STAR 21 puts procurement in spotlight

Date: 21/03/02

By Laurence Frost

GOVERNMENTS must bite the bullet and apply EU public procurement rules to defence if the European aerospace industry is to remain competitive, according to Carlos Westendorp, the former Spanish Foreign Minister and UN High Representative to Bosnia.

Westendorp, who chairs the European Parliament's industry committee, sits on the STAR 21 (Strategic Technologies for the Army of the 21st century) high-level group advising the Commission on the future of aerospace.

'We need to extend the public procurement directives and regulations to this field, which is so far in the hands of the defence ministries,' said Westendorp.

Five commissioners sit on STAR 21: Erkki Liikanen (industry), Loyola de Palacio (transport), Philippe Busquin (research), Chris Patten (external relations) and Pascal Lamy (trade).

Industry is represented at the highest level by company chairmen Manfred Bischoff and Jean-Luc Lagardère, both of the European Aeronautic Defence and Space Company (EADS), Richard Evans (BAE Systems), Ralph Robins (formerly of Rolls-Royce), Jean-Paul Béchat (SNECMA), Denis Ranque (Thales) and Alberto Lina (Finmeccanica).

STAR 21's broad remit includes space and civil aerospace industries, but it is the military side that has come to preoccupy the group - in particular the fragmentation of Europe's defence equipment market.

The EU's biggest aerospace firms have undergone rapid consolidation, most visibly in the creation of EADS out of a merger of French, German and Spanish companies.

This industrial integration has not been matched on the public procurement side, where spending decisions are still taken by individual governments working with small national budgets; grouped together they amount to only 60 of Washington's expenditure.

Westendorp insists it is less the amount spent than how it is spent which counts. 'The problem is not to spend more, but to spend with a greater focus. If we're going to be competitive, we have to operate only one market.'

The absence of a single European defence market has been thrown into sharp relief in recent weeks by Germany's failure to commit to its full order for the new Airbus A400M transport plane, seen as a vital component of the EU's military capability.

'If we look at the fiasco of the A400M we can see there's something very wrong with the way public authorities are trying to interface with industry,' said another STAR 21 insider who did not wish to be named. 'The plane is ideally designed to respond to exactly what Europe's needs are - yet it's been 15 years in discussion and it's still not left the drawing board.'

Policymakers are aware that any attempt to bring defence under EU internal market rules on government procurement - which require transparent public contract tendering processes - will run into problems in a field where national security is often an issue and product specifications secret.

For this reason, the STAR 21 report to be handed to Commission President Romano Prodi in July is likely to settle for a softly-softly approach. 'We're not trying to bring anything under anything,' said the same source.

Instead, the group is considering a 'first step' calling for the application of internal market rules to transfers of intermediate, or unfinished goods, across EU borders but within a single company.

As it stands, firms like EADS are obliged to comply with a variety of different national licensing rules when they transfer products between plants in different EU states.

'Clearly there has to be tight control for defence goods,' said the source, 'but if the control were at Community level it could be grossly simplified and companies could organise their production much more rationally.'

However, Carlos Westendorp believes changes could still go further. 'We can do it in a more open way but not necessarily revealing military secrets,' the Spanish Socialist said.

'Both objectives can be met by opening up [defence procurement] bids but only for a limited number of confidential networks of suppliers.'

Governments must bite the bullet and apply EU public procurement rules to defence if the European aerospace industry is to remain competitive, according to Carlos Westendorp, who chairs the European Parliament's industry committee.