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"'
Date: 1998-01-28
Institutions: European Economic and Social Committee
Subjects: aerospace industry, competitiveness, research and development, satellite communications, space policy

30.3.98

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Official Journal of the European Communities

C 95/11

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 launch-
ing a wide-ranging debate on the European aerospace
industry, with a view to boosting its competitiveness
and its world role.

The fundamental

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

importance of

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;

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

c)

technological innovation and market dynamism.

In the current climate, the aerospace industry
1.4.
must face up to radical
internal and international
changes extending to funding, company restructuring,
production structures and technological innovation (1).

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.

1.5.
As the ESC has already expressed its views on
the defence (2) and space (3) industries, in the present
opinion it will focus on the problems of the aeronautics
industry (4). However, it is worth noting that these three

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

(2) ESC opinion on the Communication from the Commission
‘The challenges facing the European defence-related indus-
try, a contribution for action at European level’ (OJ C 158,
26.5.1997, p. 32).

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

(4) The term aeronautics industry is used to mean fixed-wing

aircraft and helicopter production.

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’.

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The current division of the world market in large
2.2.
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.

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

2.8. Having emphasized the importance of the indus-
try for Europe’s economic, technological and employ-
ment outlook, the Commission proposes a number of
measures considered necessary to tackle the situation.

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.

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

3. General comments

The ESC welcomes this document, which comes
3.1.
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 cour-
ageous, 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.

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

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

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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.

3.14.
The ESC lends its full support to a new strategic
planning approach, agreed through dialogue with the
industry and invested with new European level manage-
ment 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.

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.

4. Specific comments

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.

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.

The use of existing or new EU instruments to
3.11.
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 govern-
ment support, and in Japan).

An industrial structure based on three major
4.2.
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.

The Commission should provide an ever-greater
3.12.
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.

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 decentra-
lization 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.

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.

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

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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 restructur-
ing, 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 environ-
mental 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.

Brussels, 28 January 1998.

4.8. Moreover, in order to support recently restruc-
tured 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.

Lastly, taking the three sectors as a whole
4.9.
(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.

It is in any case essential to secure a more
4.10.
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 (1), and asks to be consulted on the
progress of the initiatives supporting the aerospace
industry.

(1) 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).

The President

of the Economic and Social Committee

Tom JENKINS