Spain is immersed in several military modernization programs that will hatch in the coming years and where the industry is gambling millions of euros and thousands of jobs. Among them, the European combat plane NGWS/FCAS (New Generation Weapon System/Future Combat Air System) stands out, one of the most ambitious and expensive in the history of Europe where , and the new 8×8 Dragon armored vehicle of the Spanish Army. The latest investments already approved in these areas exceed 4,600 million.
In this scenario, European funds and projects will play an essential role in driving the technological progress of Spanish companies and their talent, as well as in favoring the consolidation of a highly fragmented sector.
In addition, the Defense, Security, Aeronautics and Space sectors are strategic and drivers of the economy, exerting a positive effect on the entire value chain: for every euro invested, 2.5 euros are generated in the Spanish economy, as was learned. at the ‘IV Defense Forum’, organized by elEconomista last November.
1.5% of GDP
The latest report prepared by KPMG for Tedae, the Spanish Association of Defense, Security, Aeronautics and Space Technology Companies, which brings together 90 companies, offers revealing data on the importance of these activities. Thus, it notes that this industry contributed 16,500 million euros to the national GDP in 2020, 1.5% of the total. Martí Fluxá, president of Tedae and former president of ITP Aero, also highlighted the “193,000 people employed by the sector, at the forefront of innovation in Spain together with the automotive and pharmaceutical industries.” In 2020, the investment in R&D+i generated by the four Tedae sectors stood at 1,900 million euros.
Once the harsh budgetary restrictions following the 2008 crisis were overcome, between 2014 and 2019 its turnover grew by 40%, at a rate of almost 7% per year (up to 14,100 million), to fall by 19% with the arrival of the pandemic. KPMG’s Deal Strategy partner in Spain, Jorge Sainz, explained that “its recovery will be key to the economy, thanks to its technological role and driving force for other sectors.”
For this reason, it is essential to promote this industry and allocate investments continuously together with a commitment to business and technological collaboration.
According to Martí Fluxá, the new European dimension of security provides an ideal framework for the integration of systems and investments in programs such as the NGWS/FCAS or those aimed at the development of combat vehicles and personnel transport such as the 8×8 Dragon.
In this sense, Ignacio Mataix, Indra’s CEO, already indicated in the aforementioned Defense Conference of elEconomista that “we need greater investment and we have proposals for the use of European funds: 14 NATO countries have already achieved the goal of 2% investment”.
About 15,000 million
The historic package approved by Europe in response to the crisis caused by Covid-19, the Next Generation EU, contemplates an investment for the defense and security sector of almost 15,000 million euros between 2021 and 2027. Among the large projects that will mark the future of the sector, the European NGWS/FCAS combat plane stands out, which the Spanish Ministry of Defense defines as “a State project”.
And it is that the FCAS is the opportunity to reproduce the decisive effect that the Eurofighter program had on the growth and consolidation of the industrial fabric. The programme, which began in 1977 with the aim of obtaining a new generation European combat aircraft, boosted the activity of the Tedae companies and led to reaching the high technological level that the Spanish industry currently enjoys in the international market.
The future European combat aircraft (FCAS), developed by Spain, France and Germany, has a cost that will exceed 100,000 million and will replace the Eurofighter and the French Rafale aircraft in 2040. The leading companies in the program are Dassault Aviation in France, Airbus in Germany and Indra in Spain. The goal is to have a next-generation combat aircraft demonstrator that will be in flight by 2027.
Last July, the Government approved an investment of 2,500 million for the second phase of the program, which will generate some 2,000 jobs.
For its part, the 8×8 Dragon wheeled combat vehicle (VCR), in which Santa Bárbara Sistemas, Indra and Escribano participate through the company Tess Defense, will be manufactured in Spain and foresees -in a first phase- the production of 348 vehicles for 2,100 million between 2022 and 2027.
Sapa’s role
On the path towards the necessary consolidation of the sector, the role played by the Gipuzkoan company Sapa stands out, with the latest corporate movements led by ITP Aero and Indra.
In the background, lies the strategy of joining forces and gaining size, positioning Spain on the European and world map to gain weight in European defense programs. For 10 years, Sapa has been anticipating this need for cohesion. According to the sources consulted by elEconomista, “major mergers and acquisitions are not expected, but some sectoral consolidation is expected to create stronger and more cohesive Spanish companies.”
Defense is not only synonymous with aircraft or combat tanks, but also with communications, software or simulators and technology. 83% of the private sector is made up of small and medium-sized companies, weaker in an international scenario. The industry has a few large companies with the ability to be integrative contractors. The rest are mid-cap companies. The same sources indicate the need to complete the incorporation of Spain “as a full partner with the same weight as Germany and France.”
Sapa is exercising that cohesive role. The second generation of the saga founded by Joaquín Aperribay has diversified its activity, gaining weight in the military business with its entry into the capital of ITP Aero and Indra, two of the large Spanish companies benefiting from FCAS programs.
In September, it entered the Basque aeronautical manufacturer ITP Aero, a strategic supplier for the Spanish air force and a participant in large European projects, as an industrial partner of the consortium led by the venture capital fund Bain Capital with 5%.
And, a few months later, it has done the same in Indra, with another 5%, a percentage that will rise to 8% with the total exit of the March group through Corporación Financiera Alba. When Bain became the new owner of ITP Aero, after disbursing 1,700 million to Rolls-Royce, the Government already required that the sale include the entry of Sapa as a Spanish industrial partner. Now, the private equity fund has until June 2022 to expand the consortium, which will have 30% of the shareholders and which already includes JB Capital (10%) and Sapa (5%).
Indra could also increase its weight in ITP Aero so that Spain gains strength in the FCAS program. The Basque Government and other companies are also studying its entry. It is expected that the aeronautical PERTE, whose approval is also imminent, will also encourage new movements.
ITP Aero, leader of the engine pillar
ITP Aero, a Basque manufacturer of aeronautical engines and components and the ninth largest company in the sector in the world, has been linked to the world of Defense since its inception. The company was created in 1989 to accommodate Spain’s participation in the development of the EJ200, the engine for the Eurofighter fighter, and now it once again plays a leading role in its replacement, the FCAS.
ITP Aero has been designated by the Ministry of Defense of Spain as the national leader of the engine pillar of the NGWS/FCAS program. In addition to the responsibilities derived from its designation as leader, ITP Aero will coordinate the national industry, national technology centers and universities, for the development of strategic and transversal industrial and technological capabilities.
On the other hand, ITP Aero is the Spanish representative in the Europrop International (EPI), Eurojet and MTRI consortiums, participating in the development, production, service support and maintenance of the TP400, EJ200 and MTR390-E engines for the A400M and Eurofighter and Tiger helicopter. ITP Aero also participates in the NH-90 helicopter program through the assembly and maintenance of the GE Aviation CT7-8F5 engine. Also, it has designed test benches for the main European military engine programs, as well as for various clients and international Armed Forces. In addition, it is the main provider of engine maintenance services for the Spanish Armed Forces.
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