Eurofighter2000:Consequencesand Alternatives

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february 96

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About the AuthorsContents

ZusammenfassungGerman Summary 4

Preface 6

Eurofighter 2000:Consequences and Alternatives 7

The Origins of theEurofighter 2000 8

A Comparative Survey of theCountry Studies 11

The significance of theEurofighter project 11

Security aspects 12

Financial and economic aspects 13

Industrial dependence 14

The Eurofighter's influenceand technology policy 15

Conversion possibilities on thecompany level 15

Assessment of possible options 17

The status quo scenario:procurement of the Eurofighter 17

Cancellation of the Eurofighterprogram and no alternative 19

No Eurofighter production -purchase an alternative aircraft 19

Concentrating Eurofighterproduction in Great Britain 20

Prospects 22

References 24

Werner Voß is a project director atISA Consult GmbH, a consultancyspecialised in advice on theintroduction of new technologiesand labour market policies. Hegraduated from the EconomicsDepartment of the University ofBremen.

Michael Brzoska is research directorat the Bonn International Centerfor Conversion. He has publishedwidely on arms export andproduction questions. He hasdegrees in economics and politicalscience from the University ofHamburg.

Cover Illustration:Vladimír Rencín

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brief 5Eurofighter 2000:Consequencesand AlternativesbyWerner Voß andMichael Brzoska

february 96

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Die Entwicklung und Beschaffungvon Jagdflugzeugen des TypsEurofighter 2000 ist das größtelaufende Rüstungsprojekt in Westeu-ropa. Die Gesamtkosten ohneBetrieb der Flugzeuge lassen sich aufetwa 100 Mrd. DM bis zum Jahre2012 schätzen. Das Programm hatentsprechend große Auswirkungenauf die Luftfahrt- und Rüstungs-industrien der beteiligten LänderGroßbritannien, Italien, Spanienund Deutschland. Um die Auswir-kungen des Projektes, auch für denFall einer möglichen Nicht-beschaffung, einschätzen zu können,hat das Bonner Konversionszentrumeine vergleichende wissenschaftlicheUntersuchung in Auftrag gegeben.Sie liegt als Buch in deutscherSprache vor1 . Auch im Jahr dererwarteten Entscheidung, 1996, istnoch unklar, ob das Flugzeug inallen beteiligten Ländern beschafftwird und, wenn, in welchen Stück-zahlen. Die Beurteilung der Mög-lichkeiten und Schwierigkeitenziviler Nutzung vorhandenermilitärischer Kapazitäten hat daherpraktische Relevanz.

Im vorliegenden „brief“ werden dieErgebnisse der vier Fallstudienzusammengetragen. Die unabhängi-gen Autoren aus den vier amProgramm beteiligten Ländergelangen in ihrer Untersuchung dersicherheitspolitischen, wirtschaftli-chen, technologischen und finanziel-len Auswirkungen zu dem Ergebnis,daß ein starres Festhalten an derMitte der 80er Jahre festgelegtenPlanung für Beschaffung und

Produktion angesichts des grundle-genden sicherheitspolitischenWandels in Europa nicht vertretbarist.

Die Autoren der Studie sehen nachdem Ende des Kalten Krieges inEuropa stark verminderten Bedarffür Jagdflugzeuge mit geringerReichweite wie den Eurofighter. DieZahl der Kampfflugzeuge in denStaaten des ehemaligen WarschauerPaktes vermindert sich zunehmend,weil seit 1992 kaum noch Beschaf-fungen getätigt wurden. Selbst unterder pessimistischen Annahme einererneuten Konfrontation mitRussland ergibt sich bei Durchfüh-rung der in Westeuropa undRussland absehbaren Beschaffungenvon Kampfflugzeugen im Jahre 2010ein deutliches Übergewicht, nochohne Berücksichtigung der inEuropa stationierten US-amerikani-schen Verbände.

In Spanien und Italien wird dieBeschaffung des Eurofighter mit derBedrohung aus dem „Süden“ begrün-det. Obwohl auch in den südlichenMittelmeeranrainerstaaten die Zahlmoderner Kampfflugzeuge ab-nimmt, hat die italienische Luftwaffeauf Grund der starken Überalterung

der Jagdflugzeugflotte, die vor allemaus F-104S Starfightern aus den 60erJahren besteht, erheblichen Nach-holbedarf. Die britistische Luftwaffesieht erheblichen Bedarf für denEurofighter, der als Jäger undJagdbomber ausgerüstet werden soll,vor allem für Kampfeinsätze außer-halb Europas. In Großbritannienwird die Beschaffung derEurofighter von allen großenParteien unterstützt. Das Projekt istfür die angeschlagene britischeLuftfahrindustrie von über-lebenswichtiger Bedeutung.Die britische Regierung wird dasEurofighter-Programm notfalls ineigener Regie durchführen. Italienwird sich wegen des dringendenmilitärischen Bedarfs mit großerWahrscheinlichkeit beteiligen. InSpanien, wo die Luftwaffe bereitsüber moderne US-amerikanischeKampfflugzeuge verfügt, ist dieEntscheidung offener. Die spanischeEntscheidung wird von derHaushaltslage und den Kosten desFlugzeuges abhängig sein.In Deutschland und Spanien ist dasProgramm überwiegend zu einemindustriepolitschen Projekt gewor-den, was es in Italien und Großbri-tannien auch ist. Angesichts derhohen Kosten und der Art dergeförderten Technologie - weitge-hend spezifisch militärische Luft-fahrtechnologie, werden Zweifel ander Zukunftsträchtigkeit einersolchen staatlichen Industriepolitikangemeldet.

Zusammen-fassung

German Summary

1 Michael Brzoska und Werner Voss(Herausgeber). Auswirkungen und Alternati-ven des Eurofighter 2000. Eine Vier-Länder-Studie für das Internationale Konversions-zentrum Bonn. Nomos-Verlag, Baden-Baden,1996. 300 pp. DM 49,—.

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Ein Verzicht auf die Beschaffungohne Kompensationen für diebeteiligten Firmen würde in denbeteiligten Ländern zu erheblichenVerlusten an Arbeitsplätzen führen.Die Möglichkeiten der Firmen, denAuftragsausfall durch Ausbau zivilerProduktionszweige aufzufangen,sind begrenzt. Durch direkteKonversion wird angesichts derangespannten Lage in der zivilenLuftfahrtindustrie, der relativhochwertigen und damit teurenFertigungsstrukturen bei denbetroffenen Firmen und der man-gelnden langfristigen Vorbereitun-gen durch das jeweilige Managementnur ein geringer Teil der Arbeitsplät-ze gerettet werden können. Sehr vielmehr Arbeitsplätze ließen sicherhalten, wenn den betroffenenFirmen Kompensationsaufträge fürden Ausfall der Eurofighter-Produk-tion gegeben würden.

Um die Folgen eines möglichenVerzichts auf die Beschaffung ineinem oder mehrerer der beteiligtenLänder beurteilen zu können,werden verschiedene Alternativ-szenarien durchdacht. Als einemögliche Alternative wird vorge-schlagen, statt der jetzt vorgesehenenAufteilung der Produktion auf dievier beteiligten Länder die Fertigungin Großbritannien zu konzentrie-ren. Dafür könnten den Industriender anderen Länder Kompensations-aufträge gegeben werden. Damitkönnten die Beschaffungskostengesenkt und zugleich erfolgverspre-chende zivile Technologieliniengestärkt werden.

german summary

Die gegenwärtige Restrukturierungder welweiten Luftfahrtindustrienährt weitere Zweifel am industrie-politischen Sinn der Beschaffung.Eine Konzentration der europäi-schen Kapazitäten ist überfällig. DieProduktion des Eurofighter inDeutschland behindert die unver-meidlichen Konzentrationsprozesseauf europäischer Ebene ohne derdeutschen Luftrüstungsindustrie einelangfristige Perspektive bieten zukönnen.

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by Michael Brzoska

If procured as planned, theEurofighter 2000 will be the largestarms industrial project in WesternEurope. The program has majorimportance for the aerospace andarms industries in all four of theparticipating countries: the UnitedKingdom, Germany, Italy andSpain.

Originally planned in theframework of the Cold War, theprogram has come under severecriticism in the changedenvironment of the early 1990s.Both the definition as short-range airsuperiority fighter as well as its costhave fed opposition—predominantlyin Germany, but also in Spain andto a lesser extent in Italy and theUnited Kingdom.

More and more, economicarguments, especially those relatedto the employment of severalthousands of highly skilledaerospace workers, have become thepredominant counter-argument tosuch opposition. It is claimed byindustry that the cancellation ofEurofighter procurement wouldresult in the permanent loss of morethan 60,000 jobs in all of theparticipating countries. The aircraftindustries in these countries wouldbe damaged, it is claimed, by theimmediate loss of an order probably

worth more than US $60 billion (forabout 600 aircraft). In addition, long-range competitiveness, in bothmilitary and civilian aerospace,markets might suffer. If Germanycancels procurement, lob losses of20,000 or more have been predicted.On the other hand, procuring afighter aircraft mainly because of itseconomic impact does not seem tobe a justifiable decision in times ofgeneral fiscal stringency. Militarymarkets are shrinking; civilianproduction provides much betterlong-term prospects. If governmentswant to help the aerospace industry,support of civilian activities seemswiser. Other alternatives, such assolar energy, may even providebetter long-term prospects.Unfortunately, it is not obvious thatthose currently employed inmilitary aircraft programs wouldbenefit from civilian alternatives.

Because of these conversion-relatedaspects, the Bonn InternationalCenter for Conversion askedindependent academic experts fromthe four participating countries tocontribute to a comprehensive studyof the program. Authors were askedto address the security, fiscal,industrial, economic, technologicaland conversion issues arising bothfrom the program as planned andfrom a possible cancellation. SusanWillett (King's College, Universityof London), Jörg Huffschmid(Universität Bremen), Guilio Perani(Archivio Disarmo, Rome) andArcadi Oliveres (University ofBarcelona) contributed detailedcountry case studies.

The case studies and a summary byWerner Voß of ISA Consult werediscussed in a day-long seminar inBonn on 27 April 1995 withgovernment, industry and unionrepresentatives, as well as journalistsand academics. The case studies werethan revised and are published in aGerman-language book that is nowavailable from BICC.1

This brief is based on the German-language summary of that book. Itspecifically addresses, in acomparative manner, the effects ofthe program and possible alterna-tives in the participating countries.The study benefited from thecontributions and the support of alarge number of persons. The Hans-Böckler-Stiftung generously helpedto finance the seminar. Thesummary was translated by AndrewDennison. Special thanks are due tothe authors who provided detailedcontributions, often containing datanot available elsewhere. Of course,as outside experts, they did not haveaccess to all the information andmaterial that is classified but wouldhave been useful for thiscomprehensive study of the pro-gram. Still, they succeeded inproviding a useful contribution to adebate that is more than necessarygiven the scale of the program.

Preface

1 Michael Brzoska and Werner Voß, eds.Auswirkungen und Alternativen desEurofighter 2000. Eine Vier-Länder-Studie fürdas Internationale Konversionszentrum Bonn .Baden-Baden: Nomos-Verlag, 1996. 300 pp.DM 49,—.

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introduction

by Werner Voß

This brief will bring together theresults of four country case studiesof the Eurofighter 2000 program.Like these studies, this summarywill first examine the security issuesand then those of fiscal,employment and technology policy.Sections on the short- and long-termemployment policy alternatives willfollow.

This brief’s second section willundertake a comparative descriptionof the prospects, problems andpolicy alternatives that would followfrom the various possible politicaldecisions that governments mightmake regarding Eurofighterproduction. These alternatives willbe presented by depicting variousscenarios, which is an effective wayof identifying the significant aspectsof an issue.

In the period leading up to theproduction decision, which isexpected in 1996, numerous alterna-tives appear possible. They rangefrom completing the program as afour-country project by jointlyprocuring the aircraft, to one ormore of the partners leaving theproject, to a decision on the part ofall the partners to entirely refrainfrom producing a new fighteraircraft.

The status quo scenario will providethe context for describing theexpectations and difficultiesassociated with the jointprocurement of the Eurofighter.The assumption that increasedexports are necessary for the successof the program—an argumentfrequently made by industry—is ofparticular importance for thisanalysis.

An alternative scenario will look atthe possibilities and consequences ofcomplete or partial abandonment ofthe Eurofighter’s procurementprogram. In this context, variousdrop-out options will be discussed:purchasing another aircraft, perhapsunder licensed production, orconcentrating production of theEurofighter in Great Britain.

The chapter begins with a shortrecapitulation of the project’shistory. Such a description clarifiesthe similarities as well as the manydifferences between the partnercountries involved, therebyproviding a foundation forunderstanding the complexity of theprogram.

Eurofighter 2000:Consequences

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As early as the 1970s, theexpectation that research anddevelopment costs of a new fighterwould be very high led various airforces and governments to examinewhether an aircraft could be jointlydeveloped and built. It was toreplace the 1960s vintage F-4FPhantom (Germany, Great Britain,Italy), F-3 Tornado (Great Britain),and F-104 Starfighter (Italy). Theseaircraft were slated for retirement inthe 1990s.

The European Fighter Aircraft(EFA), as it was then known, had anumber of antecedent models inFrance and Great Britain: Francepursued the demonstration programAvion de Combat Experimentale(ACX), which was later redesignatedas the “Rafale.” British firms (BritishAerospace, GEC Avionics, Rolls-Royce, Dowty, Lucas, Ferranti andSmiths Industries) began to developa new fighter aircraft in the contextof the Experimental Aircraft Pro-gramme (EAP). The British defenseministry only began to support thisprogram in 1982.

In Germany, aviation companieswere also defining the requirementsfor a new fighter aircraft. It was toreplace, by the mid-1990s, the F-4Phantom used by the German airforce. These activities, begun in thefall of 1976, did not lead to theresults German industry had hopedfor. Substantial difficulties infinancing the MRCA Tornado led

then-defense minister, Hans Apel, todeclare a spending (andreassessment) pause for the newaircraft. The change to aconservative-liberal government in1982 rekindled the discussion of afollow-on model for the F-4 Phan-tom. At the same time, impetusgrew for multilateral governmentaltalks.

In the summer of 1983, the defenseministries of Great Britain, France,Germany and Italy began seriousnegotiations regarding a EuropeanFighter Aircraft. Already in 1983,the air force staffs were able to agreeon a joint tactical framework(Outline European Staff Target,OEST). According to theiragreement, the primary role of thenew fighter aircraft would be airdefense; additionally, it was to havea ground-attack capability. Thefighter was to have a one-man crew,a range of 550 km, multiple targetacquisition radar and the ability totake off and land on short runways.

The governments were not able toreach agreement on a clearlyspecified empty weight in thetactical framework agreement.Whereas the German air forcepreferred a weight of 8.5 tons, theFrench side wanted 9 tons. TheBritish favored 11 tons. As acomprise, they agreed on upper andlower limits.

Despite these differences,negotiations continued. In October1984, the parties agreed on a moreconcrete description of the projectwithin the context of a “EuropeanStaff Target.” Shortly thereafter, theaviation industry was commissionedto draw up two feasibility studies.The French aircraft manufacturerDassault obtained a contract to

design a fighter with an emptyweight of 9.5 tons minus 250 kg.The major aircraft manufacturers ofthe four other partner states (BritishAerospace, MBB, Aeritalia andCASA) designed an aircraft of 9.5tons plus 250 kg. By February 1985,the companies had presented thetwo designs. Yet neither fully metthe requirements of the EuropeanStaff Target; further refinements inthe respective concepts followed.

Behind these diverging ideas aboutweights lay irreconcilable differencesover the planned aircraft’s role.Despite the compromise reachedduring the preceding negotiations,the French saw their security betterserved by an aircraft designedprimarily for a ground-attack role.The low empty weight would alsohelp reduce costs, therebyimproving the prospects for export.This was part of a strategy aimed ata stable and full utilization of Frenchaircraft construction capacity—capacity that was highly dependenton exports.

Export chances also played animportant role in the British debateover a new fighter aircraft.Nevertheless, the distance to theassumed Central Europeanbattlefield and the prospect ofdeployment overseas left the Britishair force arguing that a lighteraircraft would not meet theirrequirements. The heavier aircraftthey wanted also had consequencesfor the design of the aircraft’sengines.

As with the airframe manufacturers,the British engine manufacturerRolls-Royce and its French“counterpart” Snecma had alreadydone considerable design work forthe respective aircraftconfigurations. The interests of thevarious industries, which werebasically structured along nationallines, clashed on this issue.

The Origins of theEurofighter 2000

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The apportionment of project taskswas also agreed on: BritishAerospace would take on primaryresponsibility for developing thefront fuselage and half of the right-hand wing. MBB would develop thecentral fuselage and the vertical tailunit. Aeritalia would design the leftwing as well as half of the rearfuselage. The Spanish aircraftmanufacturer CASA would dodevelopment work on the other halfof the right wing as well as the rearfuselage. Rolls Royce (UK), MTU(now a part of Daimler BenzAerospace AG, Germany), FiatAvio (Italy) and SENER (Spain)were the primary contractors for thedevelopment of the jet engineEJ2000.

Development work continued andthe EFA project grew lesscontentious. Only occasionalcontroversies over rising pricesattracted any public notice. Thesecontroversies did not, however, callinto question the validity of theprogram in principle.

This did not occur until the collapseof the Warsaw Pact. The FDP,Germany’s Liberal party, decided towithdraw its support for the projectat its traditional Epiphanyconference in January 1990. Intensecontroversy and broad-basedinvestigations soon surrounded the“Jäger 90” project, as it is known inGermany. How the aircraft’s costscould be reduced was at the center ofthe debate.

In the period that followed, theprogram’s increasing difficulties inthe development of certaincomponents—particularly theavionics—became well-known.Indeed, technical problems made itimpossible to adhere to thetimetable agreed upon in 1988. Thefirst flight of a prototype, initiallyplanned for 1991, was postponednumerous times; the first flightfinally took place in April 1994.

These differences over the designwere rooted in the desire of theindustries to maintain theirinfluence and to make the most ofthe money they had alreadycommitted. Which industry was tolead the common project was thusan important question. Despite avariety of compromise proposals,the parties could not find a commonsolution during the mid-1980s. Theattempt to develop and produce anew fighter in the context of a five-country arrangement wasabandoned. France went its ownway with the development of the“Rafale.” The Spanish governmentrefrained from doing the same onlyafter the other three Eurofighterstates guaranteed it both aneconomic stake commensurate withits financial contribution andprotection from an uncontrolledcost explosion.

The governments of Great Britain,Germany, Italy and Spain signed thefirst Memorandum of Understand-ing (MOU No. 1) on 21 October1986. Therein they declared theirintention, in principle, to jointlydevelop and procure a new fighteraircraft. The aircraft was to becapable of combat both close-up andbeyond-visual range. It was to bearmed with AMRAAM andASRAAM guided missiles (thoughthe ASRAAM option has since beendropped). Furthermore, the EFAwas to acquire all-weather and day-and-night capability. The newfighter aircraft’s primary functionwas to be air defense, but it was alsoto be suitable for ground attack.

The international program officeNATO European Fighter AircraftManagement Agency (NEFMA) wasto supervise the project, and beganoperations in February 1987. Theestablishment of correspondingindustrial program structures hadalready occurred. In Munich, in June1986, the Eurofighter Jagdflugzeug

GmbH was established as the primecontractor for the new fighter.Eurojet Engine GmbH was set up ashort time later to organize enginedevelopment. These entities allowedthe various national industry groupsparticipating in the EuropeanFighter Aircraft to join interests atthe international level.

The program office NEFMA hasbeen responsible for awardingcontracts since the beginning of thedevelopment phase. MoU No. 1 alsostipulates that German and Britishcompanies and institutes will eachreceive 33 percent of thedevelopment contracts, the Italians21 percent, and the Spanish 13percent.

The second framework agreement(MoU No. 2), signed on 18 January1987, settled a number of additionalaspects of the ongoing developmentphase. In September of the sameyear, the partner countries signedthe “European Staff Requirement for(full) Development” (ESRD). Thisspecified more concretely theoperational requirements for thenew aircraft and thus thedevelopment process in general.

The governments made a non-binding commitment to procure 760aircraft. Germany and Britain bothintended to purchase 250 units or 33percent of the total production. Italyagreed to purchase 160 aircraft (21percent), while Spain planned to buy100 (13 percent).

National parliaments took up thequestion of the new aircraft during1988. Additionally, the partnerdefense ministries signed MoU No.3 in November 1988, which was tobe retrospectively valid fromJanuary 1988.

the origins

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Moreover, the Spanish governmentannounced in February 1992 that itwould buy only 87 instead of theplanned 100 aircraft. The Germangovernment also signaled that itwould prefer to purchase 140 insteadof the previously planned 250aircraft. These events all confrontedthe project with increasing tensionbetween the four participatingcountries.

In the context of continued domesticdebate, the German defenseminister, Volker Rühe, provoked aserious crisis for the consortium inJune 1992. Rühe proposedabandoning the planned project andbuilding a new, significantly cheaperaircraft—dubbed “EFA light.”

The British government, inparticular, reacted very negatively tothis proposal. The uncertainty ofdevelopments in Eastern Europejustified for the British governmentthat a new fighter with thecommonly defined characteristicswas needed. At the same time, theBritish government argued thatpursuing a new aircraft design woulddevalue the research anddevelopment costs that had alreadybeen incurred, while adding addi-tional costs because of delayinvolved in redesigning the aircraft.

In an effort to maintain Germany’sparticipation in the cooperativeventure, the Eurofighter consortiumwas commissioned to undertake astudy on how the expected costs ofthe original version could bereduced by 2 billion DM. Savingswould be aimed, in particular, atlowering the calculated unit-cost by30 percent. This would bring theprice per aircraft under what theGerman government viewed as the“magic” 100 million DM threshold.

On the basis of the originalconfiguration, including two jetengines, industry outlined potentialsavings. Changes in the aircraftdesign led the authors to speak of a“New European Fighter Aircraft”(NEFA). NEFA, it was said, couldbe built for a unit price of 100million DM. The savings were tocome from reduced equipmentstandards, more rationalized logisticstructures and more concentratedinvestments. Governments receivedthe study in October 1992.

A few days later, the Britishgovernment underlined its intentionto continue the original program—alone if need be. Britain alsosuggested a trilateral continuation ofthe project to the Italian and Spanishgovernments. This ruled out a jointtermination of the developmentproject. Realizing that it could onlyleave the project at great cost,Germany decided to stay involved atleast through the end of thedevelopment phase.

In December 1993, the fourgovernments agreed to continue theproject on the basis of changes in theoverall configuration of the aircraft.In order to symbolize a newbeginning, they renamed the project“Eurofighter 2000.” The precisenature of this agreement is still notentirely clear to the general public.A Memorandum of Understandingdividing the extra costs resultingfrom redevelopment (MoU No. 4)was only signed in April 1995.

Commitment to the multi-functional design of the aircraftcontinued: the Eurofighter 2000 wasto have both air-to-air and air-to-ground roles. The German air forceviewed the later function asancillary. In contrast, the Britishgovernment underlined its intentionto enhance the aircraft’s groundattack role.

The Eurofighter 2000 would staywith EFA’s airframe and the EFA’stwin jet engines. Those countriesthat would continue with theproduction phase would be able tofit the aircraft as they desired. Thedecision on procuring the aircraftwould be made in 1995.

Despite the joint continuation of theproject, one problem remainedacute: the financial difficultiesincurred by the price dynamic of theplanned aircraft could not be solvedby the restructuring measures.Rumors of significant cost increasesand risks continue.

This inability to control costs couldinduce substantial changes in theprocurement plans of the variousgovernments. Only Great Britainappears committed to its originalintention to purchase 250 (or evenmore) aircraft. Spain has reduced itspurchase plans from 100 to 72. Italyseems to only want 130 planesinstead of the original 165. Thesituation in Germany is still unclear.Discussion about the effects of thereduced procurement plans were stillongoing at the time of writing.

Every reduction in the number ofaircraft built inevitably increases theunit cost. This does not make thedecision to participate in theprocurement and production of theEurofighter any easier. No definitecost calculations were available atthe end of 1995.

In this respect, the EFA crisis of1992 and the programs continuationinto the present also shows the greatstrength of military, technologicaland industrial interests. By the sametoken, it demonstrates how difficultit is to change the trajectory of sucha multilateral program once it hasbegun.

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The significance of theEUROFIGHTER project

A comparative assessment of thespecific national priorities anddevelopments requires an adequateand overarching frame of reference.A number of important elementshave already been mentioned such assecurity policy and alliance politics.Also, the program must be seen inits economic context includingcriticism regarding its negativeimpact on national and of theEurofighter’s implications for

Spain Italy Germany Britain

Significance forair force planning priority priority medium priority

Are military to a large to a largerequirements met? totally mostly extent extent

Political acceptanceof the project not discussed high controversial high

Assessment of costs worryinglyof Eurofighter very high very high high very high

Industrial dependence :Total economy low low low highAerospace industry high high influential very highDefense industry high high substantial high

Technology policy :Total economy important secondary secondary importantAerospace industry important important less important importantDefense industry important important important important

Short-term little little little very littleconversionpossibilitieson company level

A ComparativeSurvey of the

Country Studies

maintaining capacity in the defenseand aviation industry. The programalso raises the issue of short- andlong-term industrial policy. Themajor results of the four countrystudies in regard to these questionsare depicted in Table 1. They areexplained in greater detail below.

Table 1: Effects of the Eurofighter program

comparative survey

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Country Fighters Fighter bombers

United Kingdom 134 Panavia Tornado 54 Sepecat JaguarF-3 ADV 171 Panavia

already retired: Tornado GR-1MDD F-4 Phantoms

Germany 150 MDD F-4 Phantoms, 193 Panavia20 Mikoyan MiG-29 Tornado FGA

Spain 33 Dassault Mirage 22 Northrop F-5BF-1 CE/BE 17 Dassault

already retired: Mirage F-1EE Dassault Mirage IIIs

Italy 99 Lockheed 70 PanaviaF-104ASA Tornado FGA

15 Fiat G-91Y66 Aeritalia AMX

Security aspects

All four countries continue toadhere to the formal rationalebehind the new aircraft: it is toreplace the aging fighters of therespective national air forces. TheItalian air force continues to rely onthe F-104 Starfighter. Germany’sand Spain’s air defense is primarilydependent on the F-4F Phantom—an aircraft type that was alreadyused during the Vietnam war. TheBritish air force also relies onrelatively old weapons systems,including Jaguars and the Tornado-ADV (see Table 2).Since the dissolution of the WarsawPact and the Soviet Union, the merefact that a weapon system isoutdated no longer justifies a newweapons program. Convincingmilitary and political rationales arealso necessary. The once dominantthreat perception of a Soviet attackis being gradually replaced by othersomewhat ambiguous threatperception to justify continuation ofthe project.As in the past, one line of argumentis to determine and compare thecurrent and planned levels of fighteraircraft. This procedure is burdened

Table 2: Aircraft to be replaced by the EF 2000

Source: IISS, 1995

1995 2000 2010Western Europe

Great Britain 419 419 464

Germany 444 360 301

France 612 532 438

Italy 348 294 300

Sweden 344 296 288

Total : 2,167 1,901 1,791

Russia 3,514 2,302 1,310

by certain “uncertainties”; subjectiveinfluences can play a role andqualitative aspects are not accountedfor. Nevertheless, it helps to identifycertain trends.

On the basis of figures from theInstitute for Defense andDisarmament Studies, Table 3 shows

Table and graph 3: Current and planned levels of total number offighter aircraft in the years 1995—2010

Source: Forsberg, 1994

fighter aircraft levels in Europe. Thefive West European states, GreatBritain, Germany, France, Italy andSweden had 2,167 combat aircraft in1995. Despite the plannedmodernizations, e.g., the Rafale andthe Eurofighter, this figure willdecrease to 1,791, a reduction of 17.4percent, by the year 2010. Russiahad an inventory of 3,514 combat

1,000

2,000

3,000

4,000

01995 2000 2010 Year

Number WesternEuropeRussia

Source: see Table 3

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aircraft in 1995 and is planning toreduce this by almost two-thirds to1,310 by 2010. On the basis ofcurrent planing, Russia’s quantitati-ve superiority in 1995 will haveturned into a significant WestEuropean superiority by 2010.The comparison does not includeUkraine. It is a major country withits own fighters that could also posea threat to the West. But thesummary provided by the Institutefor Defense and DisarmamentStudies also excludes Spain. Moreimportantly, it excludes the UnitedStates, which will have more thantwice as many combat aircraft asRussia in the year 2010. Addition-ally it makes no reference toNATO’s possible expansion toinclude Central East Europeanstates.

In sum, the available data indicatethat the security rationale for anew aircraft has become weak. Atleast in the mid-term, the availablecapabilities of the western statesappear more than sufficient inview of a “threat” that has declinedand continues to decline. In viewof the difficult economic situationin Ukraine and Russia, it seems amistake that the governmentsinvolved are not negotiatingfurther disarmament. The analysisis only marginally different withrespect to the „Southernperiphery“ of Europe.

The analysis in the country casestudies show that the respectivemilitary establishments havesignificantly shifted theirargumentation, particularly in termsof the Eurofighter’s future place innational security policy. Thechanges in Central and EasternEurope explain much of this shift.

Improved relations with former“enemy” states have generatedgrowing doubt —particularly inunified Germany —about the needto replace the Phantom with atechnologically demanding and thusextremely expensive EFA (Jäger 90)or EUROFIGHTER 2000. In view

of the total decline in threat, theGerman defense ministry expressedits interest in “shedding excess fat”from the planned version of theaircraft. Still, the official line iscurrently that a completerenunciation of such an aircraft isnot possible from the nationalsecurity perspective because of theongoing reorientation of Germany’sarmed forces. “Multi-directional”threats to German territory and thenecessity of protecting Germantroops in out-of-area operations nowprovide the basis for justifying theprocurement of the aircraft.However, in the view of the authorof the case study on Germany, JörgHuffschmid (1996), the militaryspecifications of the Eurofighter donot correspond to the requirementsfor the intended new missions.

In Great Britain, the militaryestablishment did not see such a“justification gap” in the early 1990s.While they recognized that thethreat of a massive Warsaw Pactattack had disappeared, they pointedto substantial and growinginstability within Europe. In theview of the British defense ministry,this was especially the case on theterritory of the former SovietUnion. Problematic developmentswere also occurring outside Europe;the Middle East, in particular,remained unpredictable. Because thestates of the former Warsaw Pactwere armed with third generationmilitary aircraft —among them theMiG-29 Fulcrums and the SU-27Flankers —Great Britain would alsohave to modernize its air defenses.For these reasons, the Royal AirForce placed great importance onthe acquisition of an aircraftadhering to the defined requirementsof the EFA. This led MalcomRifkind, then state secretary in thedefense ministry and now foreignminister, to announce in 1993 thatBritain would complete the pro-gram, if necessary on its own.

In contrast to Germany and Britain,Italy and Spain define their securityrequirements more in terms ofMediterranean problems; they tend

to see threats stemming from thecountries of the south (Maghrebcountries). A number of states inAfrica and the Middle East possessthird-generation combat aircraft(such as the MiG-29 and the SU-27).

As these aircraft are technologicallysuperior to the F-104 Starfighters,the Italian air force places greatimportance on acquiring a newfighter. The performancecharacteristics of the Eurofighterappear to fit the militaryrequirements of the Italian air forcebetter than is the case withGermany. Nevertheless, the authorof the Italian country case study,Guilio Perani (1996), also calls intoquestion whether the Eurofighter is,from a technical perspective, thebest of all possible solutions. Therehas been no public debate of anysignificance in Italy over this matter.Nor has Spain seen public debate onthe security implications of theEurofighter.

Financial andeconomic aspects

From the very beginning, theEurofighter has provoked discussionnot only of its financial implicationsbut also of its impact on economic,industrial and technology policy.

With public indebtedness sometimesrising to exorbitant levels, WestEuropean governments have givenincreasing attention to keeping thecosts of new weapons systems undercontrol. Sluggish economic growthin recent years has reinforced theneed to curb budgetary excess.Nevertheless, different groupswithin the affected societies haveviewed the Eurofighter’s costdevelopment quite differently.Other factors, such as preservingjobs and pushing technologicaldevelopment, also affect theirassessment of this defense program.The authors of the country studieshave concluded, on the basis of thematerial available to them, that theaircraft’s unit-price (at currentlyplanned production levels) will be at

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taxpayer. Germany’s recession in1992 and 1993 only exacerbated this.The Eurofighter is thus clearly incompetition with other publicexpenditures. Significant costincreases would further reduce thealready limited public willingness tofinance a new combat aircraft. Asimilar assessment can be made forSpain: procurement becomes lesslikely with a price higher thaninitially planned.

Industrialdependence

Germany’s relatively low interest inthe Eurofighter also stems from theprogram’s marginal impact onindustry and employment. To anextent, this is also true of Italy andSpain. On the other hand, GreatBritain’s generally weak industrialbase makes the Eurofighter an issueof greater salience.

The arms industries of the partnercountries view the program withgreat interest. Assuming that theaircraft would go into production,its share of employment in theGerman arms industry would besubstantial (about 10 percent of the120,000 workers directly andindirectly employed in the armsindustry). In Italy, Spain and GreatBritain, it would be even higher.The percentage would go up if theproject’s cost were to rise whilepublic spending was being cut, asthis would likely result in thetermination of other weaponsprograms.

This kind of competition is alreadywell known in Germany. Itcontributed to the delay in startingdevelopment work on this aircraft inthe early 1980s. Officially, all thepartner countries maintain that theproject is important for retaining aminimal capability to participate inthe construction of combat aircraftin the future. Huffschmid questionsthis argument, claiming that systemcapability already exists and can bemaintained in the civilian aviationindustry.

the upper, not the lower, level ofofficial price estimates.

The Italian budget accounting officeassumes that the project will exceedthe planned development costs ofaround 800 to 900 billion Lira. Norwill it be possible to stay within thedefense ministry’s figure of 15,525billion Lira (1994 prices) for theentire program, as its completionhas already been delayed. InGermany, the federal accountingbudget office estimates that theprocurement price per aircraft willnot be 90 million DM—as suggestedby the German defense ministry in1992—but closer to 150 million DM.Huffschmid (1996) calculates thatincluding the aircraft’s armamentcost and assuming the purchase ofonly 100 instead of 140 fighterspushes the unit-price to between 175and 195 million DM. Great Britainalso has experienced cost overrunsduring the development phase.Based on a system price of morethan US $ 100 million , totalproduction costs of about 600aircraft would amount to US $ 60billion.

While the British and Italiangovernments view the costdevelopment of the Eurofighterwith concern, there has been lessdebate about either past or futurecost overruns. The great importanceof the aircraft to air force planningin the two countries explains this. Sodoes the expected economic andtechnological benefit, both tonational aircraft industries andindividual firms.

The German federal government,especially the ministry of defense,faces a different situation. It mustalso contend with a national budgetpushed deep into debt by the costsof unification. Nor are further taxincreases likely to ease the financialpressure facing the Eurofighter.Modernizing the infrastructure andeconomies of the new Länder andcovering higher social outlays hasalready made for a very wary

Nevertheless, the aviation industryis already suffering from excesscapacity and the rising number ofcompetitors makes it a “perilousplace to do business” (Willet, 1996).Globally, excess capacity is at 30percent; in some branches, it reaches50 percent. GATT guidelines havealso made direct support for “natio-nal champions” more difficult. Inthis context, weapons projectsappear capable of circumventingsuch restrictions and temporarilystabilizing employment.

The authors of the country studiessee the Eurofighter having thefollowing effects on employment:

In Great Britain, the developmentof the aircraft currently employsbetween 3,000 and 4,000 workers.Observers expect that direct andindirect employment will rise to20,000 at the high point ofproduction. It will beconcentrated in the regions ofLancashire, Warton and Bristol.

In Germany, around 2,500 peoplewere working on the aircraft’sdevelopment in 1995. If 140aircraft are purchased at a unit-price of 100 million DM, then theannual average employmentcreated over a 10-year periodwould be 10,000. If the widelyexpected cost increases occur,then employment could rise tobetween 13,500 and 15,000. Thejobs would be concentrated inBavaria and Baden-Württemberg.

In Italy, there are currentlyaround 2,000 people employed onthe project. The Italian DefenseMinistry estimates that theproduction phase will create15,000 jobs. This would make upsomewhat less than half thenumber of people currentlyemployed in the Italian aircraftindustry. The author of theitalian case study, Guilio Perani,thus sees this estimate asexaggerated. He assumes anaverage of 7,000 jobs for a

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procurement phase of 12 yearsand 5,600 for a period of 15 years.The regions currently involved inthe development of the aircraft,Piedmont, Lombardy, Latiumand Campagnia, will also getmost of the employment fromthe aircraft’s production.

In Spain, estimates put directemployment on the aircraft ataround 5,000 during production,with less than 2,000 employedduring development.

While these figures are impressive, itmust be remembered that they arethe result of public expenditure ofseveral tens of billions of US dollars.The mid- and long-term effect ofsuch employment subsidies are morethan doubtful as they tie upresources that could be better usedelsewhere (see, for example,Krugman, 1994, p. 234 ff).

The broad distribution of theproduction of the Eurofighter willalso counteract the necessaryrestructuring of the Europeanaerospace industry. It will obstructthe creation of European capacities(even if only in the fourparticipating countries).

The Eurofighter’sinfluence ontechnology policy

Though it is a military program, theEurofighter will influence thetechnology policy of theparticipating countries—inproportion to its industrialsignificance.

In Germany, Huffschmid (1996) seesthe impact on technology policy asremaining limited; the limitedtechnological impact of weaponsprojects is a consequence of thestrong civilian orientation ofGerman research and the Germaneconomy. Moreover, the really

significant technological“breakthroughs” are coming fromthe civilian sectors of the economy.These civilian breakthroughs havethen been integrated into newweapon systems in recent years; the“spin-off” argument (if there everwas much validity to it) has beenturned around. Today it is moreappropriate to speak of “spin on,”namely using the results of civilianresearch and development formilitary projects. Naturally, thisdoes not rule out isolatedtechnological breakthroughs in themilitary sector. The Eurofighter willnot reverse this long-term trend; theaircraft will primarily containpresent-day technology.

Italy is also not pursuing a nationaltechnology strategy in regard to theEurofighter. This situation is a resultof the Italian defense ministry’s lackof a coherent research anddevelopment policy. Research iscarried out by the companiesinvolved. They are, however,oriented towards mid-termcommercial interests. Thesecompanies are not part of a strategyfor achieving broader socialobjectives.

In contrast, the British governmentuses military projects in general andthe Eurofighter in particular toachieve the primary objectives of itstechnology policy. Maintaining andexpanding military-relatedcapabilities and capacities is a highpolitical priority in Great Britain.The British government is againstofficially promoting “critical”technology lists, but the discussionof future research priorities in the1994 Statement on the DefenceEstimates and Forward Look (seeWillet, 1996) show that the defenseministry has in fact defined suchcrucial technologies. Spain is alsotrying to use military projects as adoorway into other areas of hightechnology.

The wide variety of views on therole of the Eurofighter in thevarious national technologyprograms should not obscure thesimilarity of perspectives in thedefense ministries and armsindustries. These interest groupssee the aircraft project playing animportant role in advancingmilitary-technologicaldevelopments. The major concernis US competition in militaryaircraft production. In view of theincreasing importance of civiliantechnology, it is questionablewhether a narrow concentrationon arms production capabilities isappropriate.

Conversionpossibilities at thecompany level

Despite considerable efforts inrecent years, Western Europeancountries have not been able to shiftto a path of sustainable developmentprocess. Supporting a new path togrowth and prosperity, Huffschmidargues for combining a cancellationof the Eurofighter with movestowards a solar power economy andthe development of more ecologicaljet engines. A decision to build theEurofighter would lead to significantinvestments in a technologicaldirection incapable of adequatelyaddressing the long-term challengesto Europe’s industrial societies. Aslaudable and appropriate as thisproposal is, it is an open questionwhether such an economic andecological reorientation can keepjobs secure in companies highlydependent on arms production. Theother authors are skeptical on thismatter.

The short-term possibilities forconversion or diversification of theconcerned companies in Italy andGermany are very limited.Nevertheless, the experience ofconverting companies in the ship-and tank-building industries (Voß,1992) shows that the creation ofcivilian divisions in such companies

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efforts of the firms. Yet weaksecurity policy rationales andarguments about keeping a minimallevel of national arms productioncapabilities have kept the programgoing. This clearly reduces thewillingness of both management andworkers to develop andprofessionally implement altern-atives to arms sales.

As a rule, most of those affected takea wait-and-see attitude towards thefuture orientation of a firm. Butlobbying activities in support of newmilitary programs increase. If acompany has failed to takeprecautionary measures, thecancellation of a weapons systemoften only leaves the option ofcutting the labor force—or evenclosing the company.

Yet the end of a weapons programcan be seen long before it occurs; adecline in demand is thus relativelypredictable. A timely analysis ofthe endogenous potential of acompany could help to secure newproduct lines and businessopportunities. However, it is notonly the dearth of sound productideas that makes conversion anddiversification so difficult. Manage-ment and marketing methods havetheir shortcomings; businesspractices and structures oftenrequire change (Technologie-stiftung Schleswig-Holstein, 1994).

can succeed in the mid-term. Butsupport by both management andthe workers is necessary. GreatBritain also has examples ofcompanies that took advantage ofmarket openings to diversify despitea lack of public funding. Weaponsproduction made up 75 percent ofthe jet engine manufacturer Rolls-Royce in the 1970s; civilianproduction is now 75 percent of thetotal. Rolls-Royce did, however,continue to produce very similarkinds of products and was thus ableto concentrate on its corecapabilities.

The prospects for successfulconversion can be improved ifbroader industrial policy alsosupports the transformation process.Conversion must be seen as aninvestment process that only bearsfruit after many years. In the view ofthe authors, the conditions for thisare better in Germany and Italy thanin England and Spain. But even inGermany and Italy, employmentcan only be adequately secured inthe short-term if the firms receivesufficient public funding. Emptygovernment coffers make thisunlikely. Issues of competitivenesswould also make it problematic.

In Great Britain, the chances ofcreating additional jobs in otherindustrial sectors is small in view ofongoing “de-industrialization.” Thesubstantial cutback in militaryorders in recent years has not beencompensated for by commensuratediversification. The main strategy ofmanagement in British armsmanufacturers has been to seek outand secure “monopoly positions” incertain niches of the arms marketthrough mergers and acquisitions.Less lucrative (weapons) divisionshave been sold off.

Managers determine the strategicorientation of their companies onthe basis of past experiences withgovernment’s behaviour. Thus, adecision in 1992 not to build theEurofighter would have greatlystrengthened the diversification

Restructuring requires significanteffort from both management andthe workforce. As difficulties areunavoidable, these activities are notalways crowned by success. Yetnegative experiences withdiversification also exist in otherindustrial branches. They do notspeak in principle against thepossibility of reorganizing andreorienting specific parts of the armsindustry. For this reason, thefollowing section will evaluate allthe possible courses of action—including cancellation of theEurofighter’s production.

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Spain Italy Germany Britain

Air force planning satisfied satisfied open satisfied

Political acceptance sufficient sufficient controversial high

Procurement costs very high, very high, alarmingly high, very high,problematic but acceptable in the causing burdens but acceptable

case of limited units

Defense industrial very high high substantial very highdependence

Technology policy important secondary secondary important

Short-term conversion little little little very littlepossibilities oncompany level

Table 4: Procurement of the Eurofighter as planned(status quo scenario)

possible options

The following scenarios do notclaim to fully depict correspondingfuture developments. Economicprocesses on the scale of theEurofighter program are toocomplex for such an undertaking,even if one concentrates on only afew selected aspects. The scenarioscan help, however, to assess themilitary project from differentangles.

In the following tables, these signsoffer a comparison with the statusquo:

+ conceivable advantages++ probable advantages+++ great advantages

- controversial discussionlikely; compensation fordisadvantages likely

- - improbable at present; onlyconceivable if disadvantagesare compensated for

- - - inconceivable at present? currently not possible to

evaluate

The difficulty of acquiring data onthese subjects means that the authorswere not always able to completelyanswer all the questions raised bythe various scenarios.

Assessment ofpossible options

The status quoscenario:procurement of theEurofighter

The status quo scenario operates onthe assumption that the fourcountries involved will jointlycomplete the Eurofighter programas planned. Little substantive debateswould result from such decisions inSpain, Italy and Great Britain;support for the project is currentlysecure not only in military circles,but also among the public.However, external influences couldchange public opinion, e.g. ifGermany were to abandon the

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project. A change of mood would beparticularly likely in Spain, wherefears of cost increases have existedsince the beginning of the project.Procurement of the Eurofighter asplanned would largely have resultsas already described in Table 1.

By contrast, Germany will likelyagain see heated debate before a finaldecision on procurement of theEurofighter is made. The outcomeof the debate in Germany is stilluncertain: the Eurofighter does notfully match the requirements ofcurrent security policy and the costsof procurement will be alarminglyhigh.

It is not certain that the fourcountries really need a newaircraft. But if they do, one of theessential criteria will be the relativeprocurement costs of theEurofighter and any othercomparable aircraft type. Such anassessment needs to take intoaccount the export prospects forthe Eurofighter. The authors ofthe country case studies judgethese to be relatively low. Theycome to this conclusion on thebasis of the economic situation ofmost of the potential buyercountries and the export trends ofrecent years, which have seen salesabroad shift to more “low-tech”aircraft. Moreover, competitionhas intensified, above all from theUnited States. Significant costreductions through the export ofEurofighter aircraft are thusunlikely.

Effects on : Spain Italy Germany Britain

Air force planning - - - - - - - - -

Procurement costs +++ +++ +++ +++

Technology - - - - -

Industry in general - - - - - - -

Affected arms industry - - - - - - - - - -

Conversion possibilities - - - - - -

Political acceptance - - - - - - - -

Table 5: Cancellation of the Eurofighterwithout alternative

Effects on : Spain Italy Germany Britain

No Eurofighter production, alternative purchase "off-the shelf"

Air force planning ++ ++ ? -Procurement costs + ++ ++ ++Technology - - - - -Industry in general - - - - -Affected arms industry - - - - - - - - - - - -Conversion possibilities - - - - - -Political acceptance ? - - - - - -

No Eurofighter production, alternative purchase with license production

Air force planning ++ ++ ? -Procurement costs + + + +Technology ? - - - - -Industry in general - - - - -Affected arms industry - - - - - - - - -Conversion possibilities - - - -Political acceptance ? - - - - -

No Eurofighter production, alternative purchase with offset production

Air force planning ++ ++ ? -Procurement costs + + + +Technology + - - - -Industry in general + + + - -Affected arms industry ? ? ? ?Conversion possibilities + ++ ++ +Political acceptance + - - - -

Table 6: No Eurofighter production—purchase an alternative aircraft

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Cancellation of theEurofighter programand no alternative

This scenario only seems possiblefor Germany, although othercountries would also gain at leasttemporary financial relief from adecision to buy neither theEurofighter nor another aircraft.This positive aspect would beovershadowed, however, by theconsequences in the areas ofsecurity, industrial and technologypolicy. The limited prospects ofconversion would also have negativeemployment consequences in theshort run.

It is unlikely that either Italy orGreat Britain will see seriousdiscussion of such a possibility.Nevertheless, were Germany tocancel its participation, othercountries would certainly reopendiscussion of both the Eurofighterand its possible alternatives. Thiswould not have any influence on aproduction decision in GreatBritain. The reaction of the Spanishgovernment and public appears lesscertain in this respect.

It is often asserted that “irreparabledamage” to the Alliance wouldresult from Germany unilaterallywithdrawing from the procurementphase of the program. Yet accordingto Huffschmid, experience withother cooperation projects does notcorroborate this. Internationalcooperation projects have frequentlybeen terminated when one of thecooperation partners withdrew.

A further complicating factor for theEurofighter is that the developmentphase is already finished: if the otherthree partners wanted to move on toproduction of the costly project, thepressure to export would intensifywith the rising costs of the aircraft.The withdrawal of a partner country(which would perhaps seek analternative aircraft) would furtherreduce, if not eliminate the aircraft’salready limited export chances.

Were a partner country to reject theaircraft, potential buyers would, at aminimum, lose confidence in theaircraft. If export expectations werenot fulfilled in such a situation, thesefailures would be projected onto thepartner that had ended itsparticipation. The consequencecould be a short-term worsening ofAlliance relations.

In the long-term, such a decisionshould not have a negative impacton a well-functioning organization.In view of the diverse technologicaldifficulties and the price dynamicsencountered during the project’shistory, the abandonment of theproject by one of the partnersshould in no way be viewed as asurprise. Industry was frequentlyunable to fulfill the expectations (interms of both time and cost) that ithad helped to create. Should acountry decide to exit the program,it would be in the context of a longhistory of project problems.

No Eurofighterproduction—purchasean alternativeaircraft

Should one or more of the partnercountries abandon theircommitment to production, therewould still be a number of alterna-tives. These would also close theostensible security gap that would beleft open by cancellation of theEurofighter. First, an already-developed aircraft could be boughtimmediately “off-the-shelf“ fromabroad. Second, the aircraft could bepurchased but produced underlicense. Third, an alternative aircraftcould be bought but with offsetproduction.

In Germany these alternatives havebeen studied for some time (seeBundesrechnungshof, 1994; Wehr-technik, 1992, p. 7) These studiesshow that the European FighterAircraft was the optimal aircraft forthe German air force, “but not atany price.” From the Germanperspective, a precise militaryevaluation of the Eurofighter is onlypossible in the context of anevaluation of its total cost. As far astheir security needs are concerned,the Italians would probably benefitfrom buying an alternative aircraft,whereas the British would suffer.The three alternative scenarios differprimarily in terms of procurementcost, impact on technology policyand conversion possibilities.

Purchasing a fighter that has alreadybeen developed instead of theEurofighter would generatesignificant savings (as long asopportunity costs are excluded fromconsideration). In view of widelyexpected cost increases for theEurofighter, the alternatives oflicense production or offsetproduction are also probably lessexpensive.

As these options involve similar oreven higher employment levels, theprimary difference would be inregard to the military-technologicalbase of the countries. BritishAerospace, but possibly also CASAand DASA, could suffer under suchan arrangement. Yet one has to askwhether this process would takeplace anyway as the developmentwork on the Eurofighter iscomplete. In order to maintainexisting military research anddevelopment capacities, anotheraircraft would have to now bebegun. The Future Large Aircraftand the Experimental Aircraft aretwo possible candidates for suchdevelopment work.

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The option of offset productionwould be particularly beneficial interms of its conversion potential.The overall industrial strength ofGermany and Italy would allowthem to benefit in particular. Evenif the offset agreement was limitedto military production, theprospects for maintainingemployment in the affected sectorswould still improve. In the lattertwo alternatives, the jobs argumentwould lose much of its validity;only the maintenance of amilitary-technological base couldbe the subject of continuedcontroversy.

ConcentratingEurofighterproduction in GreatBritain

Great Britain’s announcement that itwould build the Eurofighter alone ifnecessary has opened up anotheralternative for the partner countries:purchasing the Eurofighter directlyfrom Britain. Yet this possibility isseldom discussed. Assuming that anew aircraft must be bought, thisoption would offer a number ofadvantages that merit seriousconsideration. Germany, Italy andSpain would not participate in thefinal assembly of the Eurofighter,but they would purchase theaircraft. Production would beconcentrated in Great Britain, to theextent economically feasible (Table7). At the same time, other partnercountries could concentrate on theassembly of certain subcomponentsas compensation for the loss of arole in the final assembly.

Spain Italy Germany Britain

Procurement costs ++ ++ ++ ++

Technology policy - - - - - - ++

Industry in general - - - ++

Affected arms industry - - - - - - - +++

Conversion possibilities - - - - -

Political acceptance - - - - - - +++

Table 7: Final assembly in Great Britainwithout compensation to the other partners

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The air forces involved would beunlikely to change their military-strategic assessment of theEurofighter relative to the status quoscenario. But concentratingproduction will likely lead to savingsfor all the partners.

The advantages in the othercategories go primarily to GreatBritain. Controversy is thus likely inthe other countries—indeed, such acourse is probably politicallyunacceptable. The other partnercountries would not only beimmediately abandoning certainparts of their national militaryindustrial base, they would also befacing significant job losses.Canceling the production of theEurofighter would thus need to beembedded in a comprehensive

Spain Italy Germany Britain

Procurement costs + + + +

Technology policy + - - ++

Industry in general + + + -

Affected arms industry ? ? ? +

Conversion possibilities + + + - - -

Political acceptance ? ? ? ?

Table 8: Final assembly for all countries in theUK only, with full offset compensation (mainlycivilian)

possible options

political-economic strategy. In thiscontext, three paths are possible: oneprimarily focused on the civiliansector; one involving the militarysector; and a mix of the two.

The civilian orientation would aimat “compensation” for the lostassembly packages (Table 8). Theadvantages of this strategy are clear:The jobs that are threatened or lostby the termination of militarycontracts would be preserved bycivilian production—to a degree inthe same firm, but also in otherfirms. Overall, the employmentlevel would remain high and the

civilian sectors of the economywould strengthen over the mid-term. However, the unavailability ofinformation prevents a preciseestimate of the actual price benefits.

The success of such a programwould be dependent on the abilityto join new civilian-orientedorganizational forms with militaryones. British industry, however,would grow increasingly dependenton weapons production. This mightin turn pose a danger to thecompetitiveness of civilian sectors—at a time military demand isshrinking worldwide.

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The previous sections focusednarrowly on the Eurofighter. Onthe basis of the country studies, theyassessed the possible effects onspecific factors of variousprocurement and productionalternatives. Even though theanalysis covered only a limitednumber of aspects, a definitejudgement was not always possible.Political decisions require theconsideration of even more factors—factors which are often notamenable to quantification.

Policy towards European integrationis, of course, a particularlyimportant aspect. This also involvesthe question of a European defensepolicy and the related issue of a(West) European arms market.

Greater integration of what are stillnationally structured arms marketshas become even more important inthe context of falling demand formilitary products (Walker,Gummett, 1993; Hartley and Cox,1992). The incorporation of theIndependent European ProgramGroup (IEPG), and its simultaneousredesignation as the West EuropeanArmaments Group (WEAG), hasgiven the West European Uniongreater responsibility for bringingtogether the West European armsindustry. Up to now, there has beenno ascertainable success in thisdirection. The WEAG, in thecontext of a special study group, hasanalyzed the possibility of aEuropean Arms ProcurementAgency. Broad agreement existedthat only with the help of acommon procurement system coulda truly (West) European armsindustry be developed. However,the manner for concretelyimplementing such a proposalremains unclear as does the questionof who would carry whichresponsibilities.

As such, neither political norindustrial actors expect that a centralWest European procurement agencyand the competitive letting of

contracts could quickly lead to anintegration of the European armsmarket. It is much more likely thatless accentuated political concepts,reflecting national positions, willpredominate. Cooperative projectswill thus play a central role.

In this context, the Eurofighter has ahigh symbolic value. It is true thatFrance, the country with whichGermany has cooperated the mostin the past, is not part of the project.Nevertheless, four countries arecooperating closely in what isotherwise a very fragmented market.

The organization of this weaponprogram suffers from one particularshortcoming: its very specificpolitical agreements on the divisionof labor are oriented primarilytowards maintaining the industrialstatus quo established during theCold War. The form of cooperationselected for the Eurofighter appearsto have little potential for addressingfuture economic, technological andfinancial challenges in the militarysector.

Could not Germany’s abandonmentof the production of the Eurofighterbe connected with a restructuring ofthe fragmented and inefficientmilitary technology industry inWestern Europe? If security interestsprevail in regard to the procurementof a new fighter aircraft, and if theEurofighter fulfills the criteria set bythe military, then the questionautomatically arises of whetherBritish producers could alone coverthis demand.

Abandoning the Eurofighter’s finalassembly in Germany andconcentrating it in the UnitedKingdom could coincide with aparallel concentration of tank,warship and helicopter production.In these areas, Britain would beobliged to procure military goodsfrom other countries. With the helpof this arrangement, oversized armscapacities in Western Europe couldbe quickly reduced. According tothe European Commission,considerable public resources couldthereby be saved without incurringany security risk. However,numerous firms in the affectedcountries would face the challengeof reorienting their production.

Producing the Eurofighter in all fourcountries is likely to delay thisnecessary restructuring. Superfluouscapacities would be maintained atconsiderable taxpayer expense. The“spin-off” argument will be weakerwith the next generation ofweapons, yet the restructuringprocess would have been delayed.

Another factor that is difficult toquantify is the role of exports,which involves primarily financialconsiderations. The four partnercountries have very different viewsof the Eurofighter’s exportpotential. Britain also has importantpolitical reasons for wanting toexport: arms exports are intended tounderline that Britain is still a globalpower. In Germany export policy isless clear. Although theconservative-liberal government isofficially committed to a restrictivearms-export policy, Germany hasbeen among the world’s biggestexporters in recent years. This isprimarily the result of exportingused weapons.

Concentrating arms production on aWest European scale could reducethe pressure to export arms to thirdcountries in order to maintainnational “minimum capacities.” Yet

Prospects

23B·I·C·C

such a development would require aWest European arms export policy,which is as unlikely as a central armsprocurement system.

The future security policy of WestEuropean countries is a third aspectthat must be taken into account. Interms of its origins and itsspecifications, the Eurofighter is arelic of the Cold War. Politically,Britain has had little difficultyredesignating the fighter as animportant contribution to overseasoperations. In comparison toGermany, the Italian governmenthas also had an easier time defining anew, post-Cold War role for thefighter.

The German defense ministry isreconfiguring the Bundeswehr forcrisis management and conflictprevention, including operationsoutside the NATO area. In theshort-term, German out-of-areaactivities will probably be moredependent on transport than onfighter aircraft. In view of tightbudgets, the procurement of theEurofighter might obstruct theGerman government’s plans forgiving the Bundeswehr an out-of-area capability. One must also askwhy the current opportunities for afurther limitation of fighter aircraftinventories in Europe are not beingexplored at the negotiating table.

A fourth aspect is the manner inwhich these dysfunctionalities resultfrom interest groups who enjoyclear advantages because of theirlobbying activities. The currentdemocratic-pluralist political systemis characterized by a balance ofpower that is based on a network ofassociations, parties and stateinstitutions at all levels. This balanceof power stems from a multitude ofconflicts that have been fought outin the past. A more or less effective,but unyielding representation ofinterests is the result. The systemthus tends towards “institutional

immobility” (Scharpf, 1973) thatgives special interests structuraladvantages over more general, butless-well articulated and consolidatedinterests. The arms industry ingeneral, and the aviation industry inparticular, is especially well-organized and structured. Evenorganizations such as trade unionsare well-integrated into this system.As such, these groups represent theirinterests through lobbying betterthan less well-organized associations.For example, far more actors andinterests would have to coordinatetheir activities to achievesignificantly greater public fundingfor the solar power industry.

The arguments of the arms industrylobby would probably be less potentif the conversion to civilianproduction had been more successfulin the past. The relatively limitedsuccess of such efforts is mainlycaused by two circumstances.

First, conversion usually requiresconsiderable investment—at least ifdiversification is to be directed intoother hi-tech areas. Marketconditions will not always allow thisfunding to take place within thefirms or to come from externalcreditors. Public funding willsometimes be required. To besuccessful, the funding will have tobe significantly more generous thanit currently is in the EuropeanUnion’s KONVER program.

Second, successful conversion anddiversification efforts are dependentprimarily on the attitude changesamong management and the laborforce (Grundmann et al., 1995). Insome companies, it is not one groupthat resents changes in the businessculture, but both management andthe labor force that need to changeattitudes to make conversionposssible.

prospects

If government policy aims toadvance the conversion process byproviding support, then it faces adilemma: on the one hand,governments want to increase thenumber of high-qualified jobs. Onthe other hand, out-dated companycultures often make restructuring avery expensive endeavor.Inflexibility on the part of thecompanies should not be rewarded.No one should be able to redefine“minimal capacities in the nationaldefense industrial base” or“conversion” to mean wasting publicfunds. The continued existence ofevery company cannot beguaranteed; this is true for bothdefense-related companies that wantto stay in the military business andthose that have diversified intocivilian sectors. Instead,restructuring must be aimed atcreating sustainable and efficientstructures to provide stableemployment.

It is widely recognized that in theshort-term, the process of adaptationto market conditions does notalways lead to the desired results.Support for the transition isnecessary, but it needs to beintegrated into a broader nationaland (West) European industrialpolicy towards the military andcivilian aviation industry andtechnology-related sectors.

Even if the German governmentdecides to procure the Eurofighter,the structural problems of WestEurope’s aviation and defense-related industries will remain. Thereis an urgent need for adaptation inthe near future—adaptation thatcannot be achieved at a nationallevel. A comprehensiverestructuring of this sector at theEuropean and even world-wide levelis unavailable. The Eurofighterprogram, as currently planned, isnot contributing for a visible future.

24 B·I·C·C

brief 5

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Bundesrechnungshof. 1994.Dritter Bericht des Bundesrech-nungshofes zum RüstungsvorhabenJagdflugzeug 90/Eurofighter 2000.Berlin.

Grundmann, Martin, et al. 1995.Rüstungskonversion: Erfolg durchWandel der Unternehmenskultur,Münster/Hamburg: Lit Verlag

Hartley, Keith and Andrew Cox.1992. "The Costs of Non-Europein Defence Procurement.Executive Summary." Studycarried out for The Commissionof the European CommunitiesDG III. Bruxelles.

Huffschmid, Jörg. 1996. "Einzweifelhaftes industriepolitischesProjekt. Das deutscheEurofighter-Programm." InBrzoska und Voß, 1996, S. 201 ff.

International Institute forStrategic Studies (IISS). 1995.Military Balance 1994 -1995.Oxford University Press: Lon-don.

Krugman, Paul. 1994. PeddlingProsperity. New York/London:Norton.

Oliveres, Arcadi. 1996. "Junior-partner mit ambivalenten Ambi-tionen. Das spanischeEurofighter-Programm." InBrzoska und Voß, 1996, p. 155 ff.

Perani, Guilio. 1996. "Bedarfs-lücke unter Finanzdruck. Dasitalienische Eurofighter-Pro-gramm." In Brzoska und Voß,1996, p. 51 ff.

Randall Forsberg, ed. 1994. TheArms Production Dilemma.Contraction and Restraint in theWorld Combat Aircraft Industry.Cambridge/London: MIT Press.

Scharpf, Fritz W. 1973. Planungals politischer Prozeß. Frankfurt

Technologiestiftung SchleswigHolstein. 1994. Handbuch betrieb-liche Konversion. Kiel.

Voß, Werner. 1992. Die Rüstungs-industrie vor unsicheren Zeiten.Strategien und Diversifikations-bemühungen rüstungsorientierterUnternehmen. Kooperationsbe-reich Universität Arbeiter-kammer. Bremen.

Walker,William and PhilGummett. 1993. Nationalism,Internationalism and the EuropeanDefence Market. Chaillot PaperNo. 9. Paris: Western EuropeanUnion.

Willet, Susan. 1996. "Notfalls ineigener Regie. Das britischeEurofighter-Programm." InBrzoska und Voß, 1996, p. 115 ff.

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