There has been enormous hype on the potential formation of "Fortress Europe" versus "Fortress America" since the announcement of BAe’s acquisition of GEC-Marconi. However, there are four compelling reasons for key U.S. "Stakeholders" in the Pentagon, the Administration, Congress and Industry to decisively continue the commitment to trans-atlantic defense cooperation.

First, a "co-mingling" of DoD and U.K. Ministry of Defence (MoD) technologies via an eventual U.S./U.K., or even U.S./U.K./German, defense industrial base consolidation will directly save American lives on the battlefield. Our "Revolution in Military Affairs" (RMA) already politically and budgetarily commits us to coalition warfare in concert with the U.K. as our principal European ally. We saw this as recently as the last round of airstrikes on Iraq. Our RMA also commits DoD to real-time "sensor-to-shooter" use of "smart weapons," ranging from tactical munitions such as JASSM, JSOW, JDAM, and SADARM, to improved Tomahawks and even Theater Missile Defense. Bluntly speaking, it is more cost-effective to layer the battlefield with over-lapping sensors, such as JSTARS, UAVs, AWACS, and satellites, slaved to discrete platforms loitering in the battlespace, than to develop, procure, and sustain large Cold War-numbers of autonomous weapons platforms. Unfortunately, the doctrine of DoD/MoD "joint warfighting" is inherently incompatible with real-time, all-weather use of smart weapons unless DoD can queue and fire its smart weapons off of MoD sensors, and vice versa. Consequently, "inter-operability" in key "enabling" technologies such as C4ISR, smart munitions, rapid air mobility, and logistics is absolutely essential to future DoD/MoD "battlespace dominance."

This is precisely what is happening in such MoD programs as ASTOR, Tracer/FSCS, Short-Term Heavy Lift Air Transport and the Guided MLRS. DoD had previously embraced the strategy of "mega-consortiums" of trans-atlantic teams competing for downselect in U.S./European co-development programs such as U.S./U.K. Tracer/FSCS. This was based upon the assumption that there must be two equally-competitive European contractors to team with two of the U.S. "Big 3" for co-development programs. Following the recent BAe/Marconi merger announcement, there were rumored DoD comments over the perceived loss of U.K. competition and the future inability to use the "mega-consortium" strategy. However, the BAe/Marconi acquisition does not cripple DoD/MoD "joint warfighting" capability. Quite to the contrary, there never were enough DoD/MoD co-development programs to truly use the "mega-consortium" concept, as opposed to the more traditional DoD/MoD JSF model. Rather, it is the eventual consolidation of the DoD/MoD defense industrial bases that will give rise to the critical enabling technologies by "co-mingling" broad spectrums of entire technology pools. Indeed, fragmented European defence budgets necessitate the European consolidation of its defence industrial base. Without such consolidation, there might not even be sufficient critical mass to credibly generate key "joint warfighting" technologies in an eventual U.S./U.K., or U.S./U.K./German, defense industrial base consolidation. And, because the DoD/MoD procurement policies are already largely in harmony, future U.S./U.K. contractors will likely offer compatible technical solutions to both DoD and MoD requirements. This means that such solutions will not only be inter-operable, but cheaper per unit because there will be larger production runs. That is the optimal "win/win" model for U.S./U.K. defense industrial base integration. Most importantly, that co-mingling of DoD/MoD technologies will directly save American lives on the battlefield, unlike past co-development programs which were primarily intended to husband scarce resources under frozen defense budgets.

Second, the BAe/Marconi deal is far more preferable to U.S. interests than the originally-proposed European Aerospace & Defence Company (EADC). There has been historic DoD concern over U.S./French cooperation in the wake of past allegations of bribery in foreign arms competitions and industrial espionage. There have been several recent instances where DoD has taken active steps to encourage greater U.S. participation by French contractors, particularly when work is to be performed in the U.S., U.K., Canada, etc. However, a U.K./French "mega-merger" via the EADC would have been a major blow to U.S. military exports to Asia, the Middle East and Latin America because of the combined U.K./French political clout, and could have largely constricted U.S. military sales to Europe itself. If the U.S. actively discourages an eventual U.S./U.K., or even a U.S./U.K./German, industrial base consolidation, it will likely drive both the U.K. and Germany back into the originally-proposed "Europe-only" EADC, creating a true "Fortress Europe." However, given U.S./French free trade issues, and past French procurements of U.S. defense gear such as AWACs, serious consideration must still be given to balance French interests in U.S. acquisitions in less controversial areas.

Growing U.S. concerns over the potential formation of "Fortress Europe" are also being played out against the backdrop of a growing "European Security and Defence Identity" (ESDI). Those European countries which are members of both the Western European Union (WEU) and NATO are currently seeking to balance historic U.S. military clout by endorsing an internal Common Foreign Security Policy (CFSP) and a European defence force within NATO. This represents the potential merger of the economic benefits of the WEU with the traditional military decision-making autonomy of NATO. Such a melding of the WEU and NATO would potentially create the basis for a WEU-led Combined Joint Task Force (CJTF) from both a political decision-making and the military command-and-control perspective. This is symbolized by the infant Joint Armaments Cooperation Structure (OCCAR), signed by the four charter countries of U.K., France, Germany, and Italy at last year’s Farnborough Air Show. However, given Europe’s successful history of joint ventures, such as Eurofighter, Matra Marconi Space, Matra BAe Dynamics, and even the commercial Airbus consortium, the growing momentum of a common European security perspective – of unified armed forces under a unified political command – will likely drive future European defense industrial base consolidation on an equity basis. Given growing daily tension over U.S./European "banana wars," genetically-enhanced beef, and commercial aircraft "hush-kits," as well as deep ideological disagreement over U.S. foreign policy on Iran, Iraq, and Kosovo, it is not inconceivable that an infant OCCAR could serve as the catalyst for the long-envisioned European Armaments Agency. Consequently, this strongly incentivizes key U.S. "Stakeholders" to actively participate in the shaping of the future ESDI, instead of defaulting to a self-fulfilling "Fortress America" versus "Fortress Europe" mentality.

Third, the cyclical global economic downturn is driving the U.S.-centric "Big 3" business model to an eventual "Global 2." With the 40% devaluation of Asian currencies, suppressed Middle Eastern oil prices, the Russian "flu," and Latin American economic instability, the inevitable result is a projected downturn in commercial aircraft sales, as well as fewer "offshore" purchases of military equipment of any national origin. That commercial aircraft market contraction considerably increases the importance of the global military export market, with the U.S. military export lead being annually narrowed by France. This means that U.S. contractors must not only grow European military marketshare, but must become even more competitive in the remaining "offshore" procurements. And, while the "Big 3" paradigm evolved as an ad hoc means of equitability checking each of the U.S. "Big 3" against each other, that was acceptable while Europe was fragmented. However, BAe/Marconi will have approximately $20 billion in revenues, and will enjoy a $28 billion revenue stream if it combines with DASA. Like it or not, we will be confronted with a formidable technical, economic, and political entity when the European dust eventually settles. Consequently, shrinking commercial and static defense markets will eventually trigger a global U.S./European merger, either on a "platform-to-platform" basis or on a "C4ISR/smart weapons" basis, to maximize U.S. market access to Europe and U.S. competitiveness abroad.

And fourth, DoD and antitrust oversight by the Justice Department or the Federal Trade Commission must "jump start" U.S. mid-tier acquisitions, by both U.S. and European contractors, to ensure that platform "make-or-buy" decisions for critical on-board subsystems (e.g. radar, avionics, electronic countermeasures) do not inadvertently become "make" decisions by default. Unfortunately, much of the expected consolidation in the mid-tier has largely foundered from lack of a firm DoD/Justice Department "safe harbor" policy in the wake of the failed Lockheed Martin/Northrop Grumman transaction. Additionally, recent Acquisition Reforms have the collective impact of "bundling" traditional stand-alone subsystem procurements into "turn-key" platform buys under performance specifications and Total Systems Performance Responsibility (TSPR). This effectively delegates subsystem selection authority to the platform prime contractor, making most on-board subsystems a "make-or-buy" decision at the discretion of the "mega-prime." DoD’s shift from full-and-open subsystem competitions to turn-key platform buys has given rise to a new business model of "full subsystems capability" over the obsolete "black box production" model. Past supplier concerns have focused on perceived competitive disadvantage from lack of proprietary technical "discriminators," developed by "mega-primes" at government expense, from huge Independent Research & Development (IR&D) pools. However, long-overdue actions by Raytheon in recently eliminating 16% of its legacy workforce has vastly accelerated the gradual streamlining of the "mega-primes," effectively triggering a "cost race." Consequently, unless DoD and the Justice Department "jump start" mid-tier consolidation within the next 6-12 months – to enable "black box" suppliers to shed excess capacity and evolve to "full subsystem capability" – the "mega-primes" may not even get to technical capabilities in many "make-or-buy" decisions because the cost differences will become so great. "Jump starting" the mid-tier consolidation will drive additional "inefficiencies" out of the rest of the industrial base. (On average, as much as 50% of program revenues flow through the platform prime contractor to the supplier base.) That will enable the strongest suppliers to become even more cost-competitive, better focused on investing in major programs, more capable of enhancing technical capabilities, and better able to manage "subsystem" risk to their new "mega-prime" customers. That will be a "win/win" for the platform primes, DoD, and the shareholders. And while many U.S. suppliers are heavily encumbered by debt, many European companies have large stores of free cash available. Payment of premium prices by European acquirers, in select countries with high U.S. security confidence, will ensure that the jobs remain in the U.S. and that those assets are fully utilized to maximize return-on-investment (RoI) to both DoD and shareholders alike. Conversely, that will be in addition to several imminent acquisitions of European mid-tier suppliers for which U.S. investors are currently jockeying.

Overall, these four drivers are giving rise to a vigorous debate as to whether a strategic consolidation – between one or more of the U.S. "Big 3" and the emerging U.K./European entity – or traditional program-specific collaboration is the best model for a strong U.S. national security. The only question now is how best to integrate the U.S./U.K. national security interests, and the U.S./European "free trade" issues, to directly save American lives in tomorrow’s "hot spots" such as Kosovo.