Opinion of the Economic and Social Committee on the 'Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions - "The European aerospace industry: meeting the global challenge"` (98/C 95/04)

On 30 September 1997 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned communication.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 7 January 1998. The rapporteur was Mr Sepi.

At its 351st plenary session (meeting of 28 January 1998), the Economic and Social Committee adopted the following opinion by 112 votes for and four abstentions.

1. Introduction

1.1. With this document, the Commission is launching a wide-ranging debate on the European aerospace industry, with a view to boosting its competitiveness and its world role.

1.2. The fundamental importance of this sector emerges clearly, as does the need for a political commitment on the part of Member State governments to the key role it must play on the EU industrial scene.

1.3. The communication is timely and follows on logically from those on the defence-related industry and the space industry.

1.4. In the current climate, the aerospace industry must face up to radical internal and international changes extending to funding, company restructuring, production structures and technological innovation ().

1.5. As the ESC has already expressed its views on the defence () and space () industries, in the present opinion it will focus on the problems of the aeronautics industry (). However, it is worth noting that these three sectors are intimately linked, as the companies and technological development involved are largely the same, and all three are going through a period of profound change.

1.6. The Commission provides an up-to-date picture of the world situation facing the aeronautical sector, which is of increasing concern as a result of:

a) fiercer international competition;

b) cut-backs in public funding;

c) technological innovation and market dynamism.

1.7. An adequate institutional response by Member States and the European Union is needed in order to help companies to overcome the current difficulties and make the sector the economic driving force it was in the last decades.

1.8. In this regard, the Committee warmly welcomes the December 1997 declaration committing the European Airbus industries to present a coherent reorganization plan by the end of April 1998. The Committee views this as an initial expression of the governments' political will, which should be extended to other industries and sectors.

2. The Commission communication

2.1. The Commission starts by recognizing that the present structure of the market 'will only allow for a small number of world-class prime contractors to sustain competitiveness and commercial success`.

2.2. The current division of the world market in large aircraft is something of a duopoly, with Boeing-McDonnell Douglas accounting for 70 % of the market and Airbus 30 %.

2.3. The communication highlights the increasing complexity of aeronautical products and the consequent growth in costs and financial commitment, severely limiting the number of companies which can face these with the necessary credibility. The result is that no single Member State is in a position to meet this challenge.

2.4. A similar analysis has led to a series of major company mergers in the USA, with the industry focusing on three main contenders: Lockheed Martin, Boeing-McDonnell Douglas, and Raytheon.

2.5. These mergers, as well as bringing about a necessary simplification of managerial options and providing financial solidity, enable companies to ride out the cyclical fluctuations typical of the civil aircraft market and to maximize synergies between the various subsectors.

2.6. Against this backdrop, the Commission lists the advantages of the American approach compared with the European one:

a) the use of defence expenditure for civil purposes, particularly for dual-use products and RTD;

b) a single regulatory framework and a fully integrated single market;

c) political and commercial support on the world market.

2.7. Faced with this situation and with the emergence of new third country competitors (Brazil, Japan, China and so on), the European industry remains compartmentalized and fragmented, with far smaller structures unable to respond to the rationalization and concentration processes under way, particularly in the USA.

2.8. Having emphasized the importance of the industry for Europe's economic, technological and employment outlook, the Commission proposes a number of measures considered necessary to tackle the situation.

2.9. The Commission stresses that the collaborative approaches thus far adopted, or likely future international initiatives, are quite inadequate to the task of making the European industry a competitive, independent world-leader in the new climate, and that national solutions are not feasible.

2.10. It therefore suggests European groupings, which - as the Airbus experience shows - is the only way of achieving a certain degree of competitiveness. Here, the Commission raises the question of whether overall concentration of all multi-sectoral groupings is the most realistic and promising solution.

2.11. The Commission seems to incline towards the solution of grouping by technological sector, not because it is unaware of the benefits of an overall solution, but because under current conditions this is the most realistic approach and is reasonably effective.

2.12. Even this solution, however, will demand a considerable restructuring effort to which the Member States and the European Union must lend the greatest possible support in terms of RTD funding, by creating a favourable interinstitutional and regulatory framework.

2.13. Lastly, specific action is needed at EU level to support the European industry's commercial activity around the world.

3. General comments

3.1. The ESC welcomes this document, which comes at a highly sensitive time for the aeronautics sector. The Committee considers that the national industries are not generally capable, on their own, of standing up to world competition.

3.2. It must however point out that even before the Boeing-McDonnell Douglas merger, the European industry needed to overcome its fragmentation between Member States and, within them, between different companies.

3.3. The communication is both succinct and courageous, and identifies specific industrial policy options with a clarity rare in other Commission documents.

3.4. The present communication ties in neatly with the earlier ones concerning the defence and space industries, rightly drawing attention to the close links between the three areas.

3.5. The Committee wishes to highlight these links, which must be maintained in order to support the aircraft industry, as its commercial market is subject to strong cyclical fluctuations.

3.6. However, the Committee must point out that the production of fighter aircraft cannot, in the long term, completely fulfil this traditional role, and that given its small size, the space sector cannot be expected to replace it. It is therefore particularly important to create industrial structures that are large enough to absorb the ups and downs of production cycles.

3.7. The ESC agrees on the need for concentration and encouragement for the creation of a European aerospace industry, for the all reasons set out in the communication, and also because the sector has an important role to play in maintaining and boosting the high-quality employment which is vital to social balance and European economic competitiveness.

3.8. The Commission's communication overlooks the need to back up industrial projects with vigorous action on uniform and Europe-wide vocational training. The structural funds should support a wide range of training activities for both young people who are to enter the aeronautics industry and retraining for those already employed in it.

3.9. Harmonization, on a European scale, of the level of aeronautical engineering degree courses will be equally important: 'thematic networks` might be useful here, as they have been in other sectors.

3.10. The restructuring process is bound to have important social repercussions, which may extend to some disadvantaged regions. The European Union must be prepared to make a commitment, through the structural funds, to facilitating re-employment and retraining of workers.

3.11. The use of existing or new EU instruments to fund restructuring processes could have a decisive impact at this stage, especially in view of the support received by companies from the sector in other countries (such as in the USA, where it is estimated that only 20 % of restructuring would have taken place without government support, and in Japan).

3.12. The Commission should provide an ever-greater stimulus to the definition of both common technical requirements and rules for the management and safety of air navigation. The rules in use internationally (Europe - United States - third countries) should also be harmonized at an early opportunity. Reciprocal development of shared technical standards by Europe and the United States would clearly reduce workloads and prevent unnecessary duplication.

3.13. A more efficient commercial policy involves affirming a European identity internationally, not only in the defence industry, but also in the aeronautics, space and other industries.

3.14. The ESC lends its full support to a new strategic planning approach, agreed through dialogue with the industry and invested with new European level management functions for RTD. This is one of the key issues for the aerospace industry (civil and military aircraft, space).

3.15. The ESC would stress - as it has already done in its opinions on the defence-related and space industries - that a new impetus in these sectors can only come about if the Member States make a serious and joint commitment, agreeing to shared economic objectives and pooling their means for achieving them.

3.16. Given the prospect of enlargement, the problems and opportunities which may arise from the accession of new (eastern European) countries must also be addressed.

4. Specific comments

4.1. The need for unified industrial structures emerges clearly from the Commission document, and from the American and Airbus experiences. This necessarily entails mergers as the ultimate objective. At present, however, mergers between European companies from different countries are extremely difficult. Introduction of the European Company Statute is thus of great importance to the sector, despite the problems involved.

4.2. An industrial structure based on three major groupings (aircraft, engines and equipment) offers many advantages, but has the effect of singling out a 'European champion` for each grouping; this could introduce rigidity into the process of change, together with an excessively vertical structure. Such a step does, however, appear to be essential in order to create an industry capable of competing on the global market.

4.3. In order to inject flexibility into the system and boost employment, preference should therefore be given to developing a network of small and medium-sized European businesses, which would trigger decentralization of a significant share of production and provide a technological spin-off for other sectors. The need to provide proper support for the high-tech SME sector was highlighted at the recent employment summit in Luxembourg, at which appropriate funding measures were also planned.

4.3.1. The harnessing of relevant synergies, inter alia through universities and research centres, could be decisive here.

4.4. A constant concern of the transition process will be to achieve high levels of efficiency and competitiveness vis-à-vis major competitors by means of early restructuring, identifying common trade objectives and policies.

4.5. The EU institutions and the individual Member States must give vigorous backing to the establishment of a European air safety authority and of an integrated air traffic control system, as well as a level of ground infrastructures which also reflects future demands.

4.6. Special attention should be focused on environmental policy action, particularly regarding airports and their surrounding areas, by developing technologies capable of cutting air and noise pollution.

4.7. The resources thus far available to specific RTD programmes will need to be expanded: in particular, this should be implemented under the Fifth framework programme. Technology transfer from the military to the civil sector and vice versa, supporting research on dual-use products, will be a decisive factor in this respect. The launching of joint research programmes, coordinated at European level and harnessing the resources of individual national programmes, will be of similar importance, and will presuppose further EU intervention instruments.

4.8. Moreover, in order to support recently restructured European industries, the European Union should envisage funding joint programmes such as an integrated supervision/monitoring system (on an interdisciplinary sea-land-air-space basis) for safety in Europe as a whole, a military/civilian air transport system (FLA), or a satellite navigation system.

4.9. Lastly, taking the three sectors as a whole (defence, space and aeronautics), the ESC believes that to match the American industrial policy system in sectors requiring significant institutional and financial support, the EU must adopt instruments for funding and for adjusting public expenditure at European level. This will require a quantum jump in the EU political integration process.

4.10. It is in any case essential to secure a more efficient opening up of public procurement, so that the European aerospace industry can take advantage of new outlets.

4.11. The Committee welcomes the referral from the Commission for an opinion on the new defence-related industry document (), and asks to be consulted on the progress of the initiatives supporting the aerospace industry.

Brussels, 28 January 1998.

The President of the Economic and Social Committee

Tom JENKINS

() On 12 November 1997 the Commission adopted an action plan on the defence industry, which will also affect the sector in question here.

() ESC opinion on the Communication from the Commission 'The challenges facing the European defence-related industry, a contribution for action at European level` (OJ C 158, 26.5.1997, p. 32).

() ESC opinion on the Communication from the Commission 'The European Union and space: fostering applications, markets and industrial competitiveness`.

() The term aeronautics industry is used to mean fixed-wing aircraft and helicopter production.

() Commission Communication to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions 'Implementing European Union strategy on defence-related industries` (COM(97)583 final).