Dear Fellow French Transportation System Sufferers,
Fittingly for Paris, it was the best of air shows, it was the worst of air shows. Worst in that it was clouded by the Air India tragedy, and Boeing’s decision to not announce any orders out of respect. Best, however, in that the show was shrouded in big themes to discuss. I’ll focus on four of these: Sovereignty, Multi-Domesticity, Embraer, and Air Power.
I expected Sovereignty to be a big show theme, and it was. Dead-center on chalet row there was the ad you see here (Dassault always gets dead-center Le Bourget). But everyone else promoted their products as sovereign, a natural reaction to the US turning into a treacherously unreliable security partner. “No Russian, No Chinese, No ITAR,” as the mantra went. If you can’t buy local buy from someone who gives you control of the product.
Chalet advertising aside, the end of the show saw a remarkable development. France announced plans to replace its AWACS fleet with Saab GlobalEyes. These have zero French content (French Canadian business jets excepted) but are ITAR-free. Two things about France and defense: (1) when the French government talks about sovereignty (“Autonomie Stratégique”), they usually mean, “export customers should buy French systems, rather than US ones,” and (2) France almost never buys non-French systems. But now, France wants Sovereignty, even if it means they need to buy non-French systems.
This issue of Sovereignty may be a golden opening for non-US companies. UK officials at Le Bourget advocated for Rolls-Royce to replace GE as the engine provider for South Korea’s KF-21 fighter. It’s not just French companies that smell US blood in the water. And sovereignty in Europe is now increasingly a continent-wide objective, with European governments providing €150 billion in loans to promote common defense procurement. Canada is joining too rather than staying dependent on their former pal, the US.
For US companies, all is not lost. Theme #2, Multi-Domesticity, provides a way forward. The multi-domestic company strategy has been around for a long time, but the first I heard of it was about 25 years ago, when Denis Ranque ran Thales. It was a good idea then, but most US companies were happy to sit back and wait for orders to show up. But US companies today aren’t just facing headwinds in Europe and Canada; the administration’s harsh treatment of allies everywhere is encouraging Pacific countries to seek defense sovereignty too. Even AUKUS is now threatened by dunderheaded US officials who somehow think that alienating one of the largest friendly powers in the region is a good idea (making the Pivot to Asia ring very hollow).
A Multi-Domestic strategy means different things for different companies. But Le Bourget saw plenty of talk of ITAR-free solutions, localized production lines, and joint ventures with local companies (Rheinmetall, Saab, and even minor Japanese companies suddenly found themselves in high demand for air show lunches). Given rising protectionism, multi-domesticity is a good idea for civil aero companies too. Boeing, for example, needs to think about emulating Airbus’s multi-domestic jetliner production line strategy.
Embraer has used multi-domesticity to punch way above its size for years, and the company is the third big air show theme to discuss. They scored more KC-390 orders, with more likely on the way. They also scored a 60-unit (plus 50 options) E175 RJ order from SkyWest, cementing their total dominance of the regional market through the decade. Embraer has been doing exceptionally well in business jets this year too.
But then there’s jetliners. Le Bourget also saw a serious E190/195E-2 competition loss, against Poland’s Lot, which went with the A220. In a fascinating statement, Embraer summed up a world view that might be correct: “…we understand we are living in an exceptional moment where geopolitics play an important role.” Multi-domesticity only goes so far when you’re head-to-head against an EU champion like Airbus for an order from an EU government-owned airline. Overall, Embraer’s larger jets are chugging along at a respectable rate, but far lower than any other single aisle program.
The upshot: everyone wants Embraer to challenge Airbus and Boeing with a new jetliner, but at Paris for the first time I concluded that they’d be nuts to do that. Given their fortunes and prospects elsewhere, and given their serious jetliner market headwinds, spending 100% of Embraer’s product development resources on a clean-sheet jetliner would be a wrong allocation of capital.
Finally, #4, Air Power. If you had joined this industry a few years ago and listened to Elon Musk, you might have thought crewed combat aircraft were obsolete, to be replaced by hobby-kit quadcopters and CCAs from whichever new company had the best pipeline to the Trump administration. Le Bourget displays reflected this “wisdom” too. Then, at the end of the show, the Israeli/US air campaign reminded us that air power still means range and payload. Swarms of $10,000 drones, useful in Ukraine, would tumble into the desert (or Pacific Ocean) after a few miles, and CCAs are a long-way from combat-ready (or autonomous). The Israelis used drones for supporting roles, but they needed F-35s, F-15s, and F-16s for the heavy lifting,with USAF B-2s administering the final 15-ton blows.
This conflict (successful or not) might impact defense procurement priorities, particularly at DoD. Trump tends to act on impulse (see US Mideast policy this year). The F-35 and F/A-XX could go from budget losers to winners. The F-15, F-47, and B-21 will keep on winning.
A final bonus theme: Paris was defined by the same conundrum impacting our industry since 2021, the year Le Bourget was canceled for the first time: Lots of winners in terms of programs and market demand; very few winners in terms of supply. And now, goofy, ill-advised trade barriers threaten to keep this problem in place.
Yours, ‘Til Sovereignty Is More Than Just Another Word For Nothing Left To Lose,
Richard Aboulafia