolve to meet expectations is simply unrealistic. European governments may want to spend domestically, but ultimately they must be able to get what they need.
Or as Nicolas Chamussy, the CEO of Nexter – half of the Franco-German KNDS group – told Breaking Defense in an exclusive interview on the fourth day of the show, “it’s very good to say that we are going to buy in Europe , but if the product does not exist, it will take time and it will be very expensive.
Internal skepticism and supply chain concerns
A manager of a major European contractor said that although clearly “a new cycle of reinvestment in the defense sector has opened”, it was difficult for the industry to increase production rates, because the products end products depend on an extensive network of subcontractors. contractors and suppliers “and we have to wait for these subsets to arrive”.
The person said that so far their company has been producing equipment for the military “only as orders come in”, keeping no inventory; they also said that because they used 2.4 billion different components a year and sometimes only needed a few units of each, it was difficult to keep inventory at optimal levels. But they recognized that it might be possible to stock long-lead items, such as the components of a system or piece of equipment for which the design and manufacturing lead times are the longest, whether advice and funding could be obtained from governments.
RELATED: Will anti-tank weapons offered to Ukraine leave Europeans short?
Emmanuel Levacher, CEO of French wheeled armored vehicle manufacturer Arquus (owned by Sweden’s Volvo Trucks), told Breaking Defense on the fourth day of the show that “we felt a noticeable buzz, there are a lot of people here, every Europeans are there and we feel that there are real demands and a sense of urgency, especially from the countries of central and eastern Europe. Despite this, he too cited supply chain issues, although “we can and we want” to increase production rates.
Levacher said he supported an effort, led by the French procurement agency DGA, to create a law that would allow materials or skills to be requisitioned from civilian companies for the defense sector without France being officially in war, a system similar to the US Defense Priorities and Allocations System Program. He explained that this was necessary because Tier Two and Tier Three suppliers often supply the civilian and defense sectors and in certain circumstances it was important to put military needs first. “For example, we use a lot of aluminum in our products and there is a shortage. We need to ensure the sovereignty of our supply chain,” he stressed.
Chamussy, the CEO of Nexter, warned that “we are not going to invest in new [production] means without intelligence from our customers”, adding that “it is not up to the industry to decide whether we are going to turn into a war industry”. He, too, pointed to the supply chain as an issue, saying “we can’t deliver a Caesar if the suppliers aren’t on time.”
Macron conceded that this war economy “is a change for many of us (…) it will force states to invest more, to be more demanding of industries; for the latter, it will be a question of being even more innovative, faster; it will sometimes be a question of changing the mode of our relations to respond much more quickly to needs and contribute to the acquisition of equipment which corresponds to the sometimes short-term needs of the army.
Among the necessary changes he called for were knowing how to combine innovation, robustness and ease of use, and the ever-present need to deliver equipment faster and with greater agility.
Macron announced that he had asked his new Minister of the Armed Forces Sébastien Lecornu and the Chiefs of Staff of the Army, Navy and Air Force to reassess the current military programming law 2019-25 and hinted at a further restructuring of Europe’s fractured defense industries. which, he underlined, was important for European sovereignty, saying “I want to be very clear: we are at the dawn of profound transformations”.
The industry would surely like to participate in this transformation, and the money that would come from it. Whether or not they can keep up will be seen in the months and years to come.