And the FCAS goes to…

As though it was an Oscars ceremony, many people were keeping the eye about what company would be finally awarded such a relevant prize in Spain.

At this point in time, the French company Dassault Aviation, and the German branch of Airbus Defence & Space had been already designated to be the main coordinators of the project in their respective countries.

The final decision was eventually made public the Thursday, 4th September 2019, and the local media quickly broadcasted the piece of news.

“And the FCAS goes to … Indra

Spanish Defence Ministry

The reactions were almost immediate. For some people, the decision was astonishing whereas for some others it was perceived as a bang on the table of the Spanish Government.

What is clear is the fact that the Spanish branch of Airbus, the former Airbus Military and Cassidian, was not going to be the main coordinator company of the project in Spain. This decision has broken a trend of more than twenty years of Airbus leadership of the aerospace military projects in Spain.

Defence Ministers of Spain (Margarita Robles), France (Florence Parly) and Germany (Ursula von der Leyen), during the signature of a letter of intent about Spain’s integration in the French-German cooperation on the FCAS (14 February 2019). – Spanish Ministry of Defence.
Defence Ministers of Spain, France and Germany after the signature of a letter of intent about Spain’s integration on the FCAS (14 February 2019). – Spanish Ministry of Defence.

Four months after the signing of a letter of intent about Spain’s integration on the FCAS project, the formal announcement of the Spanish participation in the FCAS project finally took place in Le Bourget during the edition of the Paris Air Show the last 17 June 2019. This announcement was ratified by the French, German and Spanish Defence Ministers signature of the so-called Framework Arrangement for the development of FCAS.

Signature of the Framework Arrangement for the development of FCAS during Paris Air Show (17 June 2019). – Flynews.

The Spanish participation and its announcement came late and after the pressure and insistence of some social sectors. Sectors which strongly support the need for investing in the Spanish industry, and in this kind of multinational projects to get benefits in the medium and long term.

This practice of lagging behind rather than being proactive is something that seems to be usual in this sort of subjects for the Spanish Government, no matter the ruling party, an this is another example illustrating that. Actually, almost at the same time and in the same scenario, the German and French companies already selected to coordinate the Project in their respective countries, signed a joint industrial proposal which delivered to the nations.

Dassault chief executive Eric Trappier and the Airbus Defence & Space counterpart Dirk Hoke formalising the joint industrial proposal to deliver it to the nations. – Flynews.

Since then, everyone would have still to wait for two and a half months to finally know which company would take the coordinating role of the project in Spain. A decision which demonstrates that the Airbus extensive technical capabilities, its proven experience participating in multinational aerospace and defence programmes, and its excellent track record leading them in Spain have not been enough to tip the balance in its favour.

Time goes by since the decision announcement, and several hypothesis and theories are arising trying to explain the reasons behind the final decision of the Spanish Government. The most relevant and supported ones are addressed below:

National Champion of Defence

In the beginning, Indra was a state-owned compàny until 1999 when it was made a privately-held company. However, this movement was reversed in 2013 when the Government dependent organisation called SEPI (Sociedad de Participaciones Industriales; State Industrial Ownership Corporation) acquired the 20% of Indra participation.

Indra Headquarters in Madrid (Spain). – Indra.

This movement, perceived as a protection of the Spanish industrial interests due to the risk of acquisition of Indra by foreign companies, turned out to be permanent and eventually destined to pursue different goals.

Proof of that was the unsuccessful attempt of acquisition of ITP Aero by Indra during this year, company which currently belongs to the aircraft engine manufacturer Rolls Royce. ITP Aero is an originally Spanish company, well known for participating in the development and manufacturing of aircraft engines such as the EJ200 (Eurofighter Typhoon) or the TP400 (A400M).

ITP Aero Headquarters in Basque Country (Spain). – ITP Aero.

The acquisition would have been a big step ahead on balancing Indra internal capabilities dominated by IT, and in reinforcing its aerospace ones in order to be better positioned to address future aerospace projects as the FCAS. In addition, it would have led to set up a Spanish Champion of Defence.

Despite the above, FCAS coordination in Spain was achieved by Indra, and it can be considered another step on the way of setting up this Champion of Defence in Spain. Taking these facts into account, strategic movements aiming this goal seem to be very likely to happen in the near future. Even a second try of acquisition of ITP Aero may sound plausible.

Hidden Political interests

The fact that Indra is 20% participated by a Government dependent organisation, which supposes to be the major shareholder, has led some sectors to think about what particular interests could be also behind this decision.

The current chairman of Indra, Fernando Abril-Martorell, is supposed to be replaced in the medium term and the probable substitutes seem to come from the political sphere. Among them, the best positioned is Miguel Sebastián, former Spanish Minister for Industry, Tourism, and Trade during the period from 2008 to 2011 under José Luis Rodríguez Zapatero Government.

Miguel Sebastián who is currently an executive advisor in Indra representing SEPI interests. – El Mundo.

In addition, it is usual for Spanish politicians to have a second life linked to private-held companies after leaving the political sphere. Felipe González and Gas Natural, or José María Aznar and Endesa are only the two best-known examples. Although morally reprehensible, because their nominations seem to respond to a return for privileged treatment of the enterprise during their public life, this practice is not illegal in Spain. Will Indra be now open as a new destination for Spanish ex-politicians?

From left to right José Luis Rodríguez Zapatero, Miguel Sebastián, and Pedro Sánchez who is the current Prime Minister of Spain. – Energíapost.

Overconfidence

A more questionable theory supports that the more than twenty years consecutively being the winning horse in Spain could have gone against Airbus own interests. According to this theory, the following ones are perceived as potential reasons which could have affected the final decision:

  • Maybe the strategy line followed was not ‘strong’ enough to guarantee its participation as the main coordinator in Spain, or
  • The effort invested in reinforcing the Airbus dominant position of the Aerospace Industry in Spain was too limited.
  • Focusing mainly on how the FCAS programme workload was going to be internally distributed rather than ensuring the Airbus participation at the highest level, is a statement that has room within this theory too.

What is sure is that after this decision, the lessons learnt are not going to be overlooked by Airbus.

Risk of investment and ROI relocation out of Spanish boundaries

This theory relies mainly on two elements: the comparison between the ownership structure of both companies, and the different strategies followed by them during recent times.

The participation of the Spanish Government in Airbus is around 4% through the SEPI, whereas the Indra’s one reaches around 20% as stated before. It means that the Spanish Government is in the third position concerning Airbus ownership, pretty far from the 22% equally distributed between the German and French Governments.

Indra shareholding distribution. – Indra.
Airbus shareholding distribution. – Airbus.

Their ownership distribution is substantially reflected in the OBS (Organisational Breakdown Structure) of both Companies. Indra’s board of directors is fully coped by Spanish people, whereas in Airbus there is no position in the decision front-line covered by any Spaniard (in the line behind decision front-line neither).

In fact, although Airbus Spanish ownership has been always the same, the Spanish influence in Airbus seems to have gone in detriment during the last decade. The present lack of Spanish executives contrasts with the situation in the past when one or even two executive positions were covered by Spaniards. Pilar Albiac Murillo as Executive Vicepresident HO Operations has been the most recent example.

The differences between the top of the organisational charts are the most visible ones. However, some people also support that this loss of Spanish influence goes downstream across the organisational chart even affecting programmes traditionally handled by Spanish managers.

This theory goes beyond, even stating that Spain is pushed into the background behind France, Germany or even other Airbus countries concerning the participation in the development of new core technologies. These technologies as for instance the AI, UAS, Cybersecurity, Cloud and so on are destined to become the cornerstone for the future of the Aerospace Industry.

One of the open debates across LinkedIn supporting this theory (text in Spanish).

Francisco Javier Cruz Hernandez.

Taking the exposed hypothesis as true ones it is not surprising that some analysts support that choosing Indra as Spain’s FCAS coordinator is a sensible decision. If the final goal is to guarantee that Spanish FCAS investment and ROI (Return On Investment) will remain inside Spain and mainly handled by Spaniards during the programme life-cycle, the decision seems to have completely sense. The Spanish branch of Airbus Defence & Spain would have merely been perceived as unable to guarantee that.

In parallel to this theory, there are people who foresee a really bad outcome for the Spanish branch of Airbus Defence & Spain. They support that systematic poor financing of RDI (Research Development and Innovation) initiatives in Spain joint to the low number of orders that Spain places in each programme developed by the Company, pretty far from the German and French ones, logically lead to this loss of influence in Airbus.

In the worst-case scenario, the decision about the FCAS could undermine the Spanish influence in Airbus even more. The consequence would be an unpredictable ‘stall’ (speaking in aerospace language) of the Spanish Airbus branch interests in particular, and of the Spanish Aerospace Industry in general.

Above statements may sound quite catastrophic but as the famous quote says: “Hope for the best, but prepare for the worst”.

FCAS programme in a nutshell

FCAS (Future Combat Air System) is Europe’s most strategic defence programme in the 21st century. Defined as a combat system of systems, the cornerstone of FCAS is the Next-Generation Weapon System (NGWS) where next-generation fighters team up with manned and unmanned platforms and with remote carriers as force multipliers.

Based on leveraging the collective and connected capabilities of pooled platforms, FCAS and its air combat cloud will provide full interoperability with allied forces across domains from land to cyber.

FCAS – Future Combat Air System infographic. – Airbus
Promotional video of the Future Combat Air System – FCAS, manned and unmanned European system by Airbus & Dassault published during the 2018 ILA Berlin Air Show.