Spain - Defense Industry
By 2010 the main Spanish defense suppliers (Navantia, Indra, GDSBS and EADS-Airbus Military) were doing well internationally. They excel in military airlifters and tankers, specialist ships, combat land vehicles, and C4I systems. Being part of their supply chains may open up a wide export potential across the world.
The Spanish defence industry accounted for some 850 companies in 2010, generating over 18,000 direct jobs and a joint turnover of Ä3.6 billion, 40% of which is exports. The four leaders of the local industry (shipbuilder Navantia, land systemsí manufacturer GDSBS, aerospace giant EADS and Spainís IT champion Indra) account for nearly 80% of the sector turnover, though some 50 companies are considered large in terms of employees.
The Madrid-headquartered military transport aircraft division of EADS (Airbus Military) manufactures a comprehensive family of airlifters, with over 1,000 aircraft sold to 130 customers who require tactical and strategic transport as well as flight refuelling capabilities and maritime surveillance. AM leads on the A400M programme as well as for the military tanker transport (MRTT) derivative of the A330 and other civil airbus platforms, plus the light and medium-sized military transport aircraft variants of the C-295, CN-235 and C212. While Spain helds a 5.5% stake in EADS, the contribution of its national industry in the new programmes is increasing: it accounts for 7.9% of the A380 program, and for 11% of the new A350XWB. Spain is a global leader on carbon fiber components. The largest single piece of composite material ever built (ie. the 14-meter-long A380ís HTP) is manufactured in Illescas, Toledo.
In the 1990s the Spanish defense industry was in a period of contraction and reorganization similar to the United States, thus limiting the number and size of immediate opportunities to sell U.S. defense equipment. However, Spanish interest in and respect for American-made defense items remained high. US firms considered this hiatus as an opportunity to lay the groundwork for potential sales in the future, when the Spanish budgetary situation improves and military requirements are clearer.
In the 1990s, the Spanish defense industry underwent profound transformations. These changes not only generated a new industrial panorama but also created new relationships between governments and industries. There were many opportunities arising from both public and private sector projects in which Spanish firms would welcome partnerships with U.S. high-technology defense companies. For example, Spainís heavy investment in infrastructure projects presented major opportunities for U.S. defense electronics manufacturers. In the past, public firms dominated the defense sector, but, with the Spanish government having promoted privatization, private firms now have the upper hand.
In 1999, after four years of significant growth of Spanish defense materiel exports, industrial sales dropped 2 percent, to $150 million. The growth of Spanish defense imports dropped 6.3 percent, to $407 million. Despite the decrease in the volume of Spanish exports and imports, concern is minimal considering that the numbers are superior to those registered during the crisis that negatively affected this sector in the first half of the 1990s.
Coproduction of defense systems was a feature found in some of the offset agreements with Spain. These agreements specified the particular products that would be procured from Spainís defense industry as part ofthe offset program. The offset percentage required in these agreements ranged from less than 30 percent to over 100 percent. The German company Krauss-Maffei agreed to coproduce tanks in Spain to offset Spainís purchase of 200 Leopard 2 main battle tanks.
Spain uses offsets on defense orders to support and develop its defense industry. Although Spain does not have written offset guidelines, it does have a policy of demanding offsets, including coproduction by designated Spanish firms, technology transfer, and export of Spanish defense products. Spainís standard offset requirement is 100 percent; however, the agreements over the 10 years 1985-1995 ranged from 30 percent to 100 percent of the value of the weapon system.
Spain does not have astated threshold amount for requiring offsets, but all of the offset agreements over the decade 1985-1995 were for weapons sales over $7 million [that is, about 1,000,000,000 ESP]. In some agreements, Spain included provisions to only credit offset projects that create new business or represent an increase in existing business, and not grant credit for companiesí current business in the country. In addition, Spain sometimes included a local content requirement for offset projects, providing credit only for the portion of the projects that are produced in Spain. Companies reported that to get approvalfor offset projects, the work usually had to be spread across various Spanish regions, even though the agreements did not explicitly contain this requirement. In addition, Spain had targeted specific Spanish companies that it wanted to get offset work.
Meeting Spainís offset demands was difficult because its defense industry is not as advanced as other Western industrialized countries. Some US companies said offsets were relatively easy to implement in Spain because Spainís participation has consisted of producing less sophisticated components. Another company observed that offsets were more difficult to implement in Spain than in other European countries because of Spainís less diverse industrial base.
In contrast with the leading defense producing states of Europe, Spain's industry was quite small, with 240 suppliers, 37,744 employees, and a turnover in 1987 of 228 billion pesetas ($1.8 billion). Spain's defense industry had a large public-sector component, with 52 percent of defense equipment spending going to public-sector companies in 1987, 35 percent to private enterprise, and 13 percent for imports (by 1989, imports were around 18 percent). The main sectors are arma-ments and ammunition (28 percent of turnover), naval (20.2 percent), electronics (18.8 percent) and aerospace (13 percent). In 1990, Spain's defense budget was 870 billion pesetas ($7.3 billion),36 percent (310 billion pesetas, or $2.6 billion) of which went forequipment (including R&D), fifth largest in NATO Europe.'20It isexpected to decline by 20 percent in 1991.
R&D spending by the government increased dramatically in the last five years of teh Cold War, from 2 billion pesetas ($16 million) in 1985 to 40 billion pesetas ($320 million) in 1990 (down slightly from 1989). A major portion of the R&D spending (some 18 billion pesetas, or $150 million in 1989) is attributable to EFA. Spain's Direccion General de Armamento y Material (DGAM) hoped to develop the Spanish defense industrial base by coordinating the armed services' demand and promoting collaborative programs to give Spanish industry access to foreign technology. Much of this effort centered around the two major aircraft projects: the 1983 agreement to acquire 72 US F-18s, which generated almost $1.2 billion in offsets, one-third of which was in defense and Spain's 13 percent share of EFA.
Spanish industry manufactured a significant share of the material requirements of the armed forces, notably light arms, vehicles, ships, and light transport aircraft. As a member of NATO, Spain joined in the planning of several coproduction projects with other West European countries.
Nearly 150 firms were engaged principally in defense production, and about 4,000 Spanish firms were linked in some way with the industry. Four large munitions manufacturers were directly controlled by the Ministry of Defense. Spain's defense industry was organized around four components of the state-owned National Industrial Institute (INI): Construcciones Aeronauticas S.A. (CASA), aircraft; Empresa Nacional Bazan de Construcciones Novales Militares, shipbuilding; Santa Barbara, ordnance; and INISEL, electronics. A number of other major firms were part of the state holding company, the National Industrial Institute (Instituto Nacional de Industria--INI). A large group of purely private companies formed a third category. There were two important privatefirms: Union Espahiola de Explosivos (a division of Rio Tinto Explosives), and CESELSA (electronics). The ultimate intention of the Ministry of Defense was to transfer the four arms factories to the INI.
According to a 1986 survey of firms doing business with the Ministry of Defense, the manufacture of electronics accounted for about 20 percent of Spanish defense production; military vehicles for about 14 percent, supply of arms for approximately 13.0 percent, naval construction for about 8.0 percent, and aircraft construction for approximately 6.0 percent. Production of components and ancillary equipment made up the remaining approximately 39 percent.
Among the leading producers of army equipment was Empresa Nacional de Autocamiones S.A. (ENASA), generally known by the trade name of Pegaso, which manufactured a range of trucks and armored vehicles. Its basic BLR four-wheeled armored car was used primarily by the Spanish army; the six-wheeled BMR also was exported to Saudi Arabia and to Egypt. Most of the army's ordnance was produced by Empresa Nacional de Santa Barbara de Industrias Militares (Santa Barbara), including the CETME 5.56mm rifle, in general use by the Spanish army, and the AMX-30E tank, based on French technology. Santa Barbara also manufactured the truck-mounted 140mm Teruel multiple rocket launcher. Larger naval vessels, including Spain's new aircraft carrier, French-designed submarines of the Daphne and the Agosta classes, and FFG-7 frigates of United States design, were constructed by Empresa Nacional Bazan de Construcciones Navales Militares (Bazan) at San Fernando near Cadiz.
The predominant aircraft manufacturer, Construcciones Aeronauticas S.A. (CASA), was best known for the C-212, a short takeoff and landing utility plane with a three-ton payload. The company also produced the C-101, a trainer and light fighter, with assistance from West German and American aircraft companies that owned minority interests in CASA. The CN-235 turboprop, a forty-seat airliner with a military version, was being built in cooperation with an Indonesian firm. CASA also was reported in 1987 to be at the design stage of a plane--the Avion Experimental (AX)--that might be selected to replace the F-5 tactical fighters obtained from the United States. This would be an advanced version, of the C-101 with an engine of much greater horsepower. CASA also assembled French-supplied kits for Aerospatiale Super Puma helicopters. It was the principal Spanish firm involved with British, West German, and Italian firms in the Eurofighter consortium planning an entirely new fighter aircraft for the latter half of the 1990s that was expected to replace the Mirages in the existing Spanish inventory.
Among other more advanced systems either being produced or in the planning phase were the French-designed Roland and the Italian Aspide air defense missile systems and the European attack helicopter AB-129. The latter was being developed in collaboration with Britain, Italy, and the Netherlands, with production foreseen for the 1990s.
The relatively small scale of Spain's own military orders spurred the Spanish armaments industry to develop its export potential and to increase its share of the international arms market. By 1987 it had risen to eighth rank as a world exporter, with a number of clients in the Middle East and in Latin America. In an analysis of 1985 results by an industry group, the Spanish Arms Manufacturers Association, export sales by member firms (125 billion pesetas) exceeded sales to the Ministry of Defense (90 billion pesetas).
As of 1988, Spain enforced sales embargoes against countries accused of human rights violations (e.g., South Africa, Chile, and Paraguay), Warsaw Pact and other communist countries, and active belligerents (e.g., Iran and Iraq). The Spanish press has, however, reported widespread violations of these controls, especially in the form of munitions shipments to Iran and to Iraq. Spain also had joined with other North Atlantic Treaty Organization (NATO) countries and Japan in controlling the export of militarily sensitive goods to communist destinations through the Paris-based Co-ordinating Committee for Multilateral Export Controls (COCOM).
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