FLUG REVUE May 2006: MBDA strategy outlined by Marwan Lahoud

May 2006

VIP Interview

MARWAN LAHOUD

CEO of MBDA

After the takeover of LFK, MBDA looks at further European consolidation and works hard to stay competitive on the world market.

FLUG REVUE: After a long gestation period, the full takeover of LFK by MBDA is now sealed and approved. How will you integrate the German missile house?

Lahoud : Before I come to your question we need to remember that the integration of LFK is nothing new, because it has been considered right from the start as the consolidation of the European missile industry got under way in the early 1990s. And we also have to remember that there are numerous cooperation programmes between LFK and MBDA already.

Unfortunately, back in 2002, the project was dead. It was dead for a variety of reasons, among others the inability to find an integration concept. When I discussed the matter again with the board in early 2003 we needed to make sure that the integration was still valid and that we had a proper concept. The answers to these questions were obviously yes, because Germany is the number three missile market in Europe, because Germany will be involved in almost all defence and missile initiatives and because Germany is a very important bridge to the United States.

As for the concept, MBDA seeks to be the first international defence company in Europe. You know this is a contradiction, because defence, despite the progress of European integration, is still approached nationally. So we say MBDA has an international approach, one strategy, one set of global targets, but it operates in a variety of national environments and has a variety of national faces. The specific situation in Germany is that the German customer has for a while been seeking the consolidation of the German missile industry. Therefore our project had to enable not just the European integration, but German consolidation as well. We decided to go ahead in two stages. First to integrate LFK into MBDA and second to address the Diehl group to seek ways and means by which to consolidate the market.

This was in 2003. It took us two years to get to a conclusion between the shareholders of LFK and us. As EADS had shares in both companies, it was a kind of family business, and you know that family businesses can be the most complicated one. We got there by the end of November 2005.

With all legal and administrative details behind us, integration is going the following: LFK will operate as an entity similar to the entities we have in France, Italy and the UK. It will have its own profit and loss accounting, it will be a legal entity to take contracts. But LFK will not be on its own, it will benefit from the support of MBDA on its market and on the export market. For all multi-national programmes it will be incorporated in all initiatives we launch.

FLUG REVUE: What about competing products like Storm Shadow and Taurus?

Lahoud: We are happy enough to have these very good products. They have their own markets and we will be pursuing the success of these two products on their markets. Therefore the competition that may have existed at the start of the programmes does not exist any more. We have successes of Storm Shadow in a few countries and we have the need for Taurus weapons in other countries.

FLUG REVUE: A deal with the Diehl group could be very complicated. How far along are you with the talks?

Lahoud: The discussions we are having with the Diehl group are very positive. We have agreement on the need to consolidate. Now we need to find the ways and means to make this consolidation happen, of course protecting the interests of the Diehl family and of MBDA and MBDA shareholders. This will be the task of the next few months.

FLUG REVUE: Is that not too optimistic?

Lahoud: No, its neither optimistic nor pessimistic, its just describing the roadmap we need to follow. And now that the LFK takeover is behind us, we are in the phase of full speed negotiations, while a few months ago we were just preparing the issues.

FLUG REVUE: Will there be a holding company?

Lahoud. Obviously we should build a common company to regroup all the activities. So what we are discussing are the ownership, the rules of governance, what is the influence of both sides. I will not comment further as the negotiations are still under way.

FLUG REVUE: How independent can MBDA act in these consolidation efforts, keeping in mind that your shareholders are EADS, BAE and Finmeccanica?

Lahoud: The shareholders are just shareholders. I mean the interest of them is related to the value of the company. Obviously the three shareholders do approve our consolidation approach. Do not forget that we exist because at the time the three shareholders decided that consolidation means something. Now we as MBDA continue the task they have started, and with their approval and their support we are getting there. The independence is not a question. We operate and report to shareholders on the value of what we are doing and get approval or not. There is no interference in the operations and the consolidation discussions. Obviously it is my task to present the board transactions that make sense from the shareholder value point of view. There is no mixing of the roles.

FLUG REVUE: With LFK you get improved access to US cooperation programmes, namely MEADS. Are you happy with technology transfer and the high-tech value of the European contribution?

Lahoud: With the LFK integration, MBDA is the sole partner of Lockheed Martin in the MEADS programme, and we are very happy with this cooperation. From time to time there may have been issues related to new regulations in the US. With the support of the German und Italian customers we have managed to sort them out. So we are very happy to be part of MEADS, which is a big step forward in technology and systems. We do mostly high value systems and subsystems activities.

FLUG REVUE: But does MEADS not compete with Astor?

Lahoud: Its not the same as Storm Shadow versus Taurus. Aster-based systems are fielded already and their land variants will be fielded this year, while MEADS will be ready in 2012. So we do not talk about the same timescale, the same threats. Aster is an air defence system that is extended to cover some ballistic missile threats while the MEADS is designed from the outset to cover extended air defence. There is little overlap in the capabilities between Aster and MEADS.

FLUG REVUE: One other very important programme is Meteor. Is it on track?

Lahoud. Meteor is on track, we should have the first full missile launch test soon. We have achieved the wind tunnel campaign successfully. So progress is good. What is of concern for us is the integration into the various platforms. You know it will be on Eurofighter, Gripen and Rafale. This makes this part of the programme quite complex because it is very much dependent on the aircraft programmes themselves. Therefore we need to coordinate with the aircraft manufacturers to ensure that our missile is integrated on time and with the proper specifications. Of course for the aircraft manufacturers, this is one piece of development among many others, but we need to maintain their attention to this.

FLUG REVUE: What export prospects do you see for Meteor, and are you free to sell it or has it US parts?

Lahoud: We have been very cautious to consider exportability from the start of the design. Obviously, we need the authorisation of the six Meteor partner nations. Chances are realIy good, as I truly believe that Meteor will be a competitive advantage for the fighters that carry it. Meteor was part of the Singapore package both for Eurofighter and Rafale.

FLUG REVUE: In the last years turnover grew steadily, but in 2005 you started some restructuring with job cuts in France.

Lahoud: We have grown from 1.8 billion Euros in 2002 to 3.2 billion in 2004 and had again a turnover of 3.2 billion in 2005, so we have reached the steady state. Our forecast is that our revenue line will be 200 to 300 million Euros less in the next two to three years, not considering the integration of LFK. Then the market should go up again beyond 2010. So it is our job to adjust our industrial facilities to this decrease and to be fit to tackle the challenges beyond 2010. We have started some restructuring across the company, not only in France, and this will take place over the next few years so that we maintain our capabilities but also our profitability and thus our ability to invest. This is essential.

FLUG REVUE: European defence budgets are static at best. How big is your dependence on exports?

Lahoud: We target 40 per cent for export sales as part of our business plan. There are many opportunities across the world, but the market has changed. Customers require local content, industrial cooperation and technology transfer, and this makes it even more essential to get export sales linked to real defence cooperation. We are very well aware of the fact that we cannot sell everything to everyone. We need to be cautious. It has to be based on strong defence cooperation between nations. Otherwise it is too dangerous and as a CEO I have a personal responsibility in not favouring weapon proliferation across the world.

FLUG REVUE: The US market is targeted by many defence companies.

Lahoud: Yes, it is a target for us as well, as it is the biggest market in the world. And if I were not interested, my strategy would be questionable. This market is owned by our main competitors, and they defend their share vigorously, so access for us is difficult. This does not mean that we should not try, but lets not fool ourselves: this will not happen overnight, this will be a long term effort. We are ready to sustain that effort.

FLUG REVUE: Regarding product segments, where do you see the biggest growth? I mean, anti-tank missiles for example are out.

Lahoud: Ok, there are no tanks left, but the necessity to equip land forces with multi purpose missiles is very well recognised across the armed forces today. We have an initiative related to a European modular munition. But we view air defence as the key sector in coming years. There is a need from short to medium to extended air defence, and this will be a key driver of our market in the next few years.

FLUG REVUE: The US is pouring billions of Dollars into its defence efforts. Can Europe keep up with new technologies and where do you need to invest to remain competitive?

Lahoud: I think looking at the missile technology as a whole, today we are even ahead. That is because of investments in R&D that were made five, ten of fifteen years ago. The question is: what do we need to do to stay ahead? What are the breakthrough technologies that will define the advantage ten years from now, and what resources and investment do we need?

Karl Schwarz was asking the questions.

FROM FLUG REVUE 5/2006

Last updated 10 April 2006

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