Résidence Palace Brussels 18 July 2003

Comments by Tom Culligan at the Conference On Transatlantic Defence Industrial Cooperation CEO Panel: Views Of U.S. And Europe Defence Industry Thank you so much for inviting me today. Let me begin by putting my comments into the context of the larger geopolitical issues that the transatlantic alliance is confronted with today. A bridge that joins people together of diverse cultural backgrounds and common values must be built on a foundation of trust. Issues of licensing, technology transfer and market access cannot be debated or solved overnight…unless there is an overriding sense of trust and confidence on both sides of the discussion. The “challenges and prospects for transatlantic defence industrial cooperation,” the title of this conference, is being tested at the moment by disagreements in the broader geopolitical context of our alliance. All of us here in this room carry a special responsibility…to create an enduring spirit of cooperation - not just in the mechanics of regulatory governing - but in the purest sense…to advance our common values…and to ensure that our bond of mutual protection is forever, and continually, strengthened. Just last week the United States Senate voted 98 to zero to urge President Bush to seek help from NATO, and the United Nations, to provide direct military support to restore security and stability in Iraq. The Washington Post reported that 19 nations currently have troops in Iraq, 19 are preparing to send troops, and 11 more are considering it…against a backdrop of 10 to 25 attacks against allied troops every day. As we work together to shape a defence industrial environment that is more conducive to cooperation, we can neither ignore these realities nor work around them. For example, relative to licensing in the post 9/11 era, there has been increased scrutiny by the U.S. government. There is anecdotal evidence that some U.S. agencies are hardening their positions as a result of political disagreements within the alliance over Iraq. In an environment where simple licensing requests can take up to one year for approval, and policy changes can drag on for many years, all of us here today must be a force for broader transatlantic cooperation… above and beyond pure industrial cooperation, if we are to succeed. To be sure, there are many underlying issues that need to be resolved: Reciprocal, inclusive access to one another’s markets. Adequate market size on both sides of the Atlantic. A reasonably liberal technology transfer environment. The need for common programs, joint ventures and business alliances. And much more. (Pause) I’ll spend the balance of my time providing a Raytheon context. Today Raytheon has more than 3,000 people in Europe. We do more than $1 billion in business in Europe each year. Raytheon Systems Limited in the United Kingdom is a complete business… with manufacturing, design and engineering…with the ability to start from scratch and create products from the ground up…or to re-design a U.S.-made product to fit a unique European requirement. In the world of Raytheon, we call such operations our “global companies.” Our European presence includes: Raytheon Marine in Germany, one of the world’s leading manufacturers of integrated bridge systems and nautical equipment. Raytheon Microelectronics in Spain, a modern high capacity factory. We have a 49% stake in Indra ATM of Spain, a joint venture to pursue air traffic management systems around the world. We have ten sales offices on the continent with a headquarters in Brussels. Another 1,300 employees make up our joint venture with Thales, called ThalesRaytheon Systems, an equally-owned transatlantic joint venture with diverse C4I, security and battlefield radar capabilities. Raytheon has been doing business in Europe for more than 60 years. Our heritage, in fact, dates back to the early days of World War II when Raytheon engineers worked with the British to develop radar. So we have a lot of history in Europe…and a lot at stake in Europe. To put it into context, more than half of all Raytheon licensing requests in 2002…were to do business with Europe. While only 1% to 2% of those requests were ultimately denied, there is still room for improvement…to make restrictions more reasonable and to lessen the turnaround time. The U.S. Administration is seeking industry support on a range of export initiatives…to better rationalize the process, including a review of the munitions list to remove overly restrictive content. Licensing is particularly difficult in certain areas, for example to release system software…or to exchange manufacturing “know-how.” The ongoing Bush Administration initiative known as NSPD 19, noted previously, could result in Congress making a welcome change in the Arms Export Control Act. It’s imperative that industry continue to play an active role in rationalizing the licensing process. Last year, for example, 39 U.S. CEOs¾including Raytheon’s¾wrote to President Bush to urge the Administration to streamline U.S. export controls and establish bilateral agreements with six U.S. allies who make up the majority of our defence exports. If a liberal technology transfer environment is the goal, then alternately there’s a sense in the U.S. that the European security and defence policy has an implicit industrial tail. European offset requirements, for example, are growing each day while the timeline for a company to achieve them is shrinking. For example, Raytheon has more than $2 billion in offsets currently owed to European businesses and agencies, covering some 50 obligations¾and the list is growing. Relative to market size, there are some obvious disparities. It is estimated that the U.S. defense budget will grow to $484 billion by 2009, a huge increase. The U.S. has urged greater European investment, and a more active role, in defence. Reciprocal and inclusive access, something all of us desire, has been slowed by old suspicions and concerns…some inflamed by recent world events. On the U.S. side, the DoD has shown some willingness to “buy European.” BAE Systems of North America, for example, has experienced success. On the European side, intra-European armament agreements may diminish the ability of U.S. companies to compete…there is at least the appearance that the deck could be stacked. All of us in government and industry must work to prevent any new walls from going up…walls that could be counterproductive to our collective interests. Among the solutions to build the transatlantic bridge are common programs, common research and development, joint ventures and greater business alliances. The Rolling Airframe and Evolved Sea Sparrow missiles are good examples of successful common programs between U.S. and European industry…but there should be more. France and the U.K. have well-defined research and development objectives, much of it compatible with the U.S...in areas of remote sensing, C4I data fusion, optics, unmanned vehicles, chem-bio detection and guided weapons. A further definition and funding of European R&D would provide fertile ground for transatlantic cooperation…given the right business deals and regulatory approval. While a label that says “made in the USA,” or “made in Europe” may be appealing to some…we must continue to find ways to put a stamp on our products that says “made by the allies.” The ThalesRaytheon Systems joint venture is the kind of alliance that can break down walls and provide a foundation for common goals and objectives. JVs can pry open markets…and allow the parent companies to gain solid footholds. Recently, our TRS JV won the Battle Control System contract in the U.S….and continues to work on the ACCS program in Europe. JVs can provide a platform for unique technology and program integration. Of course there are challenges to transatlantic JVs…challenges not of simply overcoming, but of leveraging our cultural and language differences¾and turning them into strengths. The licensing and regulatory environment to set up an American-European JV in defense is still too cumbersome…the regulatory environment in many ways is overly restrictive. So transatlantic JVs are beneficial…but not easy. Raytheon’s experience with our “global companies,” those with an established on-the-ground, in-country presence, such as Raytheon Systems Limited in the U.K., where we have some 1,800 employees, requires a significant investment of resources over time. It’s an investment that ultimately pays off. In the last six months, Raytheon has been awarded several major new contracts in the U.K.: To supply the Paveway IV to meet the RAF’s requirement for a new Precision Guided Bomb, or PGB…a contract valued at $175 million. To provide air traffic control radars at 20 sites in a $120 million contract. The Raytheon/Lockheed Martin Javelin was selected to provide the Light Forces Anti-Tank Guided Weapon in a contract worth more than $450 million. This recent string is not the product of overnight success. It’s an example of having strong, in-country relationships…relationships built on a local presence…relationships that have matured over time. Such an investment underscores a commitment for the long haul…a commitment that will permeate any business discussion, with a government customer or an industry partner. In the final analysis, the transatlantic bridge will be built on a foundation of relationships…a foundation of trust and confidence…a foundation of shared values…of freedom…freedom of market access…freedom from burdensome regulations and restrictions. In the spirit of cooperation, and healthy debate, among partners, I would like to conclude with a quote from Gen. Douglas MacArthur: “Upon the fields of friendly strife…are sown the seeds…that upon other fields…on other days…will bear the fruits of victory.” Thank you.