Spanish Defense Mergers `On the Table' as EU Seeks Collaboration

(Bloomberg) -- Spain’s defense companies are considering options for consolidation as the European Union presses for a collaborative approach to military projects, according to spy-satellite specialist Hisdesat.

Some 25 EU states including Spain last year backed moves to develop joint capabilities amid pressure from the U.S. for the bloc to boost its contribution to the North Atlantic Treaty Organization and other defense structures.

“If we want to compete in the European arena we have to consolidate,” said Miguel Angel Panduro, chief executive officer of Hisdesat Servicios Estrategicos SA, whose biggest customer after Spain is the U.S. State Department and Pentagon. “I have frequent conversations with executives from the industry and it’s on the table. It could finally happen.”

Spain lacks a defense and aerospace champion of the size that has emerged in other European countries. France and Germany dominate Airbus SE, of which the former CASA, a Seville-based troop-transport specialist, is a relatively minor component, while Britain has major players including BAE Systems Plc and Italy has warplane, helicopter and satellite builder Leonardo Spa.

The Italian example may be most relevant to Spain, given the relative size of the countries’ economies and defense sectors, though there’s no need to replicate the Italian model, just to be better organized and make the most of areas of strength, Panduro said in an interview.

‘Stronger Companies’

“I hope we could be in a position to compete with Italy to win mid-size programs,” he said. “We have to build the sector around stronger companies that can compete in international markets.”

In terms of expertise, Spain is leading development of an EU-wide command system to permit communication with troops without relying on third-party contractors or local capabilities. It’s also heading up a project to pool and share government satellites that could prove useful for the new system.

Defense consolidation has been high on Spain’s agenda since at least 2015, when the government mulled using defense-radar and satcoms provider Indra Sistemas SA to buy up smaller companies, just as Leonardo has done in Italy.

The chances of the plan moving forward now may depend on the survival of a 20 billion-euro ($23 billion) multi-year injection to modernize Spain’s armed forces that Prime Minister Mariano Rajoy had planned to put in place before being ousted on June 1.

“Investment shakes up the industry,” Panduro said. “There are new initiatives, and people say this or that alliance is win-win and that integration will help deliver the program.”

©2018 Bloomberg L.P.

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