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Wall Crumbles But Not Europe's Defense Industry Sales

EUROPE'S defense manufacturers do not see their future prospects crumbling along with the blocks of the Berlin Wall. In a chorus of unexpected unanimity, remarkable for an industry more given to convoluted nationalistic bickering, they anticipate just a different business opportunity. ``At the moment it is far too early to say how the European defense industry may have to respond to the events in Eastern Europe,'' says Dexter Smith, spokesman for the United Kingdom's largest defense contractor, GEC-Marconi Defence Systems. ``But there are very few companies who are solely defense-oriented. If there is a winding down of defense expenditure, I would imagine there is a wider market between West and East. Opportunities may exist to supply heavy engineering goods.''

Over the last decade, more than half of the turnover at France's state-owned aircraft and missile manufacturer, Aerospatiale, came from its military production. This year the situation has reversed, says the company's Tactical Missile Division spokesman, Patrick Mercillon. ``Selling civilian airplanes is a very good business today.'' The company's missile plant at Bourges in central France is devoting more and more of its capacity to the Airbus project.

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Christian Poppe, spokesman for the Munich-based Daimler-Benz aerospace affiliate, Deutsche Aerospace, says, ``We have an official position. We want to reduce defense costs and work together with the politicians to arrange a process for conversion from defense to civilian activities.''

Exactly how and when such noble intentions come to fruition has yet to be determined.

``I don't think anyone is expecting any major Western government to make marked alterations to its strategic procurement policy,'' says John Tysoe, electronics analyst at Shearson Lehman Hutton in London. ``The situation in Eastern Europe does provide something of an excuse to get out of projects which were an embarrassment.''

``Arms control puts us in a happy situation because you must have good verification,'' says GEC-Marconi's Dexter Smith. ``That means a stronger air defense system and improved early warning systems. Remember, 50 percent of defense [hardware] costs go toward electronics.''

Events in Eastern Europe are unlikely to stop countries from replacing their older equipment, according to an official at the UK's Ministry of Defence, citing the much-debated Eurofighter project as an example.

Britain, Italy, West Germany, and Spain are cooperating to produce the European Fighter Aircraft (EFA), conceived as a replacement to Phantom and Jaguar aircraft used by those nations together with hopes for further export sales.

The current West German input to the EFA project is in engine development through Munich-based, Motoren und Turbinen Union (MTU), part of the Daimler Benz group, together with the UK's Rolls Royce and Italy's Fiat. The merger of Daimler Benz with Messerschmitt-Bolkow-Blohm (MBB) is an important boost for the latter.

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`This is a very important project for MBB,'' said a company spokesman. Some 5,000 employees are working on MBB defense projects. He welcomed the recent influx of East Germans since West Germany has a dire shortage of qualified engineers.

Protracted talks over whose version of radar equipment is to be fitted into the EFA provide a clearer illustration of the state of Europe's defense sector. Britain is pushing for the EFA partners to accept equipment designed by the ill-fated Ferranti International Signal, expected to be the subject of a takeover bid launched by British Aerospace and France's Thomson-CSF. Meanwhile, GEC-Marconi together with West Germany's Telefunken System Technik (TST) (formerly known as Allgemeine Elektricitats Gesellschaft and another part of the Daimler Benz empire) is touting its updated version of the US's Hughes APG-65 system.

``Some partners think the inclusion of US radar equipment would preclude exports if the US Congress opposed reexport of technology,'' says Shearson Lehman Hutton's John Tysoe. GEC-Marconi's Dexter Smith strongly denies this, saying their radar is essentially a European development and, anyway, the whole EFA project depends on the armament by US's AMRAAM missiles.

For its part, France's Aerospatiale is eager to develop the NH-90 helicopter, a project still in its definition phase, together with Germany's MBB. Such cooperation is vital in Europe, says Aerospatiale's Patrick Mercillon, ``because we want to protect the European military market from US competition.''

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