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France To Announce Nuke Sub
Barracuda May Steady European Naval Merger Progress

By PIERRE TRAN, PARIS. Defensenews

French naval consolidation will get a lift this week, when French Defense Minister Michèle Alliot-Marie is expected to announce that the government is sealing its plans for a 7 billion to 8 billion euro ($8.8 billion to $10.1 billion) purchase of six Barracuda nuclear-powered attack submarines.
The Délégation Générale pour l’Armement (DGA), the French military procurement office, is expected to order two subs for an average of 1.25 billion euros apiece, with options for four more. The price includes development, construction and upgrades; later boats are expected to cost less than the initial units, as economies of scale kick in.
The long-discussed contract will give state-owned naval company DCN clarity on sales and workload. This is paving the way to a restructuring with Thales, the so-called Convergence plan that, in turn, is vital to pan-European naval consolidation proposals.
Alliot-Marie is expected to talk up progress on the Barracuda program when she visits the Euronaval trade show on Oct. 25, defense and Navy officials said.
The trade show, Europe’s largest naval convention, is sponsored by the Defense Ministry, the Transport Ministry, the French Navy and DGA.
Navy and DGA officials will receive delegations from 150 navies at Toulon naval base Oct. 23 to showcase French maritime technology and expertise. But, as one Defense Ministry official put it, “Notification of the [Barracuda] contract would be one of the highlights of the show.”
That’s because news of the Barracuda deal would come as a relief to industry, but perhaps even more so to the various government agencies that have been working to settle financial terms.
DGA officials sought value for money — an inexpensive boat. But DCN leaders want a profitable business, and especially a boost for the shipbuilder’s order book and valuation ahead of negotiations with Thales.
And to complicate matters further, the state also owns 31 percent of Thales — putting government negotiators on all three sides of the table.
But as the Barracuda deal has taken shape, so has the DCN-Thales consolidation plan. The government intends to sell 25 percent of DCN to Thales, with an option to raise that to 35 percent in three years.
Alliot-Marie would have been delighted also to announce completion of the plan, whose business and financial terms have been agreed. But the reorganization still must clear administrative hoops.
International Cooperation
Naval sales are the second-fastest growing military market, with better than 1.8 percent annual growth in all regions except the United States, according to a December 2005 report by Goldman Sachs analyst Sash Tusa.
The European market for warships is worth 8 billion to 10 billion euros annually, almost as much as the U.S. market of 10 billion to 12 billion euros, and well ahead of Asia-Pacific sales of 5 billion to 6 billion euros, according to the show organizer, Groupement Industriel des Constructions et Armements Navals.
Europe has 21 companies and 23 yards in the naval sector, compared with four companies and six yards in the United States.
In some niches, Europe’s yards are particularly well-suited to compete. Because they generally build smaller vessels than their U.S. counterparts, European firms have an advantage in the corvette-and-frigate market, worth $316 billion in 2005 and growing at 2.9 percent a year, Tusa wrote.
But in other areas, many say consolidation will be necessary to compete.
“Consolidation is needed in the medium and long term, but it is complex,” said Jean-Pierre Maulny, deputy director at think tank Institut des Relations Internationales et Strategiques, here. “We need to start thinking about it now; otherwise, we will be stuck. We can’t leave it to 2015.”
Maulny said the crisis at EADS, highlighted by Franco-German management fumbles over the A380 superjumbo airliner, makes it hard to move ahead on naval consolidation.
DCN Chief Executive Jean-Marie Poimboeuf said Europe’s conventional submarine builders should look to cooperate, or even consolidate. DCN slugs it out with Germany’s HDW, part of the ThyssenKrupp Marine Systems group, but in the shallows lurk SSK boats from China, India, Russia and South Korea, hunting for export orders.
Strengthening Cooperation
The Barracuda contract will strengthen DCN’s ability to build subs, an area where Poimboeuf sees opportunities for cooperation with Germany and other European partners.
The high cost of naval research and development makes such cooperation essential, Poimbouef told reporters Oct. 16. Pooling development costs would allow an extra two FREMM multimission frigates to be built a year, a carrier every four years, or an extra sub.
Cooperative programs already exist, notably the planned Anglo-French carrier collaboration based on the British CVF design. France and Italy also are cooperating on the Horizon and FREMM frigates — yet are likely to offer competing export versions, Maulny said.
Overall, Europe is witnessing a rise in naval nationalism, certainly in the area of submarines.
Spain’s Navantia turned its back on DCN and opted to build its S80 conventional submarine with a Lockheed Martin combat management system.
“Spain has taken a risk with the development of the S80, a decision that can only be explained by its expectation of winning a large Taiwan contract,” said Pierre Conesa, deputy director of think tank CEIS, here.
Madrid’s S80 decision prompted DCN to launch studies on the all-French Marlin, which will compete with the Spanish boat for exports.
Germany spurned French interest in buying HDW, choosing to allow its sale to ThyssenKrupp to create ThyssenKrupp Marine Systems (TKMS). Berlin also declined Thales’ offer for systems specialist Atlas Elektronik, which was sold to a joint EADS–ThyssenKrupp venture.
Still, TKMS has led the way in domestic consolidation and also owns yards in Greece and Sweden, so a measure of cross-border consolidation has taken place.
Another company benefiting from a pocket of consolidation has been missile company MBDA, which has built its business on common British, French and Italian orders for Aster air defense missiles on frigates.
Guy Griffiths, MBDA’s chief operating officer, expects before year’s end to sign a contract for full-scale development for France’s Scalp naval cruise missile, worth about 1 billion euros, including all the tranches and related equipment. France is due to buy 200 cruise missiles for the FREMM and 50 for the Barracuda, giving the Navy a new precision land attack capability.
MBDA also hopes to sell the naval Scalp to the Royal Navy and Italy.
In export markets, MBDA is pushing the Exocet MM40 block 3 long-range antiship missile, with the United Arab Emirates in line for a large order.
Elsewhere in Europe
France is hardly the only European country where naval-industry restructuring proposals are finding rough going.
Britain’s attempt to reorganize its surface sector failed earlier this year, although government pressure has brought all parties back to the negotiating table. British procurement chief Lord Drayson said during a House of Lords debate Oct. 17 he wants to see progress by the end of the year on restructuring.
The proposed deal, which was part of the government’s larger maritime industrial strategy, fell apart amid pre-bid publicity. It would have split Babcock, giving VT its general defense support activities and BAE its naval support business, analysts said at the time. VT would have handed over its warship building to BAE, making the latter the monopoly supplier.
Meanwhile, BAE is in separate talks with companies in the nuclear submarine business about reshaping that industry.
In Italy, Giuseppe Bono, chief executive of state-owned Fincantieri, on Oct. 18 urged the government to float the company on the stock market.
Addressing a parliamentary committee, Bono said Fincantieri had a 10 billion euro order book, a potential stock market value of 1.3 billion to 1.5 billion euros and no debt, but the firm needs 800 million euros over the next three years for investment, funds that could be partly earned through an initial public offering of stock.
If the government approves, it will meet stiff opposition from unions.
Fincantieri is set to deliver Italy’s new aircraft carrier, the Cavour, at the end of 2007. A spokesman said work on the first FREMM frigate for Italy — half of an initial order of two — would start by the end of 2007. Work on the second would start by the end of 2008, with deliveries at the start of 2012 and 2013.
In Germany, Navy planners want to acquire enough sealift to transport 2,300 troops in a European Union battle group. Two proposals: upgrade current troopships, or add a new dock ship that could land them without need for a harbor. •
Andrew Chuter in London, Tom Kington in Rome and Sebastian Schulte in Bonn contributed to this report.