Restructuring Europe's defence industry

Speech by the British Defence Secretary, George Robertson, 17 June 1998

For me, this seems to have been a week for air power. Today, I am addressing you at your Annual Dinner. Yesterday, I went to High Wycombe to open the new Headquarters building of the European Air Group. And on Monday we saw air power in action in the Balkans.

The European Air Group includes Britain, France, Germany, Italy, Netherlands and Spain. It began in 1992 as the Franco-British Air Group. Its aim was to enhance the abilities of the French and British air forces to conduct operations together, and to develop a common approach to air power planning. It has been a great success. The relevance of this kind of cooperative venture has been underscored this week by the air exercises undertaken over Albania and the Former Yugoslav Republic of Macedonia on Monday morning.

Just as air power was vital to defeating Saddam Hussein in 1991, just as it was the key to stopping the violence in Bosnia, and in forcing Saddam to climb down in the Spring of this year: the current use of air power is a key option in ending the brutal repression in Kosovo today.

Monday's massive display by multi-national air forces in the skies over the Balkans was a serious warning to President Milosevic. It was a back-up, a vital back-up, to the diplomatic pressure on him. If that diplomacy fails, or Milosevic does not back off, then NATO will have the option of using its air power decisively.

And NATO may have to use it. The escalating violence in Kosovo is no longer a local issue. It is now an issue of international significance. The world community has lost patience with the bullies in Belgrade as they fuel the spiral of violence which has spilled its agonies into neighbouring states. Monday showed how air power can be deployed rapidly. We do not want to use it over Kosovo, but if we need to, so we assuredly will.

It gives me no pleasure to contemplate the use of our armed forces in this way. I regret the fact that we live in a world where this type of violence confronts the international community. I resent having to sit in a comfortable and safe office in Whitehall and take decisions which send young British men and women into mortal danger. But, for good or ill, that is the duty of the Secretary of State for Defence - and I take it very seriously indeed.

Since I came into this role, now 13 months ago, two things have dominated my life. The first is crises like Bosnia, Iraq, and Kosovo. The second has been the Strategic Defence Review (SDR).

The first has been about using the armed forces to support the efforts of the world's community in preventing the abuse of power by those who chose to ignore common standards of decency and humanity. The second has been about ensuring that those armed Forces are fit to be used. Fit to be used tomorrow, fit to be used next year, and shaped to be used well into the new Millennium.

I am not going to speak at length about the Review, because I am sure you are all familiar with what has been said already, and because my proposals are being considered now by the Cabinet. I assure you that the Government is well aware of the need to press on with decisions and implementation. I would, however, like to take this opportunity to express my gratitude to the defence and aerospace Industries for their assistance.

We asked for your help to identify better ways of doing business in future, and I have been much impressed at the response. We have worked together in a way not seen before, and I hope we can continue to do so in the future. For the last ten years, the Department has been directed to keep at arms length from companies such as yourselves. I want partnership to become a habit.

We have concluded that there must be a truly radical transformation of our equipment acquisition process. I will not live with the title 'Ministry of Waste' and nor will I settle for 'on time', 'on budget', 'on specification'. I want better, cheaper, faster to be the key to SMART Procurement - and I intend to get it. I am also impressed by the significant savings promised by the industry when we jointly implement the new acquisition methods.

In parallel with the SDR there is another vital thrust in this Government's policy. This is the restructuring of the Defence and aerospace Industries in Europe.

We believe that a strong defence industrial base in Europe is fundamental to our security. We also believe that restructuring is essential to achieve that base. This is something to which the Prime Minister is committed, as, of course, are Margaret Beckett and myself.

The Prime Minister and his opposite numbers in France and Germany issued their tri-lateral statement in December and invited industry to respond. We now have that response and the Governments are in turn working on responding to it to keep the momentum moving forward. Now six months later we have a general agreement that there is something worth playing for, and, second, a large number of obstacles identified. Some of these obstacles come from Government, and some from industry. All of them must be overcome. Restructuring has to be made to work.

As Britain's Defence Secretary, restructuring is fundamentally important to me as a customer, as a British politician, and as a European citizen.

As a customer, I need to have a strong industrial base in Europe. In the face of the ever-rising cost of defence equipment I need sources of supply in Europe which can compete with the concentrated might of the major US contractors. I don't want to face monopoly suppliers in the US. I don't want to have access to technology constrained artificially. I need choices and alternatives.

As a British politician, restructuring is important because without it we risk a progressive weakening of high technology research and manufacturing in the defence field. The United Kingdom cannot sustain itself at the sharp end of defence technology through its own requirements for her armed forces.

The defence and aerospace Industries here are essential, because I don't want to lose first-rate scientists and engineers overseas. I don't want to see high-skill manufacturing exported. And I don't want to lose the considerable opportunities for civil spin-off from the defence industry into the wider economy. All of this is at risk unless we take steps to maintain the health of our domestic Defence and aerospace industries.

And there is another British reason why I need a strong British industry. The armed forces cannot operate without access to committed support from industry in times of crisis. It is inefficient and ineffective to seek to maintain within the armed forces, capacity for every sort of support and engineering back-up which might be required in time of crisis. We need to be able to plan, confident in the knowledge that industry will be there when we need it.

Finally, restructuring is vital to me as a European citizen and politician. This Government is committed to the success of Europe. That has been a central theme of our Presidency of the European Union. For too long, the United Kingdom gave the impression that it was less than fully committed and our influence has suffered accordingly, with real damage to our national interest. That is changing. There is simply no future in off-shore scepticsm

This Government wants Europe to thrive. It wants Europe as a whole to pursue the economic reforms necessary to make it competitive, on a number of fronts. The economic and industrial strength which is required to underpin a sound defence capability will come from many sectors.

The restructured defence and aerospace industries have a leading role to play. The advantages I see as a British politician also apply in this wider sense across Europe.

I repeat, as I have said from the beginning, that this restructuring can be stimulated and encouraged by Governments - and it will, but it cannot be imposed by Governments. It has to be driven by sound industrial and commercial principles if it is to be a success. That is why we look to industry, to you among others, to come forward with the proposals and solutions which can make this work.

However, the Governments concerned do recognise that they have an important role to play in overcoming some of the obstacles that lie within our scope of influence. My officials and their counterparts overseas have been making encouraging progress on this.

I expect that I and my Ministerial colleagues from five other countries will be able to sign an agreement in London on 6 July. This Letter of Intent will provide a framework for further work on practical issues. These cover:

This agreement should have real substance. It will identify and describe these issues in detail and give Ministerial guidance on how to resolve them. This should make the work which will follow much easier. And it also makes clear that Ministers expect progress. Where national rules and regulations need modified, we will change them.

Do not underestimate the determination of the British Government to carry this European defence industry restructuring project through to a successful conclusion. As we make progress on the Governmental issues, so we expect industry to make progress on its side.

In some ways, you might claim that it is easier for politicians like me to be visionary and optimistic than it is for you hard-headed industrialists. Of course you must look to shareholder value, and the rate of return on your capital employed, but I ask you for some vision of where these factors will be in an unchanged future. I ask you that question because the stakes are high. In many ways they could not be higher.

The idea of a united European defence industries is not some misty eyed Europeanism, it is based on hard-headed industrial logic.

If we go into the next century with a multitude of competing national companies and industries attempting to find a place in a global market dominated by giant American companies then the result will be industrial suicide.

That suicide of Europe's defence and aerospace industry will be slow or fast - but it will be inevitable if we maintain the dangerous fiction that national champions have a chance of seeing off the US 'mega-manufacturers'. So the Prime Minister's initiative with Chancellor Kohl and President Chirac is no political gimmick - it is a clarion call for the very survival of an industry of critical importance to our economy and to Europe's future.

We are on the edge of a slippery slope to European defence industry irrelevance. There are two stark choices. Take the bold but difficult stand of consolidating and rationalising the archipelago of national producers: or we can do nothing as our markets are raided, our exports marginalised and we too end up paying any price demanded in a market with no choices left.

With these stark choices facing our country, and a great and important and thriving industry, I know what must be done. The Government will spare no effort or energy to make sure that for the future the European defence industry project is driven on with purpose and determination.