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“European consolidation is an efficient way to achieve competitiveness and interoperability"

Brusse - 21 September, 2016

In December 2015, Nexter and Krauss-Maffei Wegmann (KMW) announced the completion of their association and the creation of a new joint holding company - KNDS - which, many say, could trigger a wider consolidation in the sector of land defence systems in Europe. To find out more about the strategy behind the transaction and its wider impact on the defence industry landscape, we spoke to Stéphane Mayer, CEO of Nexter and co-CEO of the newly created KNDS.

EDM11Cover_web

This interview appeared in the EDA's European Defence Matters
magazine issue 11

Q.: Which were the main drivers behind the Nexter-KMW merger and the creation of KNDS (KMW + Nexter Defense Systems): synergy and cost-saving considerations or more long-term, strategic ambitions?

Stéphane Mayer: The strategic aim of the joint venture between Nexter and KMW is to create a European leader in land defence offering joint products that meet the operational needs of the French and German armies, and obviously those of other European and international forces. This will result in genuine convergence for users that often operate together in the same theatres. The success of our alliance will be boosted by two kinds of convergence between our Governments, which must not only define common requirements, but also adopt the same approach to export controls.
Over the last few months, we have been developing synergies by gradually combining our efforts in several areas: sales, communication, purchasing, finance, products, engineering and production. We are aiming to both boost revenue and limit costs. The process does not involve any restructuring, because both Nexter and KMW are profitable companies with order books representing more than three years of business.

Would you say that KNDS is the starting shot for a major consolidation process in the European land defence systems market to ensure Europeans remain competitive?

 

When we announced our joint venture, we were the first, and the move came as a surprise to some. In Europe, our Governments need efficient and competitive products and are aiming for more inter-operability. On the worldwide market, the competition is extremely strong. A European consolidation process is an efficient way to achieve those objectives. Besides France and Germany, we are aiming to progressively expand our industrial footprint in other European countries to continue this strategic move.

Some say KNDS could become the “Airbus of the land systems sector”. Is this your ambition and are you already looking for additional European partners to join the group?

The joint venture between Nexter and KMW is the first step towards a strong, durable and independent European industry. Since we started the project, we have consistently stated our desire to drive European consolidation, partly through new industrial alliances. Today, we are laying the foundations of a new group, based on the excellent fit between Nexter and KMW's businesses and the expertise of two companies leading their national markets. In the future, we want to strengthen the group further by welcoming new partners that are an equally good fit and equally effective. I am very confident about this new phase of consolidation, although at the moment the priority remains setting up KNDS with Nexter and KMW.
I would also like to take this opportunity to talk about European consolidation in another area, that of ammunitions. In 2014, Nexter acquired Mecar in Belgium and Simmel Difesa in Italy who joined our Nexter Munitions division, which is now Europe's third-largest munitions player. Combining these three companies has allowed us to generate multiple synergies in ammunitions, but more importantly to maintain a high level of quality in terms of precision, effectiveness and security. As a result, the KNDS group can rely on a solid munitions business.

R&T is a domain where huge synergy effects can be expected from this merger. What do you hope to achieve in R&T together what was not possible alone and how do you see the future of R&T at EU level?

KNDS will indeed lead to R&T synergies. Financing innovation is crucial for the success of our plans, since innovation will allow us to maintain a technological edge over our rivals by developing distinctive systems. Naturally, we will work to eliminate potential duplication of R&T within the new group. Moreover, we welcome the willingness of the Governments to support advanced technologies and R&T studies for the current and future systems. The single most important subject for us in terms of R&T and innovation is linked to the Franco-German initiative to jointly develop the technologies for the MGCS (Main Ground Combat System) and CIFS (Common Indirect Fire System).

It seems that in a first phase, both companies involved in KNDS will keep their organisation, staff and even their own range of products. When do you foresee the first jointly developed and produced KNDS weapon systems - for instance a combat tank - to be on the market?

For many years, we will have to keep large parts of our present organisations unchanged in order to deliver on our commitments to our customers and our existing partnerships and to remain able to support our products in service. However, we are already starting to identify synergies, to act jointly on several matters (sales, product policy, finance, purchasing, communication, etc.). We have also started to work together on future systems, including combat tanks and artillery systems. These programs will be managed, developed and produced by a shared organisation. Their calendars are mainly driven by the operational needs of our customers and the timeframe to achieve a common vision between the German, French and other European customers. In the Defence industry, this takes 5 to 10 years!

2016 has seen a lot of movement in CSDP (EUGS set to be followed by a sectoral defence strategy; launch of Pilot Project and preparation of the Preparatory Action on defence-related research) and more is expected in the coming months (European Defence Action Plan by the EC). How optimistic are you that all this will give a boost to the European defence industry in general, and to the land systems sector in particular?

We can be optimistic, while remaining realistic. The land defence market is doing well internationally, and there are still many opportunities, particularly in Asia and the Middle East. However, it is an extremely competitive sector and every tender process requires increasingly large investments from the companies involved. In Europe in the last few years, Nexter and KMW have taken part in tender processes with products such as our 8x8 combat vehicles (VBCI and Boxer) and 155mm artillery systems (Caesar and PZH2000). We were not successful. Unfortunately in some cases buyers decided to purchase non-European equipment or untested equipment.
Of course competitiveness is essential in order to meet the European market's needs. But there are also needs for greater European awareness regarding defence, and particularly land defence. Armies on the ground need to be much more integrated through common equipment, we need to maintain an independent EDTIB that maintains Europe's superiority in certain areas of excellence (protection, firepower, communication systems, etc.) and we need to maintain and develop a European industry that guarantees the sovereignty of EU states.

On the other hand, there is also the uncertainty created by the Brexit vote and the prospect of the UK leaving the EU. How will all this impact European defence cooperation?

The European defence project is vital and the many dramatic events we have seen in recent years are a reminder that we must not let down our guard on security and defence issues. We are therefore confident that the United Kingdom will remain a staunch ally and continue to develop a strong defence relationship with France. Nexter has a joint venture with BAE, CTA International, based in France. CTA International specialises in telescoped 40mm-calibre armament systems, and has developed a revolutionary new cannon. This 40mm cannon has been acquired by both the French and British armies as part of the Scorpion and Scout programmes, proving both the effectiveness of the weapons themselves and the wisdom of our Franco-British joint venture. Brexit is unlikely to have an impact on our projects.

 

Biography

Stéphane Mayer joined the Airbus group (formerly EADS) in 2003 as Chairman and CEO of EADS Socata, an aviation component and aircraft manufacturer. In 2007, EADS appointed him for a 3-year term as CEO of ATR, a joint venture plane maker. In 2010, he joined the Daher group as President and CEO of its aviation and defence division. At the end of 2015, he was appointed Chairman and CEO of Nexter Systems, which designs, integrates and maintains in operational condition weapons systems and armoured vehicles. As part of the association with Krauss-Maffei Wegmann, he simultaneously became co-CEO of KNDS, the joint holding company which owns the two operating entities.


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