FLUG REVUE September 2005: Saab outlook outlines by Svensson

September 2005

VIP-Interview

AKE SVENSSON

President and CEO of Saab AB

With defence spending in Sweden on the decline, Saab is facing new challenges and has laid out a strategy to win more business in high-tech markets around the world.

FLUG REVUE: The Swedish Government has announced that it will reduce defence spending until 2007 by a total of 3 billion SKR (320 million Euro). How will this affectSaab?

Ake Svensson: Well, we have to accept that there is a paradigm shift in Swedish defence strategy, away from the strongly independent anti-invasion stance of the Cold War days to a task-force oriented, interoperable force for international operations. This means lower production volumes and fewer unique Swedish development programmes. There will be much more in international cooperation. We will also see more upgrades of existing systems. This makes it more difficult to maintain our competencies. Also, we need to reduce the number of employees in Sweden. We have already laid of 1000 people, and for 2005 and 2006 another 1000 to 1500 people will probably have to go, leading to restructuring costs of around 250 million SKR (27 million Euro).

FR: So does this reduction also necessitate a wider restructuring of the business?

Ake Svensson: We have been working on this for some years already, and from the beginning of 2005 we have introduced three business segments. One is called Defence & Security Solutions and accounts for about 25 per cent of our business. It is very much about system integration, very much home market related or applicable only to a few specific export customers. The second is Systems and Products with a strong portfolio including missiles, electronics and services. This is more focused on the very competitive world market and contributes about 40 per cent to turnover. The third is Aeronautics which is rather special when it comes to fighter aircraft and new developments like UAVs. Here we also work on aerostructures for Airbus and Boeing. In these three areas, we have about 20 business units, but we are moving to the "One Saab" concept to constantly increase efficiency. The aim is to achieve operating margins of around 10 per cent.

FR: With less business at home, you need a bigger international footprint. Are you looking for mergers and acquisitions?

Ake Svensson: Our strategy is twofold. One is seeking partnerships with leading international companies to participate in new programmes. This applies mainly to advanced development projects where nations are joining their requirements and pushing their industry to form partnerships to develop new systems. These partnerships have to be built around each specific development. In general, we are open to discuss cooperation with everybody within and outside Europe.

In parallel we are focusing on acquisitions. They are more related to market reach, to get a better foothold on the world market for our advanced equipment and products. An example is South Africa, where we now have the majority of Grintek. We also try to have a better US presence, but only in niche markets.

FR: What about further consolidation in Europe, for example in the missile field?

Ake Svensson: I don´t want to rule out anything for the future, but for the moment we concentrate on our teaming arrangements on programmes like Meteor and IRIS-T. In the end I believe any restructuring should be driven by the needs of the customers.

FR: The new programmes and acquisitions you mentioned should reflect your view of the future direction of the market. So what are the sectors where you see the most growth?

Ake Svensson: Generally speaking, we are seeking our business in the high-tech area, where the customer is ready to pay for advanced systems which ideally only a few companies worldwide can provide. That could for example still be anti-tank weapons, even though they may not be so much in fashion at the moment, but still are high-tech products. Generally we look to systems with a high degree of built-in intelligence. It could be electronic warfare, it could be training systems, missiles, UAVs and UCAVs, or command and control. Its clear we cannot compete in the lower-cost production field, where we will rely on suppliers.

FR: A hot topic nowadays are UAVs and more specifically UCAVs. What is your strategy in this area? Do you want to offer a whole family of systems?

Ake Svensson: We will see a whole range of UAVs in the future. But in the areas where there are existing products on the market, we want to take on the task of integrating such a system into the networked operations of the Swedish or other defence forces. At the high end, we want to participate in new developments and there we want to concentrate on certain elements like autonomous decision making. Also, we need to ensure that these unmanned vehicles are certifyable and can fly in civil airspace. Once developed, those elements then can be applied in different UAVs.

The Neuron, in which we hope to have a 25 per cent stake, is very important in that it really stretches the requirements for fast and low flight over great distances and also regarding the level of autonomy. So we really must invent some new things, which then could be fed back into the Gripen fighter.

FR: Before UCAVs come on the market in the next decade, you still need to sell more Gripens after the production for Sweden runs out in 2007.

Ake Svensson: We have the South African order, so we will build Gripens until 2012, albeit at low rates. But I am absolutely sure that we have more opportunities to sell the Gripen. Talks are ongoing with several countries, but these fighter orders are always a long-drawn out process where political considerations play a large role. Anyhow, Gripen is still at the start of its lifetime. It will be constantly upgraded, that is one of its advantages, with functionality residing in the software.

FR: On the aerostructures side, will you be able to compete with low-cost countries like China in the future?

Ake Svensson: Here again we are concentrating on areas where only a few companies can supply. So for example in the A380 we are fully responsible for the fixed leading edges of the wings. We also build doors, which are quite complex mechanically and need to fit tightly. And then with our modern production technology we can contribute to weight savings. If necessary, Saab is not only a subcontractor but takes on the risk as a full partner. In any case, we need to jump aboard as many new aircraft as we can.

FR: In the 1980s and 1990s, the Saab 340 and 2000 regional turboprops were built. You own 266 of them and have a special leasing arm. How is the situation of this business?

Ake Svensson: We see a bit of a resurgence for regional turboprop usage right now, so at the moment we manage quite well to lease the aircraft out. And of course there is the maintenance business associated with these aircraft as well. As we have taken out an insurance on the future income from this fleet, we have quite good coverage and are comfortable about it. But of course we still suffer from the dramatic downturn after the 9/11 terrorist attacks of 2001.

FR: Saab is mainly known for its aircraft, but in Germany you are actually making good business with less spectacular products.

Ake Svensson: Yes indeed, and just recently we made a very important step with the establishment of a joint venture with EADS on training systems for the German army. Training is an area that will become more and more important, not only in the military field but on the civil side as well, where it is also essential to provide realistic exercises in counter-terrorist actions for example. Then we have of course electronic warfare systems and we also hope for confirmation of the RBS 15 missile system for the new German corvettes.

FR: You mentioned the civil security market. Is that an area where Saab can do more in the future?

Ake Svensson: I think so, and this is definitely an area we are looking at. From a systems point of view, we have important capabilities to provide new technical solutions for police and rescue forces for example. But the customer base is more fragmented and the volumes are still unclear.

From page 21 of FLUG REVUE 9/2005

Last updated 18 August 2005

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