|Trans-Atlantic Cooperation: Keeping the Bridges Intact |
Trans-Atlantic Cooperation: Keeping the Bridges Intact
An Address to the IFRI (Institut Français des Relations Internationales) (1) and the EPC (European Policy Centre) (2) delivered April 2000, by Kent Kresa, Chairman, President and Chief Executive Officer, Northrop Grumman Corporation. Source: Northrop Grumman Public Affairs
Good afternoon. It is a distinct pleasure to be in Europe, which is a very important market for Northrop Grumman. Today, I want to offer my views on the global defense industry and, specifically, on what I consider to be one of the major challenges and issues facing the European Union, the United States, and the NATO Alliance in this area. The issue of trans-Atlantic cooperation, in all of its manifestations, is one of such significance that it should easily capture both our intellectual curiosity and our professional interest. It has certainly captured mine. And I am sure the great majority of you here believe, as I do, that we must take steps to keep the bridges of cooperation between the United States and Europe open and intact.
As many of you may know, I became the CEO of Northrop in 1990, on the eve of the end of the Cold War and the beginning of the consolidation of the American defense industry. Over the last ten years, the American defense industry has gone from about 30 major firms to fewer than 10. At Northrop we merged with Grumman, then acquired Vought Aviation, Westinghouse Defense Electronics, Logicon, and several other smaller firms. Our effort to merge with Lockheed Martin was opposed by the U.S. government, necessitating a major internal reorganization to realign our business areas and streamline our business processes. It has been a most exciting decade. One of my Northrop Grumman colleagues mentioned to me the other day that I am the only CEO among the major firms beginning this process who still holds that post. The others have moved on to other pursuits—usually a well-earned and restful retirement. This raises in my mind, and should raise in yours, the question of what they know that I don’t.
As I have decided to discuss trans-Atlantic cooperation using the metaphor of a bridge, I was reminded of an old story of an American who was granted a wish by a magical Genie. Since the American and his wife loved visiting Europe, but feared flying, he asked the Genie to build a bridge connecting the United States to France. Hearing this request, the Genie said: "My dear man, that is completely out of the question. Do you have any idea how long such a bridge would have to be? The depth of the supports? The amount of concrete? Not to mention the terrible North Atlantic storms that would make driving impossible most of the year! This wish is completely unrealistic! Think of something else!"
The American thought for a moment of something he had heard about Europe. "Genie," he said, "I hear there is great difficulty in establishing defense and security policy in NATO and Europe. Rather than a bridge, how about a structure for making defense policy and acquisition decisions in Europe that is timely, all-inclusive, and fully integrated. A structure where the concerns of all nations can be discussed, decided, and then translated into effective action that meets the security needs of the member states while simultaneously addressing the political concerns of the European Union and the United States!"
The Genie thought for a moment and then replied, "So, regarding that bridge, were you thinking two lanes or four?"
I use the story of this most insightful Genie and the difficulty of building bridges across the Atlantic to acknowledge that there are no easy answers to the challenges of meeting trans-Atlantic security concerns in this new strategic era. In both the policy domain, where security objectives are established and military capabilities are defined, and in the industrial domain, where equipment providing the desired capability is actually developed, there are major issues to be addressed and obstacles to be overcome. This condition exists on both sides of the Atlantic.
I am reminded this afternoon of the words of President Kennedy in his famous Inaugural Address delivered, as difficult to believe as it is for many of us who heard it, 40 years ago this coming January. Speaking directly and eloquently to Europe he said, "To those old allies whose cultural and spiritual origins we share, we pledge the loyalty of faithful friends. United ... there is little we cannot do in a host of cooperative ventures. Divided there is little we can do ... for we dare not meet a powerful challenge, at odds, and split asunder."
The powerful challenge that President Kennedy referenced has now vanished, replaced by a large number of smaller challenges that are less onerous and dangerous, but no less demanding. Nonetheless, in my view, his central observation remains valid—we dare not meet these new challenges "at odds, and split asunder." trans-Atlantic cooperation, and the building of new bridges while sustaining the old ones, is as important today as ever. Let me offer a few observations about both the policy dimension, where national security interests are defined and military requirements established, and the commercial dimension, where markets are expanded and products provided that meet demand in cost-efficient ways.
There is an increasing need to establish improved policy direction regarding capabilities and procurement for both NATO and EU requirements. The experiences in the skies over Kosovo last Spring revealed this to be a more pressing imperative than previously perceived. The need is quite straightforward: greater military capabilities, Alliance cooperation, and greatly improved military interoperability.
The Kosovo campaign highlighted in stark terms capabilities and interoperability gaps that exist between American and European forces, gaps that are both unhealthy and unnecessary. When the campaign ended and the search for lessons began, German General Klaus Naumann, the former Chairman of the NATO Military Committee, stated bluntly that, "Europeans must take more action to increase military capabilities—they are in the second soccer league [compared with the United States]."1 His successor, Italian Admiral Guido Venturoni, went somewhat further stating that in Kosovo the European Allies "could never have mounted a successful air campaign" without the United States.2 These observations from respected European military officers should be taken in the seriousness with which they have been offered.
The existence of such a gap in the fundamental capabilities of modern combat—airlift, surveillance, precision munitions, all-weather capability, and secure communications—is disturbing. It is not in the best interests of either Europe or the United States for such a gap to exist. Such a condition limits the range of options available to national policy-makers and operational commanders, and risks the lives of service members who bravely go in harm’s way attempting to do their duty and accomplish the missions they have been given. They deserve the best tools we can provide them -- no matter where they originate.
As I have said before, and let me emphasize today, I routinely describe this problem not as a "technology gap" but as a "capabilities gap." The United States and its defense industrial base are not uniquely gifted in developing sophisticated military tools. 3My experience working with European firms suggests that their technological ability equals ours in many areas and in some cases surpasses it.
So, if technological skill is not the explanation for the differential, how has such a significant capabilities gap developed? There are two reasons. First, the United States has a structural advantage in having a unified defense market and a unitary defense customer. Second, despite the significant reductions of the last decade, American investment in such capabilities has greatly exceeded Europe’s.
What needs to be done? If the EU and its member states are to achieve their objectives, then a major review of defense resourcing is probably necessary. While the European members of NATO maintain 2 million personnel in their armed forces—40 percent more than the active duty American force—Europe spends as a percentage of its GDP less than 50 percent of the U.S. level. Further, European research, development and procurement are disproportionately low compared with the American level. Recent decisions on defense budgets made in several European capitals indicate that this situation is unlikely to be reversed in the near term. With such prominent investment gaps, a capabilities gap was inevitable. 4The question is,how will Europe fulfill the worthy ambitions of its recently announced Common Foreign and Security Policy—the CFSP?
In the policy dimension, there needs to be greater clarity regarding NATO and European military requirements, one consistent with the size of the defense budgets to be provided. There are, in my view, encouraging signs that such improved programmatic clarity is occurring. The emergence of a European Security and Defense Initiative (ESDI) and the EU’s CFSP must be seen as positive developments. These efforts by the European Union will help in highlighting those areas where the capabilities gap is most bothersome, and will suggest solutions that make Europe better able to act within the context of NATO where desired and by itself where needed. In his new capacity at the European Union, Javier Solana is leading this initiative. Meanwhile, EU defense ministers have established "head line goals" for a rapidly deployable capability by 2003. Much work and effort are needed to translate those goals into reality, particularly regarding airlift transport as well as the technology for command, control, communications and intelligence, generally known as C3I. Although some are concerned that ESDI will distract from NATO efforts to improve military capabilities, I agree with Lord Robertson’s assertion that ESDI is "not about Europe going it alone, but about Europe doing more."5
Concurrently, the NATO Defense Capabilities Initiative (DCI) that was announced at the Alliance anniversary summit last year is a welcome effort. In establishing priority areas and specific goals, DCI has forced extensive consideration of recognized shortfalls.6 This will eventually result in a clearer understanding of needed capabilities in areas such as precision strike and air-ground surveillance, and will create momentum toward acquisition of capabilities in these areas that have received little priority. Hopefully, this will result in an Alliance that is not only stronger overall, but also one with better balanced capabilities among its members. But, if we are to close the capabilities gap, we must develop political mechanisms and structures that reach decisions rather than prolong the debate.
Under either the ESDI approach or the DCI initiative, there must be direction established and decisions made that address widely recognized shortfalls. The NATO Alliance cannot afford delays such as that seen in meeting the Alliance Ground Surveillance requirement, which NATO military commanders have frequently identified as their top priority. Although the Duke of Wellington once commented that most of his military career was spent wondering what was happening on the other side of the hill, his contemporary counterparts need not have such concerns. Technological approaches exist that can easily look on the other side of the hill, and even to the next hill. At Northrop Grumman we have the technology in hand, and are prepared to work with our European partners to put this important capability in the hands of NATO and European commanders.
What can be done in the industrial dimension to further these objectives? I continue to believe that equity mergers among major defense firms across the Atlantic are too difficult to achieve, at least in the near to mid-term. In addition to likely political opposition, recent American experience shows that managing such large transformations is difficult for management and risky for stockholders. My colleagues in Europe are making a major effort to learn from the U.S. experience, and I hope they are successful, but the integration of a large organization is challenging and is likely to remain so in such dynamic conditions.7 Where I believe recent history shows we have been most successful internationally in various transnational teaming relationships. I feel this is where we should focus our effort and energy in the current climate.
The industrial landscape has changed enormously, both in the United States and in Europe. Globalization, commercialization, and the rapid expansion of information technology have drastically altered the ways we organize, manage, and structure businesses in all sectors, including defense. As the number of defense firms has decreased, competition has become relatively more intense. Fewer firms now compete for fewer contracts. In the United States, where once there were numerous major programs coming along every year or so, now there is only one every decade.8
This consolidation has been a tough learning experience. Some things have been done well; others, with the benefit of hindsight, we probably should have done better. This consolidation presents interesting challenges in sustaining a defense industrial base. The Pentagon sees that it must keep enough firms involved in defense to ensure future competition. The current discussion in Washington about how to proceed with procurement of the Joint Strike Fighter fully reflects this dilemma.9
In Europe, two major firms have emerged in the past year: in Britain, BAE Systems, focused on defense integration in largely offshore markets; and on the continent European Aeronautic, Defense, and Space (EADS), now well positioned in both the civil and military markets.10 There is concern onboth sides of the Atlantic that these consolidations may lead, slowly but inexorably, to a "Fortress America" and "Fortress Europe" situation. In addition to the normal pressures that exist for protecting domestic suppliers and jobs, European firms face barriers in the United States built with security, classification, and export control hurdles, while American firms attempting to compete in Europe must overcome the implications of a very tight market.11 We all have much to lose and little to gain from further calcification of a fortress approach. I believe industry can play a major role in preventing such an undesirable evolution.
Over the past decade at Northrop Grumman, we have attempted to position ourselves to play a major role in providing the capabilities we feel will be central to the rapidly emerging shape of future conflicts. In many Pentagon publications and reports, one finds reference to a new form of warfare known as the "Revolution in Military Affairs," commonly referred to in the United States as the "RMA." This concept sees future conflicts that are brief but intense, that rely on long-range precision strikes, that involve elaborate intelligence and communications networks, and that leverage the power of information as much as the power of weapons and platforms. We have consciously tried to re-shape and re-position Northrop Grumman to play a key role in providing these future capabilities.
Since 1993, we have retained our capability as an aircraft manufacturer while greatly expanding our capability into other areas. We now develop and produce world-class sensors providing wide-area surveillance, perform sophisticated systems integration, and we are extensively involved in information technology. Even as we are developing capabilities for platforms based in space, we are moving quickly into this exciting new domain known as "cyberspace." We believe that many traditional military missions that once relied on manned systems will soon be accomplished by unmanned systems of enormous range and loitering endurance. We have always worked very hard to place Northrop Grumman on "technology’s edge," and we feel we remain there. We are prepared to play a major role in transforming the American military of today into the even more capable and flexible force it will certainly be tomorrow. In my view, we can play the same role in Europe, working hand in hand with European firms.
By emphasizing teaming arrangements and joint ventures, the interests of governments will be served by preserving competition and producing innovative solutions to emerging military requirements. Moreover, the interests of the defense industry will be served on both sides of the Atlantic by opening markets, lowering barriers, and sharing technology.12
Such arrangements already exist and we have benefited from them. The relationship we have developed with our French partners, Potez and Thompson, in producing the E-2C Hawkeye for the French Navy, is an example of the potential of such an arrangement, and we are currently exploring the possibility of adding another French partner to this important program. From the opposite perspective, we have recently initiated talks with Airbus Industrie, exploring the possibility of supplying aircraft structures to Airbus as we have long done with Boeing in the United States. Business people throughout the world are aware that core competencies and economies of scale do exist, and we should be willing to capture them
And what is the military benefit of such an approach? The first would be the elimination of much duplication of effort, particularly in the design phase, and freeing up scarce resources for the procurement of much-needed additional capabilities. The second would be the creation of systems that would be more interoperable, due to increased industrial coordination in a web of cooperative ventures. Both of these benefits would do much toward addressing, albeit in a somewhat indirect manner, the fundamental causes of the capabilities gap so disturbingly revealed during Operation Allied Force.
Certainly there is a budgetary limitation to how much can be accomplished. Italian Prime Minister Massimo D’Alema recently noted that "Europe spends over 60 percent of what the U.S. spends on defense but only gets 10 percent as much."13 NATO Secretary-General Robertson has frequently asserted that Europe "has to spend wisely before we even start considering spending more."14 In the absence of significantly higher defense budgets in both the United States and Europe, and despite certain encouraging signs in America, major increases in defense spending do not seem likely on either side of the Atlantic. This leaves little alternative to greatly expanded joint ventures and industrial teaming in an effort to get greater output from limited resources. But even with such an industrial evolution, defense decision-making on both sides of the Atlantic must improve.
There are positive signs in Washington that major issues and major decisions are being addressed, and trans-Atlantic solutions are being encouraged. This is facilitated, as difficult as it is, by the existence of a single, reasonably unified procurement structure in the Pentagon headed by the Under Secretary for Acquisition. There is no corresponding decision-making authority in Europe, nor is there a similar advocate for trans-Atlantic cooperation. Hopefully as the ESDI and NATO DCI efforts evolve, we will see not only the coordination, but also perhaps the consolidation, of the various committees currently charged with addressing such issues. Continued dialogue across the Atlantic between industry and government is important for providing the right political and market conditions for these developments.
I recall an engineering caution about building bridges that warns against "testing the depth of the water with both feet." I hope that I have not violated that warning with my observations here this afternoon regarding the need for greater policy clarity and industrial cooperation. Be that as it may, I feel that we have to do better in the future than we have in the past. We need to remind our major customers, the great democratic governments elected by a free people, that nations must adapt to changing situations just as we in industry have adapted, and will likely adapt further. New strategic circumstances require new organizational and operational structures. Making our forces more capable and interoperable arguably requires more investment, but in the absence of greater investment it definitely requires greater direction, prioritization, and coordination. Structures for addressing this need are emerging in Europe which must be encouraged to fulfill this role. Finally, trans-Atlantic teaming arrangements within industry offer the most immediate approach to increasing interoperability while reducing unaffordable redundancies and retaining essential competition and innovation. In my view, these steps offer the best hope for keeping the trans-Atlantic bridges intact and, hopefully, well traveled.
(1) IFRI, the Institute Français des Relations Internationales (French Institute of International Relations), is France's main independent center for debate and research on international relations. IFRI sponsors a range of activities that foster free and in-depth thinking on major political and socio-economic issues. Speaker meetings, colloquia, working sessions, and roundtables are among the opportunities IFRI offers participants to interact with political figures, high-level civil servants, chief executive officers, journalists and international experts.
(2) The EPC is widely recognized as the leading think tank in Brussels, working at the cutting edge of European policy-making. The EPC plays an active role by bringing together government, business, professional, and regional authorities as well as civil-service organizations to debate and influence the major policy challenges facing the European Union. The Centre aims to achieve a balanced dialogue involving the different interest groups and to build links between a wide range of organizations throughout Europe.
1. See "Hamre: Europe Still Unwilling To Carry Its Load," Defense Week, 19 July 1999, p. 1.
2. Quotes of Admiral Guido Venturoni, Chief of the NATO Military Committee, Aerospace Daily, 1 July 1999, p. 1.
3. CQWR, 13 February, 1999, p. 402.
4. Data from The International Institute for Strategic Studies, The Military Balance 1998/99, and Jack Hoschouer, "Germany’s Planned Funding Cuts Raise Fears," Defense News, 13 September 1999, p. 1.
5. NATO Secretary General Lord Robertson, "Rebalancing NATO for a Strong Future," ROA National Security Report, March 2000, p. 29.
6. "Progress Report on NATO’s ‘Defense Capabilities Initiative’," Inside the Pentagon, 16 March 2000, p. 1.
7. John D. Morrocco, "New BAE Draws on U.S. Merger Lessons," Aviation Week and Space Technology, 29 November 1999, p. 38. "The new BAE, to be created this week when British Aerospace and Marconi Electronic Systems complete their merger, employs an innovative management model intended to avoid the pitfalls experienced by U.S. companies."
8. Greg Schneider, "A Conversation With Kent Kresa," Washington Post, Business Section, 20 March 2000, p. 5.
9. Peter Robinson and Tony Capaccio, "Lockheed’s Coffman Says Pentagon Likely to Split Fighter Job," Defense Week, 20 March 2000, p. 9.
10.Chris Jasper, "Europe’s Heavyweights Match for Size But Stake Out Different Territories," Flight International, 14-20 March 2000, p. 19.
11. Damien Kemp, "The Year of Building Carefully," Jane’s Defense Weekly, 1 December 1999, p. 23.
12. Tim Clark, "Northrop CEO Speaks Out on Future of Defense Contracting," Government Executive, 5 November 1999.
13. William S. Cohen, "Europe Must Spend More on Defense," Washington Post, 6 December 1999, p. A27.
14. Ron Laurenzo, "Robertson To Europe: Get Smart With Defense Money," Defense Week, 13 December 1999, p. 2.