Interview with Jean-Paul Herteman

A Strong Base in Europe for Global Ambitions Jean-Paul Herteman, President of the Committee of Directors, SAFRAN, Paris

The European-Security and Defence Union: SAFRAN is a global player in civil aviation, in defense and in the security sector. The company is also a major manufacturer of rocket engines for space applications and is a leader in biometric identification systems. On the military market, SAFRAN is found in almost all airborne systems. What does your overall strategy look like and on what is it focused?

J.-P. Herteman: By the end of 2008, SAFRAN will be one of the major equipment suppliers in aerospace, defense and security, and we will be concentrating on these three sectors in future. So we will shortly be spinning off our telecommunications activities. To place SAFRAN in the right context, I would add that we are number five in the world on the basis of sales and our strategic goal is to raise ourselves a few rungs higher.

The European-Security and Defence Union: And how do you see the space sector in your group?

J.-P. Herteman: Those companies operating solely in the aerospace segment, such as Goodrich, are few and far between. As a rule, companies operate in several major areas, such as aerospace and defense or aerospace and security, or are at home in all three such as SAFRAN, namely aerospace, defense and security. Even if the technologies involved may sometimes be very different, it is vital to retain the confidence of the major customers in order to be considered for large and complex high-tech programs with a long-term orientation. This is a very specific sector.

Jean-Paul Herteman, head of the world’s fifth largest aerospace and defense group, talks to Hartmut Bühl, Correspondent of the Behörden Spiegel and Editor of “The European –Security and Defence Union”.

photo: Jean-Marie Ramès/SAFRAN.

Jean-Paul Hertemann Safran Group Chief Executive Officer (September 3, 2007, onwards) President, Defense Security Branch Jean-Paul Herteman is a graduate of Ecole Polytechnique and of Ecole Nationale Supérieure de l'Aéronautique et de l'Espace. In 1984, he joined Snecma and assumed until 1995 among others the positions of Quality Director (1989 - 92), Mechanical Division Manager and Deputy Technical Director (1993 - 95). In 1995 CFM56 Program Manager at Snecma and Executive Vice President of CFM International; 1996 Vice President Engineering of Snecma . In 1999 Executive Vice President and General Manager of Snecma Rocket-Engine Division and was then appointed Chairman and Chief Executive Officer of Snecma Moteurs in 2002. From 2004 till 2006: President, Defense Security Branch and Chairman & CEO of Sagem Défense Sécurité.

The European-Security and Defence Union: You have just stressed that you aim to become even bigger. How do you aim to achieve this?

J.-P. Herteman: There are two ways to grow: organically by making intensive efforts in technological R&D, and by acquiring companies. As an example of the first way I would mention our great advances in the security sector, and specifically in identification. In fact, our biometric algorithms have left our competitors behind in terms of performance, precision and speed. As regards the second path to growth opportunities, namely acquisitions, we stick to the basic principle of buying companies only when we are convinced that they will make a vital strategic contribution, either in terms of technology or by complementing our market coverage.

The European-Security and Defence Union: This is a complementary strategy that appears to be success ful.

J.-P. Herteman: That is precisely a specific feature of SAFRAN. We try to develop by means of investments and technological breakthroughs.

The European-Security and Defence Union: Globalization in conjunction with the weak dollar has surely had an impact on your strategy and business development. Are you planning to outsource facilities on a larger scale? J.-P. Herteman: Like all companies in our sector, SAFRAN must also become increasingly international, as our industry has an unequivocally global character. We are continuing to place our supply chain on an increasingly international basis. There are two reasons for this: the dollar and competitive pressure. We

try to ma na ge our costs on a dollar basis and to reduce them. The European-Security and Defence Union: So you have to reduce your costs. How do you go about that? J.-P. Herteman: Ambitious countries al ready offer excellent production ca - pa bilities in aerospace, and do so at attrac tive prices. SAFRAN exports 95 percent of its products, on the basis of their final status. For example, 15 percent go to China. The European-Security and Defence Union: What about the presence of SAFRAN in other countries? J.-P. Herteman: We are not far from having exactly the same number of employees in our production plants in Europe and outside Europe. The European-Security and Defence Union: And what is the picture like as regards investments? J.-P. Herteman: We naturally try to keep on top of this globalization process, and that means that we simultaneously invest strongly in our industrial capacities in Europe. Along with strengthening our international supply chain, we invest twice as much in Europe as in the rest of the world combined. J.-P. Herteman: Space really is a very special sector. What is happening there is one of the most brilliant successes in the construction of Eu - rope. We can be proud of having given Europe free access to space and also of developing the capabilities of using it not only for civilian but also for strategic purposes. But our past success can be improved further in the future. Indeed, we have no choice but to do so. Take the example of China: the Chinese have announced a rocket with a lar ger payload capacity than Ariane 5, and believe me, that’s absolutely enormous. They are talking about 14 tons while we are currently at 10 tons. The European-Security and Defence Union: Does this mean that Europe needs to reorganize in the space sector? J.-P. Herteman: We are willing to work together with an even more rational organization that focuses above all on achieving greater specialization and optimization of the individual components. An obvious first step would be to find a basis for a rapprochement between the two giants in space engines, namely Astrium GmbH and ourselves. The European-Security and Defence Union: But what is the real challenge here? The launching of an Ariane V at Kouron – driven by motors from SAFRAN. Photo : Safran

The European-Security and Defence Union: So you feel that you have managed to avoid delocalization?

J.-P. Herteman: Absolutely! We have so far managed to avoid closing any large industrial plants. Let me give you an example: we have hired 2,000 employees in France each year over the last three years. Half of them are engineers and the other half are production staff. We really are expanding SAFRAN internationally, but we are doing this in a very balanced way, even if a large part of our growth takes place abroad.

The European-Security and Defence Union: Let’s go back to your space activities. You have partners in the subcontractor segment for rocket engines worldwide, including China. In Euro pe you cooperate very closely with a number of engine manufacturers. You are the leader in this sector. Can you imagine assuming lea - der ship of a large European group on the pattern of EADS one day? J.-P. Herteman: The space industry cannot be compared to any other. Space is a delicate sector. We are willing to share, but it’s simply impossible to share everything. We could, as you have indicated, take over the leadership. But in order to bring Europe forwards, leadership must be shared. I am convinced that this is possible. You know, space is just a very tiny domain comprising several hundred persons.

The European-Security and Defence Union: Let me turn to quite a different market that concerns specific German interests. SAFRAN has entered the field as a bidder for the Bundesdruckerei (Germany’s supplier of secure documentation). Is SAFRAN still interested in this over the long term in view of the latest developments?

J.-P. Herteman: We did not make an offer. We keep an eye on everything that is of strategic importance. We ask ourselves questions and gather information. You must realize that SA

56 FRAN is a company with Supervisory and Executive Boards. And any offers must be approved by my Supervisory Board. Any offers that the Executive Board submits to the Supervisory Board have previously been discussed in depth by them. Even if such an idea did arise, it would still need to be presented at this higher level. But SAFRAN is also a public stock corporation. If I make an offer, then I have to inform the market. To repeat clearly what I have said: we made no offer in this case.

The European-Security and Defence Union: To what extent do you differ from your competitors?

J.-P. Herteman: SAFRAN concentrates on a specific part of the security business, namely on identity checks. Our strategy here is simple – we want to have the better technology. Our position is not to provide large systems. One of our core capabilities is biometrics. We are worldwide first among equals in this sector in terms of both the sales and performance that we achieve with our technology. We have a strong position in smart cards, especially in Germany – where we have 500 employees. Incidentally, smart cards are increasingly also being used as data carriers for secure information. In this sector, we have an important technological component for encrypting and designing these cards.

The European-Security and Defence Union: A few months ago you acquired the Dutch company Sdu-I.

J.-P. Herteman: That’s right. We recently acquired Dutch secure document printer Sdu-Identification BV, which we assume to be without any global rivals as holder of a technology for document security (ID cards). We have already worked together with them in manufacturing biometric ID cards for Albania and our people on the team were very impressed by them. When Sdu-I was up for sale, we acted immediately.

The European-Security and Defence Union: Finally, what is the current situation as regards the Germans?

J.-P. Herteman: The sector of identity checks is a market with many local and national peculiarities, but always of global interest. So it’s clear that our people are also interested in the capabilities of the Bundesdruckerei. But let’s be pragmatic: the acquisition of a foreign company in such a sensitive sector as security or defense can only be successful with the full political approval of the state concerned. Such a business would otherwise be completely unfeasible. It’s not a question of nationality and no-one suggested to us that we should go for the Netherlands rather than Germany. I can assure you of that. The European-Security and Defence Union: What about SAFRAN and the French government? J.-P. Herteman: The French government owns thirty percent of SAFRAN’s capital. Only ten years ago the figure was 100 percent. Naturally, very specific rules apply to our activities concerning the country’s nuclear deterrent force. I would add that next to the government as the largest shareholder of SAFRAN we have the employees, who hold 2? percent of the capital. This is also part of management’s strategy.

The European-Security and Defence Union: Let me return to Europe. Efforts are being made in Brussels to realize a common defense products market. Other efforts are moving toward crea - ting a security market. Why does the industry need two markets?

J.-P. Herteman: Well, there are distinctions between the two. The equipment for high-intensity conflicts cannot be compared with that needed for border checks. But you are right that there is no way of assigning these technologies to specific sectors. Seen from outside, a Eurofighter or Rafale engine has nothing in common with that of an Airbus. But inside they have the same materials, the same mechanical operations. They are merely adapted to their specific functions.

The European-Security and Defence Union: Do you regard European policies in the sectors of security and defense as coherent?

J.-P. Herteman: I very much hope that those who will be responsible for Europe in the future will have a broad-based vision and will talk about strategic technologies rather than a segmentation of activities. But specific characteristics must be respected. The USA has identified 27 critical technologies in which America is defined as being “dominant”. They simply make no attempt to think in categories such as aerospace, security and defense.

The European-Security and Defence Union: What would be your definition?

J.-P. Herteman: When people talk to me about “industrial basis and defense technologies” and some then add “and security”, then I take this to mean the “industrial basis and technology strategy”. Just look at the surveys: 74 percent of Europeans want Europe to be able to assure its own defense and security.

The European-Security and Defence Union: Shouldn’t the EU Commission talk about strategic research within the scope of their research program?

J.-P. Herteman: I have held discussions on this issue with the Commissioners and their Directorates-General. Perhaps their ideas will change. We must be patient and keep on the ball.