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
Date: 1997-09-24
Institutions: European Commission
Subjects: aerospace industry, competitiveness, research and development, satellite communications, space policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.09.1997 
COM(97)466 final 

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 

The European Aerospace Industry - Meeting the global challenge 

I. 

Introduction 

II. 

Facing the challenge 

1 

2 

3 

4 

US strategy 

Situation in other countries 

EU fragmentation 

Significance  of the European Aerospace Industry 

III. 

Scenarios for the future 

1 

2 

3 

National solutions 

Partial integration 

The need for European groupings 

3.1 

Sector-specific  groupings 

3.2  Multi-sectoral groupings 

3.3 

Overall integrated grouping 

IV. 

Priorities 

1 

2 

Accelerate restructuring 

Accompanying measures 

V. 

Conclusion 

1 

2 

2 

5 

5 

7 

8 

9 

10 

11 

12 

12 

14 

14 

14 

15 

17 

INTRODUCTION 

I. 
The  world  aerospace  industry  is  undergoing  dramatic  changes.  Momentous  recent  events 
such as the merger of Boeing and McDonnell Douglas and the proposed  merger of Lockheed 
Martin  and  Northrop  Grumman  have  been  driven  by  a  recognition  that  the  structure  of  the 
industry  will  only  allow  for  a  small  number  of  world-class  prime  contractors  to  sustain 
competitiveness  and  commercial  success  through  the  integration  of  capabilities  in  a  broad 
range of inter-related  aerospace disciplines.  In the light of these events, this  Communication 
sets  out to  assess the  situation  of the  European  aerospace  industry  as  a whole  focusing  on a 
range of possible scenarios for its future  development. 

•  Markets 

In terms  of  large  civil  aircraft  the Airbus  share  of the market  grew  steadily  throughout  the 
1980's,  as  its  aircraft  range  increased,  but has remained  essentially  stable  since  1989 and  its 
share  of  the  backlog  stood  at  around  30%  in  1996.  Boeing's  market  share  decreased 
somewhat  in  1989 but grew again over the past few years to around  64% in  1996,  whilst the 
McDonnell  Douglas  share  of  the  civil  aircraft  market  has  been  consistently  decreasing 
throughout  the  1980's  and  90's  to  around  6%  in  1996.  Since the  acquisition  of  McDonnell 
Douglas  by  Boeing,  the  European  aerospace  industry  faces  one  dominant  competitor  with 
around 70% of the total order backlog. 

While  the  market  for  civil  aerospace  products  is  clearly  a  world-wide  market,  military 
aerospace  markets  are  constrained  by  differing  national  defence  and  procurement 
regulations.  An  illustration  of recent  market  shares  on the  open  international  market  can be 
provided by looking at the fighter  aircraft  contracts awarded between  1992 and  1996, where it 
is believed that in terms of value  15-20% went to European producers while nearly  80% went 
to US producers. 

In the world  civil  helicopter market the European  share decreased  throughout  the  1980s but 
has  stabilised  in  the  1990s  and  in  1996  stood  at  around  28% (unit  deliveries  of  EU-design 
origin  helicopters),  whilst  in  the  militai*}' helicopter  market  the  European  share  has  been 
constantly  decreasing, particularly  after  the end of the cold war and now stands at around  8% 
of the world market. 

In regional aircraft  (jet and turboprop), where the number of manufacturers  is far greater but 
has been diminishing over the years, European companies held a majority  share of the market 
for  a long time  (over  70% in  1994).  More recently, however, rapidly  increasing  competition 
from  Canadian, Brazilian and Asian producers combined with the collapse of Fokker and the 
sale  of  Dornier  to  Fairchild  has  resulted  in  a  dramatic  reduction  in  European  market  share 
whilst the Canadian industry now holds 40% of the regional jet market. 

The position  of the  European  industry  in the  world  space  markets  varies  between  a  market 
share  of  5%  or  less  in  some  categories  of  ground  equipment,  20-25%  in  the  satellite 
manufacturing  sector  and  more  than  50% in  space  launch  services  as  a result  of  the  Ariane 
programme, albeit only in markets which are effectively  open to competition. 

In  the  civil  aeroengine  market  the  level  of  co-operation  between  US  and  European 
companies  is  greater  than  within  Europe  (e.g.  Snecma  and  GE  produce  the  CFM  engine, 
whilst  MTU  of Germany participates  in Pratt  and  Whitney  engines)  however  intra-European 
co-operation  is the norm  for  military  aeroengines  such  as Eurojet.  Because  of these  levels 
of EU-US co-operation it is difficult  to compare market shares.  However, the turnover of the 
two largest US aeroengine producers is roughly double that of the two major  EU producers. 

The equipment sector is growing in importance and complexity (it represents an ever greater 
part of an aerospace system's value and 30% of the total employment in the aerospace sector) 
but without successful  European platforms its long term future  would be compromised. 

FACING THE CHALLENGE 

II. 
Despite enormous and painful  efforts  over the last  10 years, the European aerospace  industry 
suffers  from  the  increasingly  acute  effects  of  the  continued  partitioning  of  its  industrial 
structures.  Previous Communications have addressed  issues relating to different  areas of the 
aerospace  industry1.  By  now  taking  a  global  approach  to  this  industry  three'factors  are 
apparent from the current situation: 

•  The  ever  greater  complexity  of  aerospace  products  has  led  to  spiralling  development 
costs  and  financial  risks  which  have  long  outstripped  the  resources  of  even  the  largest 
European companies and have led to ever fewer new programmes being launched. 

•  No  single Member  State can come close to matching the large home market  for  defence 
equipment  or the  level  of RTD  support  provided  to the  US  industry.  National  markets 
can  no  longer  provide  a  sufficiently  strong  base  to  support  a  full-range  independent 
aerospace activity. 

•  Few  individual  firms  in  Europe  have  been  able  to  balance  risks  and  maximise  benefits 
from  developing activities in a broad range of aerospace businesses.  Those that have are 
too  small  to  enjoy  the  economies  of  scale  of  the  US  mega-companies  which  now 
dominate the business. 

It  is  apparent  that  any  further  delay  in responding  to the changes which  have taken place  in 
the  aerospace  market  will jeopardise  the  future  of  the  European  aerospace  industry  and  the 
hundreds of thousands of jobs it provides. 

Boeing McDonnell Douglas # 
Lockheed Martin Northrop Grumman # 
Raytheon Co. # 
British Aerospace 
Aerospatiale 
United Technolgies (P&W) 
Daimler - Benz Aerospace 
General Electric Co.  (Aero-engines) 
Thomson-CSF 
AlliedSignal 
G EC-Marco ni 
Rolls Royce 
Mitsubishi H.I. 
GM Hughes 
Finmeccanica (Aerospace) 
Alcatel 
Textron 
Snecma 
TRW Inc. 
Bombardier 

Turnover in $M. 

#  Post Merger Estimates 

5,000  10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 

1. 

US Strategy 

By  far  the  largest  competitor  on  the  world  aerospace  market  is  the  US  industry  with  up  to 
58%o of the world aerospace business (in terms of consolidated turnover) while the EU stands 

1 "The European Aircraft  Industry: First assessment and possible Community actions", (COM(92)  164 Final)  -
"The  challenges  facing  the  European  defence-related  industry,  a  contribution  for  action  at  European  level" 
(COM(96)  10  Final)  -  "The  European  Union  and  Space:  Fostering  applications,  markets  and  industrial 
competitiveness" (COM(96) 617 Final) 

at  29%.  The  US  is the  market  leader  in  both  civil  and  military  aerospace  and  has  a  highly 
developed administrative structure to support its position. 

The recent history of the US aerospace industry has been one of consolidation.  From over 20 
companies  involved  in the design or production  of aerospace  systems  in  1980 the industry  is 
now concentrated  in the hands of three prime suppliers: Boeing, Lockheed  Martin (which has 
recently  announced  plans  to merge  with Northrop  Grumman)  and  Raytheon.  Of these  three 
companies, only the first  produces  large civil aircraft,  and only the first  two military  aircraft. 
However,  all  are  active  across  a wide  range  of  aerospace  activities  in  order  to  balance  their 
risks, increase their  ability  to cope with market  cycles and take full  advantage  of technology 
and skill transfers  between the different  sectors. 

Mergers & Acquisitions. 

Estimated 
Turnover 

Lockheed Martin 

General Dynamics 
Lockheed 
Martin Marietta 

Loral 
Ford Aerospace 
LTV Missiles 
IBM-Federal Sys 
Unisys 

. 

LTV aircraft 
Northrop 
Grumman 
Westinghouse 

McDonnell Douglas 
Hughes Helicopters 

Boeing 
North American 

jBi 

J— 

Raytheon 
Beech Aircraft  —"^  ' 
BAe Business Jets 
TI-Defence 
Hughes Aerospace  -
& Defence 

1980 

1985 

1990 

1992 

1994 

1995 

1996 

1997 

Merger process  in the US 

This  consolidation  process  has  been  facilitated  by  US  government's  stated  policy  to 
"maintain  the superiority " of US aerospace  and  ensure  that  federal  investments  are  focused 
and effective  to strengthen the public-private partnership to promote continued US  leadership 
in  aerospace  and  aviation  through  a  clearly  set  out  national  aerospace  policy  to  support  its 
industry. 

•  Research and Development 

The  US  government  invests  massively  in  both  civil  and  military  aerospace  research  and 
technological  development.  On  the  civil  side,  the  Federal  Aviation  Administration  has  an 
annual  aeronautics  budget  for  R&D  which  exceeds  $2  billion.  Moreover,  in  civil  aircraft 
alone, according to estimates carried out for the EU, about 70% of NASA's  annual  $1 billion 
aeronautics  spending  can  be  classified  as  support  to  the  US  large  civil  aircraft  industry  or 

around  four  times  the  total  large  civil  aircraft  RTD  support  provided  by  the  EU  and  its 
Member States combined 

Whilst  support  for  military  aerospace  is difficult  to estimate accurately  since much  of it  falls 
into the so-called "black budget", publicly available Department of Defense  figures  show that 
its aerospace research, development, test and evaluation budget averages $20 billion per year. 
This  investment  has  strengthened  the  technology  base  upon  which  the  industry  relies  to 
develop both military and civil products 

Moreover  a strong  emphasis has  emerged  in the US on a number  of well-funded  and  highly 
co-ordinated  or  programme-specific  technology  acquisition  projects  many  of  which  have 
dual-use  applications  such  as  the  High  Speed  Civil  Transport  (HSCT)  and  Integrated  High 
Performance  Turbine Engine Technology (IHPTET) projects. 

•  Civil/military 

Contrary  to the  situation  in  Europe, the  promotion  of  a dual-use  approach  has  been  a  major 
element  in  US  research  and  procurement  policies  for  many  years  now  and  is  leading  to  an 
increasingly  integrated  defence-civil  technology  and  industrial  base.  The  promotion  of 
technological  synergy  between  civil  and  defence  activities  optimises  the  use  of  RTD 
resources  and  encourages  the  restructuring  and  consolidation  of  the  industry.  For  example, 
on the industrial  side it is doubtful  if a commercial  space industry  could  ever have come  into 
being  without  the  benefit  of  defence  programmes  as  a  springboard  for  commercial 
applications.  Conversely, the military  sector can also benefit  from  civil technology  standards 
and practices as can be seen in the field  of transport  aircraft. 

•  Single regulatory framework  and market 

The  US  industry  obviously  benefits  greatly  from  being  heavily  supported  by  one  single 
government  while  the  European  aerospace  market  remains  fragmented  because  of  national 
boundaries  and  separate  research  and  defence  policies.  European  undertakings  such  as 
Airbus,  Eurocopter,  Eurofighter  or  Arianespace  must  address  themselves  to  a  number  of 
different  governments with all too often  differing  priorities. 

The US Aerospace  industry  also benefits  from  the fact  that  US government  procurement  has 
mostly  been  directed  at  US  companies  and  at  ensuring  the  continued  well-being  and 
In  addition  the  amount  dedicated  to  military  equipment 
supremacy  of  the  US  industry. 
procurement  (including  RTD)  in the US  is, at  around  $80 billion  per  annum,  almost  double 
the  combined  military  equipment  procurement  and  RTD  budgets  of  EU  countries.  Within 
these  figures,  the amounts dedicated  exclusively  to military  RTD represents  annually  at least 
$35  billion  in  the  US  versus  $12  billion  in  Europe.  Such  significant  differences  in  RTD 
spending risks marginalising the European technology base. 

Similarly,  NASA's  space  budget  ($12  billion  in  1995)  combined  with  the  Department  of 
Defense  space budget ($10 billion in  1995) is about ten times that of Europe's space budgets. 

•  Advocacy  Center 

Consolidating  the  US policy  of  lobbying  on behalf  of  US  companies,  the  Advocacy  Center 
was  established  within  the  Department  of  Commerce.  The  Center  is  at  the  core  of  the  US 
national  export  strategy  and  works  in  co-ordination  with  the  19  federal  agencies  of  the 
congressionally  mandated  Trade  Promotion  Co-ordinating  Committee  (which  include  the 
Department  of  State, the  Export  Import  Bank,  and  the Department  of Defence).  The  aim  of 
the Advocacy  Center is to expand US exports and assist US government  personnel,  including 
US  embassy  personnel,  in  approaching  foreign  governments  on  behalf  of  US  commercial 

interests.  By doing  so the Advocacy  Center  fulfils  its stated aim of pursuing  deals on behalf 
of US companies from  start to finish through "hands-on" support. 

Although  the  Center  is  not  an  aerospace-specific  facility,  in  the  increasingly  global  and 
competitive  aerospace  market  it  has  been  proving  widely  beneficial  to  US  aerospace 
companies and the Advocacy Center is vocal in highlighting its contribution to the sale of US 
built  aircraft. 

2 

Situation in other countries 

The  Canadian  aerospace  industry  (the  bulk  of  which  has  been  brought  into  one  single 
company  by Bombardier)  is strongly  supported  by both Federal and provincial  governments, 
and  is  extremely  active  in  the  regional  aircraft  market  with  both  aircraft  and  engine 
production.  Bombardier's  share of the world regional aircraft  market was up to 40% in  1996 
and is likely to increase further  with the demise of Fokker and the recent successful  launch of 
the new Canadair 70 seat jet. 

The aerospace  industry  in the ex-USSR was long one of the largest producers in the world, it 
has however,  been hard hit by the post-1989 events and is currently  struggling  and having to 
downscale massively.  The CIS aerospace industry, apart from the space launcher segment, is 
thus  not  currently  a  major  competitor  on  the  world  market  but  could  in  a  relatively  short 
period  of  time  become  an  active  player  in  both  civil  and  military  aerospace  if  appropriate 
financial  and restructuring  steps are taken.  Indeed  signs of a re-emergence  are beginning  to 
appear,  in  particular  through  competitive  offers  in  export  markets  for  combat  aircraft  and 
missiles. 

While 
the  Japanese  industry  has  designed  and  produced  its  own  aircraft,  spacecraft  and 
launchers,  its  has  developed  a  role  as  high  tech  subcontractor  to  foreign  (essentially  US) 
aerospace companies. 

China's  aircraft  industry  is  still  in  its  early  stages,  however  the  Chinese  together  with  the 
Singapore  aerospace  industry  entered  an  important  agreement  earlier  this  year  to  jointly 
produce a  100-seater aircraft  with Airbus and Alenia. 
In the space field,  China is pursuing a 
policy  aimed  at  becoming  one  of the  world's  foremost  launch providers  and  also  has  strong 
aspirations in the satellite  field. 

Embraer of Brazil produces regional aircraft  (with  10% of the world regional aircraft  market) 
and  is  involved  in a number  of minor military  aerospace  co-operations.  Indonesia  is also a 
competitor  in  the  regional  aircraft  market,  and  from  producing  small  turboprops  in  co 
operation with other companies, it will now launch its own N250 turboprop regional  aircraft. 

3  EU  fragmentation 

In comparison  with the US, the pace  of consolidation  in Europe has been dramatically  slow. 
With  much  smaller  home markets  and overall  shares than their American  counterparts,  there 
are still 6 civil  aircraft  producers  (1 in the US), 6 combat aircraft  companies  (2 in the US), 3 
helicopter  manufacturers  (3  in the  US),  12 missile  producers  (4 in the  US), at  least  6  major 
producers  of defence  electronics  (4 in the US) and  5 satellite prime contractors  (4 in the US) 
in Europe. 

•  Industry  structure 

Very  few  European  companies  have  the  scale  and  the  range  of  interdependent  activities  of 
their  US  competitors.  Even  the  largest  European  aerospace  companies,  British  Aerospace, 
Aerospatiale  and Daimler-Benz Aerospace, are only between  one-quarter and one-fifth  of the 
size of their larger US competitors. 

Size/range  comparison  of major EU/US companies 

The period of sustained  development which was enjoyed  by the European aerospace  industry 
in  the  1970's  and  80's  was  badly  dented  in  the  early  1990's,  firstly  because  of  the  fall  in 
defence-related  activity  following  the end of the cold war and secondly  because of the slump 
in  civil  orders  which  accompanied  the  massive  losses  experienced  by  the  airline  industry  in 
the first four years of the decade in the aftermath  of the Gulf War. 

These difficulties  served to highlight the fact that the European aerospace industry  still has to 
cope  with  structural  adjustment  problems.  In recent  years, the  European  aerospace  industry 
has  lost  ground  to  that  of  the  restructured  and  revitalised  US  industry  and  in  certain  niche 
markets it is facing  increasing competition from  third countries'  manufacturers. 

In  defence-related  aerospace  where  Europe  is  handicapped  by  small,  partitioned  home 
markets,  exports  are  crucial  to the  health  of  the  European  aerospace  industry.  Yet  it  is  now 
exporting  less than half as much as the US industry  as the latter's export performance,  thanks 
also to the political  influence  exercised on its behalf,  started to benefit  under the  increasingly 
stable international political conditions of the current decade. 

•  National  focus 

Historically,  Member  States  have  viewed  aerospace  as  a  national  industry,  primarily  for 
reasons  of  national  security.  This  means  that  policies  affecting  this  industry  have  been 
pursued  with  a  national  focus.  National  research  policies,  procurement  decisions  and 
decisions  on  direct  support  have  been  measured  solely  in  terms  of  their  impact  on  the 
"domestic" industry.  Even the regulatory  framework  in terms of product certification,  export 

credits,  company  law  and  so  forth  is  either  non-existent  or  under-developed  at  a  European 
level. 

An  exception  to  this  national  focus  of  the  aerospace  industry  arises  in  the  numerous 
collaborations  within  the  Community's  Research  Framework  Programmes  where  for  many 
years  now,  the  aerospace  industry  has  participated  along  with  research  centres  in  pursuit  of 
transnational  goals and objectives.  The Commission proposes to reinforce  these efforts  in the 
5th Framework  Programme. 

However  Europe spends much less than the US on RTD support and despite the transnational 
collaboration  in Community  RTD programmes, the difference  is accentuated  by the still very 
important  duplication  of  spending  by  different  Member  States  in  pursuit  of  "national" 
aerospace  objectives.  Thus  the  objective  of  maintaining  capabilities  and  competitiveness 
compared  to  other  aerospace  industries  inside  Europe  is  undermining  the  position  of  the 
European  industry as a whole. 

4. 

Importance of the Aerospace industry for Europe 

This  situation  is  all  the  more  critical  given  the  huge  potential  of  the  European  aerospace 
industry  which employs over 370 000 people directly  and many times that number  indirectly; 
and  creates  high  quality  jobs  as  well  as  critical  and  pervasive  technologies  that  fuel  the 
development  of  many  other  industries.  The aerospace  industry  sustains  the capability  for  an 
independent  defence  and it involves some 700 firms  (many  of them  SMEs) with an  estimated 
70 000 suppliers operating in all Member States in the Union. 

military 

systems 

covering 

The  European  aerospace  industry  is  a 
industry  which  produces 
diverse 
all 
complete 
aerospace  applications:  large  civil  jet 
(jets  and 
aircraft, 
regional  aircraft 
turboprops), 
aircraft, 
helicopters,  missiles,  satellites  and 
launchers,  as  well  as  engines  and 
equipment.  The  chart  illustrates  the 
estimated  distribution  of  the  turnover. 
The significance  of a strong  Aerospace 
industry  for  Europe  as  a  whole  is 
manifest  not  only  because  it  is  one  of 
the 
industrial  sectors  by 
employment, but also because: 

top  15 

Estimated EU Aerospace  turnover breakdown 
by final  system level (source: A EC MA) 

•  Trade and Competition: 

In  1996  the  value  of  aerospace  exports  was  put  at  over  15  billion  ECU  which  represents 
almost  3% of total  EU  exports.  Although  EU  aerospace  exports  and  imports  have  remained 
broadly  in balance  over  the  last  10 years, Europe  has  consistently  been  a major  net  importer 
of aerospace products  from  the United  States.  It should also be remembered  that  in a market 
such as large civil  aircraft  (estimated  to be worth  around  1  000 billion  ECU  over  the next 20 
years)  it is only the existence  of the  European  aerospace  industry's  products that prevents the 
current dominance of Boeing from  becoming an absolute  monopoly. 

•  Independent defence  capability: 

The  aerospace  industry  accounts  for  approximately  50%  of  the  defence-related  industries 
(including  electronics  for  aerospace).  Without  the  ability  to develop  and produce  efficiently 
the  necessary  aerospace  products,  autonomy  in  the  formulation  of  an  independent  defence 
policy  would  be  significantly  diminished.  There  are  thus  important  foreign  and  security 
policy considerations in the maintenance of a healthy and competitive aerospace  industry. 

•  Technology transfer to other sectors: 

With  around  15% of  its  turnover  spent  on  Research  and  Technological  Development,  the 
aerospace  sector  is among  the most research  intensive  sectors of the economy.  It is not only 
strategic  in  itself  but  is  also  a driver  for  the  development  of  a wide  variety  of  technologies 
which are critical  for  innovation  in other  industries.  It stimulates technological  development 
in  high-tech  supplier  industries  (e.g.  materials  and  electronics)  and  plays  a  leading  role  in 
technological  innovations  which  diffuse  to  other  sectors  (e.g.  energy  and  automotive).  A 
weakening  of the technological  dynamism of the aerospace sector would therefore  undermine 
European innovation and competitiveness much beyond the sector itself. 

•  Space applications: 

Satellites,  it  is  now  recognised,  will  be  fundamental  in  bringing  the  opportunities  of  the 
global  information  society  to  many  parts  of  the  world2,  complementing  and  replacing 
terrestrial  infrastructure.  Global  satellite  navigation  is  also  becoming  a  cornerstone  of  civil 
transport  systems  and  other  applications  (in  the  same  way  as  it  has  already  become  for  the 
majority  of  defence  systems)  and  the  EU  is  currently  reliant  on  US  and  Russian  military-
based systems. 

•  The air transport system 

The public demand for air transport is growing at around 5% per year. The aerospace industry 
has to meet this demand  not only with new aircraft  but also with associated  air traffic  control 
and avionics systems which will enhance the efficiency  and safety  of operations 

•  The Environment 

The  European  aerospace  industry  has  made  considerable  progress  in  developing  quieter  and 
cleaner  aircraft.  However  the  continuing  rapid  growth  of  air  transport  and  the  increasing 
importance  of  environmental  aspects  for  competitiveness,  means  that  these  efforts  will  have 
to be enhanced  in future  so as to meet both local and global concerns.  Local  as in the case of 
noise  annoyance  around  airports,  or  regulation  on  access  to  individual  airports  based  on 
environmental  targets.  Global as in the case of the debate on climate change and  greenhouse 
gases, such as C02  and NOx.  Measures, at a global  or EC level, need to be taken  to  control 
the environmental  impact  of air transport  in terms  of noise and  gaseous  emissions,  including 
support  for  further  substantial  investment  in  environmentally  related  RTD  by  the  European 
aerospace  industry. 

III. 

SCENARIOS FOR THE FUTURE 

An  efficient,  strong  European  industry  should  not  be  seen  in  opposition  to  the  US  industry, 
but as complementary  to the US industry  in the global market.  If Europe  wishes to be a real 
partner  for  the  US  with  American  companies  participating  in  European  programmes  in  the 

2  See the recent Commission  Communication  "EU action plan: Satellite Communications  in the  Information 
Society" European  Commission(97)91  final 

same  way  as  European  companies  participate  in  American  programmes,  the  European 
aerospace  industry  must be able to compete in terms of financial  and technological  resources 
as well as with attractive, commercial programmes.  It is in the interest of the whole European 
Union and of customers  from  all countries, that the European  aerospace  industry  should be a 
credible counterweight to the very real threat of a US monopoly in the aerospace business. 

The particularities  of the  aerospace  market  determine to a very  great  extent  the nature  of the 
required  response.  The  production  and  sale  of  aerospace  products  are  marked  by  massive 
entry  barriers,  huge  costs  of  programme  development  with  commensurately  long  pay-back 
periods and ever greater technological  complexity, but above all by increasing returns to scale 
and  important  benefits  of  scope.  There  are  few  if  any,  other  industries  where  size  is  as 
important  as  it  is  in  aerospace.  Large  civil  aircraft  for  example  require  a production  run  of 
several  hundred  just  to  break  even  and  it  has  been  estimated  that  every  doubling  of 
production reduces costs by around 20%. 

It  is not  the  Commission's  intention  to propose, much  less decide, the  eventual  shape  of the 
European  aerospace  industry  -  such  decisions  should  only  be  taken  on  commercial  and 
economic  grounds by those with  a direct  stake in the  success  or failure  of the venture  whilst 
respecting the Community  policies on competition and other relevant areas.  Nevertheless the 
Commission  can outline the  scenarios  facing  the  industry  and attempt  to gauge them  against 
the broader European interest. 

1 

National  Solutions 

One scenario would entail maintaining the current system of one or more aerospace  industries 
separately  in each Member  State.  Of course there are already  a number of cross-border joint-
ventures  and  alliances,  but  sustaining  such  a  network  of  national  champions  would  mean 
continuing  with  companies  which  are  too  small  to  enjoy  the  economies  of  scale  of  the  US 
mega-companies.  National  markets  can no  longer  provide  a  strong  enough  base  for  a  full-
range aerospace activity, and growing development  costs of the aerospace  industry  have long 
surpassed the resources of even the largest European companies. 

Within  Europe  the  industry  in certain  Member  States  has  come to  appreciate  the  benefits  of 
size and has gone through a process of consolidation  on a national  level.  An example  is the 
aerospace  industry  in  Italy  which  through  the  1970s  and  1980s  consolidated  into  one  major 
aerospace  group,  Alenia,  which  is  active  in  civil  aircraft,  airframe  components,  military 
aircraft  and  space  applications.  Alenia's  parent  company,  Finmeccanica,  also  includes  the 
helicopter producer Augusta.  On the other hand the industry  in some other Member  States is 
still fragmented  even at a national level.  The short term advantages of national  groupings  are 
open to debate, but this lack of coherence in the different  Member  States only accentuates the 
differences  and partitionings of the European aerospace industry. 

Most  analysts  concur that  maintaining  isolated  national  companies  is not  a viable  option  for 
the future.  There is an urgent need for  increased  cross-border business and progress  towards 
the  creation  of  a  European  defence  procurement  regime  so  as  to  overcome  the  problems 
arising  from  the  current  fragmentation.  Even  where  there  is  agreement  on  the  need  for 
transnational  integration,  the  companies  and  their  shareholders  must  recognise  that  the  pace 
of  restructuring  is  too  slow  and  acknowledge  that  another  difference  between  the  various 
aerospace companies in Europe is the ownership structure. 

Any  restructuring  requires  agreement  between  companies  who  have  to  take  due  account  of 
their shareholders'  interests as well as the commercial environment  in which they operate.  In 
the  European  aerospace  industry  we  are  currently  faced  with  three  main  types  of 

shareholding  structure:  private  and  dispersed,  private  and  concentrated,  and  public  and 
concentrated.  However,  certain private companies  have expressed  a reluctance  to propose to 
their  shareholders  that they  enter  a company  with  a major  state holding.  This would  be  seen 
as  engendering  weakness  because  of  a  perception  that  state  companies  can  lack  clarity  on 
commercial  objectives,  suffer  from  political  sensitivity  of  decisions  and  have  insufficient 
speed  of  reaction. 
In  addition  it  can  be  the  case  that  state  owned  companies  are 
undercapitalised  compared  to  their  private  sector  counterparts.  Even  where  private 
companies are concerned, there can be a fear that without adequate safeguards, a concentrated 
minority  shareholding  could  be  used  to  exercise  effective  control  for  the  benefit  of  that 
shareholder alone. 

The  slow  pace  of  integration  and  the  problems  relating  to  the  different  corporate  structures 
could  lead to a scenario whereby  a number  of European  aerospace  companies  form  a  sector-
specific  or  multi-sectoral  grouping  but  which  does  not  include  all  the  main  European 
aerospace producers and Member States, in other words a partial  integration. 

2 

Partial  integration 

Such a scenario entails some of the benefits  of consolidation, in particular economies of scale 
and increased market base,  but would also single out one or more of the European  aerospace 
companies thus running the risk of isolating them. 

These  companies  might  decide  to  enter  into  mergers  or  alliances  with  US  or  other  non-
European  firms.  In certain  sectors of the  aerospace  business  such alliances, transatlantic  or 
otherwise,  could  entail  the  loss  of  managerial  control  and  of  control  over  defence 
requirements  and  ultimately  could  see  European  firms  becoming  subcontractors  or  niche 
players  with  a  limited  technological  base.  This  would  not  only  split  the  European  industry 
but  could  also  call  into  doubt  the  advantages  of  a  strong  European  aerospace  industry  and, 
more  importantly,  the  question  of  political  priorities  in  terms  of  a  strong  and  independent 
technological  base 
instance, 
the  area  of  defence.  Moreover, 
telecommunications  are a vital link in the global information  society, so control  of that  sector 
has wider implications in terms of cultural identity and access to information  and services. 

in  space 

for 

in 

Regardless  of  these  considerations,  even  such  partial  integration  groupings  would  need  to 
address  a number  of issues such as efficient  organisation  and corporate  structure.  Experience 
with joint  ventures has shown that they can be no more than a first step towards meeting  the 
competitive  demands facing  the industry.  They have inherent  structural  weaknesses  in speed 
of  decision-making  and  component  sourcing,  and  they  do  not  eliminate  duplication  of 
facilities  or  capabilities.  Moreover,  joint  ventures  are  generally  organised  around  a  single 
product and thus cannot enjoy the benefits  of technological  spin-offs  or  offsets. 

These  inherent  disadvantages  and  rigidities  are also  shared,  albeit  to  a slightly  lesser  extent, 
by  the  GIE  (Groupement  d'intérêt  économique)  structure  used  by  Airbus  Industrie  amongst 
others.  Unless  such  transnational  undertakings  are  able  to  adopt  more  agile  and  efficient 
corporate  structures,  they  will  be  handicapped  in  raising  the  ever  greater  levels  of  finance 
needed  and  in  concluding  the  risk  and  revenue  sharing  partnerships  which  are  essential  for 
spreading  the  risks  associated  with  new product  development  and  improving  market  access 
for  exports.  For  example  Airbus  Industrie  plans  to  develop  a  new  very  large  passenger 
aircraft,  the  A3XX, whose  enormous  development  costs  (up to  $10  billion)  will  require  the 
participation of  risk-sharing partners from  third European and non-European  countries. 

In  terms  of  organisation,  whatever  route  industry  decides  to  take  in  its  restructuring,  real 
progress  will  depend  on  any  transnational  European  aerospace  company  being  a  fully 
independent  commercial  entity,  responsible  for  programme  decisions  and  raising  its  own 

10 

finance.  The companies  and Member  States involved  have recognised  that the GIE  structure 
which was well suited to the start up phase of Airbus Industrie, is no longer adapted to current 
needs and the business has to be transformed  into a single corporate  entity.  But although  this 
objective  has  been  agreed  for  some  time,  a  great  deal  of  detailed  work  remains  to  be 
accomplished. 
Indeed  even  Trade  Union  representatives,  fully  aware  that  this  will  entail 
some degree of rationalisation, have urged the managerial  level  to accelerate the  restructuring 
process. 

At  the  same  time  moves  to  charge  Airbus  with  the  development  of  the  FLA  (Future  large 
military  transport  aircraft)  are  a  positive  first  step  in  creating  a  large  integrated  European 
aerospace  producer.  These  tentative  first  steps  should  be  built  upon  by  the  incorporation  of 
other  activities  and  there  should  be  parallel  developments  in  other  parts  of  the  business  to 
increase competitiveness  by unlocking the full  benefits  of size and scope mentioned above. 

If the  aim  is to  create  an  integrated  European  aerospace  industry,  then  it must  be  capable  of 
maintaining  industrial  and  technical  capabilities  in the Member  States which  will  continue to 
be  the  primary  source  of  support  for  the  foreseeable  future,  while  organising  itself  on  a 
competitive and economic way.  This argues in favour  of the greatest degree of  multi-product 
and  civil  and  military  integration  since  this  provides  each  Member  State  involved  with  the 
opportunity  of  having  an  economic  and  efficient  centre  of  excellence  without  recourse  to 
narrow blinkered  "juste-retour" policies within  each system  segment. 

3 

The need for European  groupings 

Given  the  specific  factors  which  apply  to  aerospace,  the  full  benefits  of  restructuring  would 
only  be  realised  if  all  the  major  aerospace  producers  and  Member  States  are  fully  involved. 
Thus it is also  important  that  a way  is left  open  to bring  in those  companies  which  are unable 
to join  from  the outset. 

It is possible to imagine a variety of configurations  for  European aerospace companies.  There 
could be a single enterprise  for almost all aerospace activities, a company  built around  aircraft 
and  another  around  electronics, or perhaps  a separate  company  for  space  related  activities  or, 
indeed, any of many differing  combinations of sectors. 

Examples of 
Multi 
Sectoral 

WE 

3.1 

Sector-specific  groupings 

Sector  specific  groupings  would  have  the  advantage  of  bringing  together  companies  from 
different  Member  States,  thus  increasing  size,  but  would  also  entail  having  different 
companies  in all the different  sectors of production. The experience of Airbus has shown that 
even  within  a  single  sector,  only  if  the  current  fragmented  structures  can  be  superseded  by 
larger undertakings which are unimpeded by individual policies based on national  borders can 
the European aerospace industry hope to remain competitive. 

However, while  sector-specific  groupings might be appropriate  for  certain  segments, in most 
other areas of the aerospace  industry, one can wonder whether  sector-specific  groupings  can 
provide sufficient  scale and capabilities to compete in the world market. The particularities of 
the  aerospace  market  demand  a  market  base,  a  know-how  and  financial  and  industrial 
capabilities  such  that  the  balance  of  advantage  lies  with  the  giant  US  producers  currently 
present on the market with a broad range of aerospace products. 

A multi-sectoral  European  dimension,  on the other  hand,  would  encourage  the  development 
of competitive  new products by allowing  investment  at a European  scale not  feasible  for  any 
single firm or Member  State, nor probably  for most sector-specific  groupings, and enable the 
creation  of industrial  structures  capable  of efficient  operations  and  at an economic  scale. 
It 
could  also  give  rise  to  a  regulatory  environment  that  encouraged  competitive  products  and 
services  to  be  created  and  lead  to  the  development  of  European  standards  which  make  for 
efficient  co-operation, 

3.2  Multi-sectoral  groupings 

Industry  and governments have to use their limited resources for RTD as a basis for  as many 
products  as possible.  One of the reasons why the most  successful  firms  are present  in many 
areas  is  that  each  RTD  action  has  potential  applications  in  2  or  3  branches  of  activity. 
Another is to allow companies to take advantage of benefits  of scope where economies can be 
realised  from  applying  similar techniques and incorporating the same basic elements across a 
number of closely related products. 

Only  industry  itself  can  evaluate  these  benefits  but  it  is  instructive  to  note  that  in  recent 
merger cases in the US, the benefits  in terms of cost reductions accruing to the merging firms 
have been estimated to be worth several billion dollars. 

In most branches of aerospace there is a close relationship between the civil and military  sides 
of the business.  Technologies, procedures, components  and equipment  are often  identical  or 
From  a  business  viewpoint,  the 
nearly  identical  in  civil  and  military  applications. 
combination  of  civil  and  military  activities  also  helps  to  overcome  cyclical  market 
fluctuations  and spreads exposure to risks. 

Another  important  issue  in  civil/military  integration  arises  out  of  the  role  of  offsets  in 
aerospace  trade.  Although  limited  by  international  agreements  with  respect  to  civil  aircraft, 
the ability  to conclude  direct  and  indirect  offset  arrangements  can be a determining  factor  in 
gaining access to certain foreign  markets.  Such offsets,  including bundled  sales of a range of 
civil  and  military  aerospace  products  are  facilitated  in practical  terms  by  flexible  and  fully-
integrated civil/military aerospace companies. 

12 

The  complexity  of  the  links  between  the  different  aerospace  sectors  is  shown  graphically 
below. 

Most  aerospace  companies  have  major  defence  interests  and  are  reliant  on  government 
procurement  and technology  funding.  However while some of the major  European  aerospace 
companies  are  striving  to  reduce  their  dependence  on  domestic  defence-procurement 
contracts the US companies appear to be doing the opposite.  One of the main  stated  reasons 
for  the Boeing-McDonnell  Douglas merger was the wish to combine the military  capabilities 
of MDC with the civil capabilities of Boeing. The advantages of a merger such as this are that 
the possibilities  for  flexible  pricing, bundled  sales, and allowing the new merged  company to 
benefit  from  the Department of Defence's  procurement contracts are increased. 

The nature of the aerospace market is such that in many, though not all, sectors it will only be 
possible  for  one  entity  to  remain  viable  in  Europe.  For  example,  many  commentators  have 
suggested  that  in the medium  to  long  term  there  is probably  only  room  for  one  major  civil-
military producer of airframes  in Europe.  Such a suggestion  need not necessarily  give rise to 
competition  problems  if,  as was the case with the Messier-Dowty  landing  gear merger,  there 
is a fully  functioning  global market with strong foreign  competitors. 

In  the  case  of  defence  markets  which  do  not  function  globally  for  political  reasons,  since 
Member  States have already  shown a willingness to accept a situation  at national  level where 
there is only one producer, this could also be envisaged  at European level.  In any event some 
kind  of  reference  framework  could  be  provided  by  US  competition  in  export  markets  and 
competition  would  be reintroduced  if a stronger  and more  unified  defence  market  in  Europe 
could  help  persuade  the  US  to  open  their  market  and  allow  the  development  of  a  true 
transatlantic market in defence  goods. 

European  transnational  restructuring  is  already  beginning  in  some  business  sectors  through 
the creation of companies  like  Messier-Dowty, Matra-BAe Dynamics, Eurocopter  and Matra 
Marconi  Space.  However  market  imperatives  of technological  cross-fertilisation,  economies 
of scale and scope, synergy and risk-balancing argue strongly in favour  of the development of 
European companies producing a broad range of aerospace products. 

13 

3.3  Overall integrated  grouping 

It could be said that since multi-sectoral  groupings would not benefit  fully  from the synergies 
between  all  the  different  sectors  of  the  aerospace  industry,  another  option  for  a  European 
grouping  is a scenario  where all the companies  from  all  Member  States  consolidate  into  one 
single European Aerospace company. 

One  could  imagine  that  in  such  a  scenario  all  the  benefits  of  consolidation  would  be 
magnified.  Moreover  while  it  must  be  highlighted  that  even  the  largest  US  aerospace 
companies  are  not  so  disparately  multi-sectoral  as  a  single  European  Aerospace  company 
would  be  if  it  were  to  exist,  it  must  also  be  stressed  that  such  a  company  would  still  be 
smaller than Boeing, the largest US competitor. 

Nonetheless, it must also be recognised that the problems associated  with restructuring  would 
be  amplified  to  such  an  extent  that  a  swift  transition  from  today's  situation  to  an  overall 
integrated European aerospace  grouping is not very realistic. Thus in the short term, the most 
promising way forward  appears to be through multi-sectoral  groupings. 

IV. 

PRIORITIES 

1 

Accelerate  restructuring 

The need  for  restructuring  is  clear  and  urgent,  regardless  of  which  scenario  is deemed  most 
appropriate.  It is also unquestionable that the present pace of integration  is too slow and that 
it  is  necessary  to  press  ahead  beginning  with  the  already  agreed  conversion  of  Airbus 
Industrie  to  a  single  corporate  entity.  The  extra  difficulties  of  restructuring  in  the  defence 
sector should not serve as a pretext for delaying restructuring in the civil  sector. 

The  need  for  Europe-wide  consolidation  in  the  field  of  aerospace  and  the  reality  that  no 
Member  State can any longer retain complete autonomy  in its aerospace capability have to be 
acknowledged through the acceptance of true interdependence within Europe in the interest of 
the  continued  well-being  of the  European  aerospace  industry  as a whole.  This  restructuring 
must also take into account the necessary interdependence between aeronautics and space and 
the  strong  technological  links  with  other  sectors.  The  pursuit  of  competitiveness  must  also 
encompass  the  numerous  subcontractors  of  the  aerospace  sector,  especially  SME's  which 
play a major role in job creation and in the development and diffusion  of technologies. 

Although the primary responsibility  for restructuring  falls  on industry  itself, aerospace  is and 
will  remain  one  of  the  most  politically  sensitive  industries.  The  role  of  governments  is 
crucial  for  restructuring  and  it  is essential  that  the  Member  States  take  all  practical  steps  to 
encourage  and assist the creation  of truly European  companies. Even where there is no direct 
state  shareholding,  state  influence  arises  from  its  role  of  major  client,  financer  of  RTD, 
provider of launch aid, export control authority, certification  agency and so forth. 

Member  States  can  act  by  adapting  their  support  structures  to  facilitate  restructuring. 
Governments  must  be  willing  to  balance  a  narrow  view  of  national  sovereignty  with  the 
overriding  objective  of industrial competitiveness.  Those Member  States which have a direct 
shareholding in aerospace companies must adapt that shareholding or manage it in such a way 
that  the  restructuring  process  can  advance.  Industry  must  be  given  sufficient  commercial 
freedom  and  support to make the required  changes.  The management  of enterprises  must  be 
guaranteed  maximum  commercial  flexibility  in  operational  terms.  This  is  not  to  negate  the 

14 

vital role of governments but to propose that this role be exercised in ways that do not hinder, 
but promote the necessary changes. 

Bearing  in  mind  the  possibilities  permitted  by  the  Community  framework  for  state  aid  for 
research  and development,  Member  States should also be ready to judge  launch aid and RTD 
support  decisions  against  the  overall  impact  on  the  European  aerospace  industry  as  well  as 
against  national  technological  and  employment  benefits  taking  into  account  the  global 
dimension  of  a  large  part  of  this  industry.  Co-ordination  of  RTD  on  both  national  and 
Community  level will therefore  be essential and, given the existence of a number of dedicated 
aeronautical  research  programmes  and  facilities,  new  strategic  planning  and  management 
functions,  including  technology  foresight,  which  take  account  of  existing  co-operative 
arrangements,  will  have  to  be  developed  so  as to  support  an  integrated  European  approach. 
Such  co-operation  will  stimulate  synergy  between  applied  and  fundamental  research,  and 
dual-use technologies and will increase the impact at all levels of the supply chain. 

2 

Accompanying  measures 

The  diversity  of  the  critical  success  factors  means  that  no  single  initiative  can  address  the 
challenge  of  building  for  the  future  -  many  separate,  phased  and  related  actions  will  be 
needed  to  accompany  the  industry  restructuring  if  success  is  to  be  achieved.  Nonetheless  it 
must  be  stressed  that  without  restructuring,  the  impact  of  any  public  measures  would  be 
severely  limited.  However,  if  industry  is  willing  to  take  the  difficult  decisions  which  the 
market  demands,  the  Commission  and  the  Member  States  should  also  be  ready  to  make 
further  efforts  in areas such as the following, which are of great importance for aerospace. 

RTD  support  for  aeronautics  which  has  been  increasing  since  the  2nd  framework 
programme,  should  continue  to  be  a  major  factor  contributing  to  the  co-operation  both 
between  individual  aeronautics  firms  and  between  the  different  sectors  of  the  industry  -
airframers,  engine producers and equipment  suppliers.  In the 5th framework  programme, the 
Community  research  effort  should  be  centred  around  the  proposed  key  action  "New 
Perspectives  in  Aeronautics",  while  the  industry  will  also  benefit  from  other  FP5  activities, 
e.g. the creation  of a user-friendly  information  society, generic  activities for  the  development 
and  support  to  research  infrastructures,  activities  in  favour  of  SME's,  the  improvement  of 
In  line  with  the  recommendations  of  the 
human  potential  and  international  co-operation. 
"New  generation  aircraft"  Task  Force,  the  research  activities  should  focus  on  the  strategic 
objectives  identified  at  European  level  including  technology  integrator  platforms  at  the 
the 
required  scale  supporting 
improvement  of  the  air  transport  system,  e.g.  environmental,  safety  and  operational  factors 
which  are  also  key  elements  for  competitiveness.  Also  in the  domain  of  space  technologies 
and  space  applications  the  Commission  will  ensure  a coherent  approach  in  its  RTD  actions 
under  the  different  specific  programmes  of  the  5th  Framework  Programme,  as  well  as  a 
reinforced  co-ordination  with the national  space agencies'  and the European  Space  Agency's 
programmes 

the  competitiveness  of  the  aeronautics 

industry  and 

Defence  procurement  issues  should  be  addressed  as  a  matter  of  priority.  With  escalating 
costs  and  budget  restrictions,  ever  fewer  new  programmes  will  be  launched  but  the 
programmes  will  be  of  such  importance  and  last  so  long  that  they  will  effectively  structure 
the  industry  for  the  next  30  years  or  so.  The  Commission  proposed  the  establishment  of  a 
European  defence  procurement  regime  which  could  lead  to  the  creation  of  a  European 
domestic  defence  market  and  harmonisation  of  procurement  requirements,  schedules  and 

15 

procedures  in  its  1996  communication  on  the  Defence-related  industries.  This  must  be 
accompanied  by  the  necessary  harmonisation  of  technical  and  operational  specifications  by 
the appropriate bodies. 

The  new  Article  J. 7  on  the  Common  Foreign  and  Security  Policy  in  the  draft  Treaty  of 
Amsterdam  makes  a  special  reference  to  the  field  of  armaments.  This  creates  further 
possibilities for new initiatives and actions in support of this process. 

The  report  of  the  "Davignon  Group"  on  the  European  Company  Statute  opens  new 
perspectives  for  political  agreement  on  employee  involvement  in the  European  Company  in 
the months ahead.  If this hurdle can be overcome it could lead the way to the adoption of the 
Statute by the accelerated  procedure  foreseen  in the  Single Market Action  Plan  agreed  at the 
Amsterdam  European  Council  of the European  Union.  This restructuring  tool  should  be put 
at the disposal  of the aerospace  industry  as an efficient  means  of blending  the  European  and 
national identities of restructured companies. 

Another  subject  of  high  priority  is  the  creation  of  a  European  Aviation  Safety  Authority 
that  would  complement  the  single  market  by  the  establishment  of  a  single  legislative 
framework  and a single certification  process for all aeronautical products.  This will not only 
reduce  the regulatory  cost borne  by the  European  industry  but  also  facilitate  the  world  wide 
promotion of European safety  standards.  It is therefore  essential that the Council acts quickly 
on the  Commission  recommendation  for  a Council  Decision  authorising  the  Commission  to 
start  negotiations  with  a  view  to  establishing  a  European  organisation  responsible  for  civil 
aviation  safety.3. 

It is also recognised that diminishing  airspace congestion  and increasing the efficiency  of air 
traffic  management  will  contribute  to  expanding  the  air  transport  market  and  ensure  a 
industry.  In  this  spirit  the  strengthening  of 
sustainable  growth  to  the  manufacturing 
EUROCONTROL  and  the  adhesion  of  the  Community  to  this  organisation,  as  proposed  by 
the  Commission  will  contribute  to  the  acceleration  of  the  development  of  new  tools  and 
concepts, giving a European edge in this field. 

As far  as satellite navigation  is concerned, the Commission  will bring forward  an action plan 
for  a European  approach to the development  of a global  satellite navigation  system  based  on 
public-private partnership. 

In  order  to  maximise  the  benefit  of the  internal  market  and  in  view  of the  current  tendency 
world-wide  and  in  the  US  to  move  from  military  to  civil  standards,  it  is  of  the  utmost 
importance  for  Europe  to  strengthen  its  own  standardisation  activity  in  aerospace  so  as  to 
avoid a de facto  US monopoly. 

•  External trade aspects: 

International  rules  exist  both  at  the  multilateral  as  well  as  the  bilateral  level  to  limit  the 
distortion  of  trade  due  to  government  intervention  especially  with  regard  to  subsidies.  The 
1992  EU-US  bilateral  Agreement  on  trade  in  large  civil  Aircraft  is  based  on  a  trade-off 
between limiting direct (development) support, which is mainly granted on the European side, 
and  limits  on  indirect  (RTD)  support  granted  by  the  US  government.  However,  the 
implementation  of  the  Agreement  by  the  US  has  been  heavily  criticised  by  the  EU  and  its 
industry. 
In March  1997, the  Commission,  with  the  support  of the  Member  States  and  the 
industry,  launched  a  review  of  the  agreement.  This  process,  which  has  not  been  concluded 
yet,  has  to  be  reviewed  in the  light  of  the  new  situation  created  by  the  Boeing/McDonnell-

3  SEC (96) 2152  final 

16 

Douglas merger and of the conditions imposed by the Commission's merger decision some of 
which  are  of  the  same type  as  issues  addressed  under  the  review  process.  Furthermore  the 
Commission will remain vigilant with regard to any market access problems which may arise 
in  the  aerospace  sector  of  third  countries. 
If  necessary,  in  close  co-operation  with  the 
Member  States,  this  includes  taking  action  under  the  dispute  settlement  mechanism  of  the 
WTO. 

As far  as  export  promotion  is concerned, the  Commission  is fully  aware  of the  importance 
of ensuring  that  aerospace  purchasing  decisions  are made  on the  basis  of  fair  and  objective, 
commercial  and technological  factors  and that  European  products  receive  due  consideration. 
Accordingly  the  Commission,  working  in  close  co-operation  with  the  Member  States,  will 
respond  positively  to  industry  requests  for  action  in  line  with  the  above  position  and  will 
itself  ensure  that  the  above  message  is  conveyed  to  all  relevant  authorities  wherever  and 
whenever appropriate. 

V 

CONCLUSION 

Sustaining  growth  and  competitiveness  against  increasingly  intense  world  competition  will 
not  be  achieved  by  a single  factor  nor  in a single Member  State.  In the  European  context  it 
will require a number  of separate objectives  to be secured.  Some of these will be  secured at 
the level of individual  firms.  Their relative success or failure  will determine their growth and 
survival.  Nothing accomplished  at a European level can substitute  for  excellence at the level 
of the  firm.  But  individual firms cannot create the entire picture - even excellence  across all 
the  firms  currently  engaged  in  aerospace  will  not  be  enough.  Over  and  above  superior 
performance  by  individual  firms,  Europe  will  need  to  provide  the  context  in  which  these 
firms can flourish  in the massive collaborative endeavours which constitute modern aerospace 
products and the myriad of systems and supporting services which they need. 

European  aerospace  in  the  next  century  will,  however,  depend  upon  a  vision  not  only  for 
aerospace  but  for  Europe; yet time  is not  on Europe's  side.  The integration  of action by the 
industry,  Member  States and  the  European  Union  in the  remaining  years  of this  decade  will 
decide  whether  these  visions  can  be  realised  in  the  next  century.  Continued  inaction  will 
probably condemn the European aerospace industry to a lingering death. 

The Council is therefore  invited to support the thrust of this Communication and to recognise 
the  urgency  of  restructuring  of  the  European  aerospace  industry.  The  Council  and  the 
Member  States  are  also  invited  to  support  the  required  Community  actions  and  to  take  the 
other appropriate initiatives needed to facilitate and encourage this process of restructuring. 

17 

ISSN 0254-1475 

COM(97) 466  final 

DOCUMENTS 

EN 

15  10  14  07 

Catalogue number  :  CB-C0-97-492-EN-C 

ISBN  92-78-24853-3 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg