May 2002 Newsletter

Dear Fellow Travelers,

So it’s four AM, and I wake up totally disoriented, hit by jet lag, minibar scotch, and a strange hotel bed. Yeah, the same old traveling businessman’s scene—you might have experienced it. I turn on the light, and spot a clutch of brochures lying on the floor. All of them have delta-wing and canard fighters on the cover. Then it occurs to me: I must be in Europe. They build ‘em like that over here.

They’re attractive planes, the Eurofighter, Rafale, and Gripen. But all are hobbled by low domestic procurement and uncertain upgrade roadmaps. Rafale enjoys an advantage with its well-funded Mk.2 and 3 improvements, but French procurement numbers still look thin. Eurofighter domestic production numbers look better (if spread around between four times as many production lines), but those Tranche 2 and 3 upgrades have not been definitized. Unless all four Eurofighter players get their acts together, these essential product improvements may slip to the right.

So far, the closest two of the planes have come to an export contract is South Korea, where Rafale came “within 3%” of the winning F-15, resulting in a futile lawsuit. Eurofighter’s Greek order hopes were dashed when Greece decided to “spend the money on the Olympics” (oh, and some F-16s and Mirages too). Yet Gripen continues to have a curious string of luck. Cynical view: it’s a light plane, not much of a warfighter, and somewhat pricey for what you get. But in reality, it’s kind of a nifty little compact design, and if you need a minimum supersonic fighter (i.e., if you are South Africa, Hungary, or the Czech Republic and aren’t planning on fighting any serious wars), it might be right for the job. Creative financing and surreal offset arrangements neutralize that price tag.

The industrial arrangements behind these European planes are as curious as ever. Almost half of Rafale’s ownership wants that plane dead—not exactly an ideal parent-child relationship. The other half, Dassault itself, seems to be waiting for a Personals ad that may never come. BAE has major stakes in one US and two European planes, and is in such a good position that it has no pressing requirement to do anything with anybody. EADS would like to create a continental BAE, but so far can’t even get Italy on board. European fighter rationalization, in short, is nowhere to be seen.

But the most worrying aspect of the European fighter scene is the market. There is no unity, and less trust. Italy and the Netherlands look set to go with the F-35, and Britain is there already. A combined arms procurement agency, able to choose the best plane at the best price, would encourage a joint European counterweight to Lockheed’s F-35, possibly with help from US contractors. But for now there is little hope of a European competitor to the omnipotent-looking (but ultimately somewhat faith-based) F-35.

With low defense budgets, stalled industrial rationalization, and few hopes for that combined European market, those three planes are going to be Europe’s fighter contenders for the foreseeable future. European officials seem divided about the consequences of this. Many think they have a window of opportunity to sell their planes, and are aggressively pursuing current markets like Singapore and Brazil until the F-35 comes on line (at which point they assume they will gracefully exit the field). Other Europeans think this is a doomed strategy. They think F-35 workshares will co-opt some of these current markets, while the F-16 and F/A-18E/F take many of the others. Instead, they want to promote a long-term view of their products, offering customers major workshares in various upgrade programs, and making it clear that these European planes will be on the market well after F-35 arrives.

This second view sounds a lot more positive to me than the first view. But even if the European planes remain competitive for a few more years, the F-35, if it goes ahead as planned, will ultimately conquer the market.

Meanwhile, thousands of miles away at the bottom of a frozen Canadian lake…there rests the only surviving prototype of the Avro Arrow. Or at least you think it’s there if you’re Canadian and/or inclined to believe in conspiracies. The Arrow was a beautiful and pathbreaking fighter cancelled in the late 1950s, but some believe that one of the five flying prototypes escaped the stupid (and seemingly complete) orgy of hardware destruction that followed its cancellation. According to legend, a doughty Canadian pilot flew it to an isolated northern lake, where thermoclines preserved it intact.

The Arrow is more than just my candidate for Saturday Night Live’s Dead…Or Canadian? competition. My point is that the Canadian Government of the time, headed by Dudley Do-Right, or Bullwinkle Moose, or somebody, decided that the Canadian defense industry was simply unsustainable, given US competition and a shrinking home market. As a consolation for the Arrow’s obliteration, the Bullwinkle Government began funding civil aerospace. Canada became home to some worldbeating civil firms—Bombardier succeeding with regional aircraft and business jets, Bell Helicopter Canada with civil helicopters, and Pratt & Whitney Canada with small turbofans. Numerous smaller firms also prospered. Government funding for the private sector is usually a loser move, but with Canada and civil aviation, it worked.

Back to Europe. These guys clearly have a lot of work to do in the defense department. Both their industrial supply and market demand arrangements remain too fragmented to compete in the long haul. But what’s successful? Airbus. Eurocopter. Arianespace. Yeah, it’s the government-assisted civil stuff. They may not always be profitable, but the products are technically quite advanced, and they are eating market share at a respectable pace.

In short, I’m implying that as the years go by, Europe might just follow Canada’s path. This is not my baseline assumption. It’s just food for thought.

About this supplement. None of the above planes are in it. But we have updated the P-3, C-130, Hawk, UH-60, SH/MH-60, A300/310, and CH-53. There are also epitaph updates of the Fairchild Dornier planes. Next month, there will be a new Trainer overview, plus updates of the A340, Tornado, 757, LCA, and the Gulfstream family. Call with any priority updates. And have a great early summer.

Yours, ‘til Those Anti-Jetlag Drugs Kick In,

Richard Aboulafia