| French weapons-makers Going great guns

Booming exports lift the spirits of Gallic defence firms

BIG European defence firms had cause for gloom not long ago. Austerity limited military spending on the continent, and no obvious external threat justified raising it. Terrorism deserved most attention. Officials in NATO countries promised to devote 2% of GDP to defence, but Europeans generally fell well short, with Germany allocating just over 1% to it. Exports of weaponry were steady but unspectacular.

How times change. On May 4th François Hollande, France’s president, attended a ceremony in Qatar to mark the sale of 24 Rafale combat jets, plus missiles, to the United Arab Emirates, worth an estimated 6.3 billion euros ($7.2 billion). Though a bigger order for 70 jets had previously been considered, that was still a boost to Dassault Aviation, the jet’s builder, and MBDA, a panEuropean missile-maker. In April last year India’s prime minister, Narendra Modi, came to France to order 36 Rafale jets, worth some $9 billion. Political turbulence in India has since stalled that deal, but another, agreed with Egypt last year, should see 24 jets, plus a frigate, sold for 5.2 billion euros Malaysia is also wondering whether to buy Rafale jets.

More substantial was the decision by Australia’s government, late in April, to award DCNS, France’s naval shipbuilding firm, a huge tender to replace its ageing fleet of submarines with 12 Shortfin Barracuda A1 boats. The firm, founded in 1631, pushed aside rivals from Japan and Germany, nabbing a contract worth A$50 billion ($37 billion) over several decades. Much of the “steel bashing” will happen in South Australia, concedes one man who helped to lead the bid, but “hundreds” of high-end jobs for French designers, instructors, engineers and others are now secured in places like Cherbourg. Thales, a hefty defence-electronics firm, expects to provide the sonar system for the submarines, at roughly 100m euros a boat.

All this dealmaking adds up to a boom in Gallic military exports. Orders from abroad had typically been worth roughly 7 billion euros a year in the decade to 2016 (see chart). But export orders rose to 8.2 billion euros in 2014 and then to a record 16 billion euros last year, according to the defence ministry. Depending on how the Australian deal is measured, 2016 will probably exceed that.

Various factors explain brightening prospects for the arms firms. First, in Europe, Russian aggression has proved a spur to NATO members. Douglas Barrie, of the International Institute for Strategic Studies in London, notes that since fighting began in Ukraine in February 2014, “14 of the 26 NATO member states have increased defence spending.” Several European countries are expected to reach the 2%-of-GDP target for defence spending before too long.

Second, particular French success could be a quirk of timing. Defence acquisitions are cyclical and decisions on relatively mature products, in particular the Rafales, have chanced to occur at roughly the same time. Other considerations helped. Potential clients were able to see French firms’ hardware in regular use — thanks partly to French military activity in west Africa and Syria, where jets fly frequent raids.

Third, French politicians cannily played on old diplomatic relationships with allies in the Middle East and Asia, which accounted for nearly 70% of exports from 2010 to 2014. Egypt has been heavily re-equipping its armed forces with French gear in the face of regional instability and to avoid overreliance on kit from America alone. Nor did the French bidders hesitate to promise—unlike their Japanese rivals, say—to build submarines in Australia, and to transfer “everything, in terms of technology” to its ally, says a figure involved in the bid. DCNS is unlikely to be so forthcoming as it tries to sell similar submarines to India and Malaysia.

Longer-term prospects for the French firms depend on developing newer technology, and on their readiness to share this with others. Some in the industry suggest sales of satellites with military uses, optronics (night vision), cyber-security and other communications systems will prove to be the next boom areas. Mr Barrie points out that French firms, which tend to have “more liberal” policies on releasing technology to others, have another advantage. They can sell systems unrestricted by Inter national Traffic in Arms Regulations, known as ITAR, a set of export-control rules that limit activities of American rivals. But even if rapid growth in exports by defence firms cannot be sustained, at least one corner of the French economy has offered some recent cause for cheer.

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