By Carola Hoyos, Defence Correspondent | July 1, 2012 1:59 pm
Eurofighter’s Typhoon proved its value in Libya earlier this year
Europe’s biggest defence contractors are revamping the way they sell and price their Eurofighter Typhoon jet fighter after the “wake-up” call of losing India’s £20bn tender to France’s Dassault.
Eurofighter is approaching six campaigns to sell the jet fighter to countries from Oman to Romania very differently to the way the consortium has done business in the past 20 years, said Guiseppe Orsi, chairman and chief executive of Finmeccanica, Italy’s defence contractor and one of Eurofighter’s main partners.
Mr Orsi is in discussions with Ian King, his counterpart at the UK’s BAE, who has made clear he would be willing to drop the price of Typhoon to win India back. The consortium also includes pan-European EADS, which represents Spain and Germany.
Angela Merkel, German chancellor, and David Cameron, UK prime minister, were both active in selling Typhoon, while the considerable efforts of President Nicolas Sarkozy to help the French defence industry prompted envy among European rivals.
But Mr Orsi says the role of governments will change and that Typhoon must first become commercially attractive before governments can become involved in helping to sell the aircraft, as well as the valuable training and technology exchanges that come with it.
The loss in January of the most valuable ever international jet fighter tender was a shock to Eurofighter and especially to the politicians of countries – Germany, Italy, Spain and the UK – that had poured billions into development.
Many had given Dassault little chance because the French aerospace company had not secured any other export contracts, prompting rumours that production of its Rafale jet fighter would be discontinued.
But India said the Rafale was simply a more competitive offer. Politics is likely to still have had its place but in a sign of just how seriously Eurofighter is taking India’s preference, the consortium has since begun to overhaul entirely the way the plane is priced.
For the past 20 years the companies have had the luxury of producing a plane and then dictating its price. That was acceptable to Germany, the UK, Italy, Spain and Austria, all of which got a share of the employment and skills that came with the project. But as India showed, it does not work in the export market.
Today, with western fiscal budgets stretched and every contractor rushing to sell its wares to oil-rich and developing nations, potential customers expect a much better deal.
“[At the moment] The plane contractor will say: ‘Okay, you have to give me your piece. How much is that? Put a price on it,’” said Mr Orsi. “The supplier will say ‘That is my price, what I consider to be a remunerative price for me. I don’t worry about the final price, because that it is somebody else responsibility.’”
Eurofighter’s companies will now stand the old system on its head, with all the partners agreeing a price, based on the offering of Eurofighter’s competitors, and working together to achieve it.
“When we go into the open market, competitiveness is essential, so that’s why we need to re-organise,” Mr Orsi said.
“We will all be around the table and start from what is the competitive price to win a competition, as we do in the commercial field, then we go back and see what each company has to do in order to get that competitive price.”
Mr Orsi concedes such a dramatic change could be a challenge. Eurofighter’s partners, who are also fierce competitors, will have to agree a greater level of transparency, trusting each other with information as sensitive as cost and margins.
They will also have to accept some loss in margins, while politicians need to contend with playing “a very different role once the product is effective.”
“We need to approach those [export] markets with a commercial attitude rather than suggesting a political vision of a product,” Mr Orsi said.