Saab CEO Sees Opportunity in Defense Budget Squeeze

Saab CEO Sees Opportunity in Defense Budget Squeeze

The chief executive of Saab AB believes the growing focus on value for money in defense procurement is an opportunity for the Swedish aero-defense group.

"There is no point being cheap if you can't win a war," Hakan Buskhe told The Wall Street Journal from his office at Saab's headquarters. "But when money is getting tighter around the world, you still need to be able to afford flying."

The CEO believes that the group's strength is its position as a supplier of versatile, lower-cost military equipment, typified by its Gripen fighter jet.

"Interest in the Gripen system has never been as huge as today," said Mr. Bushke. "We get some kind of request for information from different countries nearly twice a month."

Saab sees a global market of around 6,000 combat aircraft over the next 10 to 15 years, Mr. Buskhe said. "If we can get 300 of them, it's what we're looking for," he said.

Saab's biggest owner is Swedish investment company Investor AB, INVE-B.SK -0.60% with 30%, followed by the Wallenberg Foundations with 8.7% and Swedbank Robur Funds with 5.5%.

Such optimism comes amid continued concern in Europe that the region's relatively fragmented defense sector continues to suffer from overcapacity, not least in its competing fighter-jet programs. The region's enduring economic crisis is squeezing government finances and putting defense budgets under pressure.

aab, as well as the Eurofighter consortium including BAE Systems PLC and European Aeronautic Defense & Space Co., out to France's Dassault Aviation SA in the bidding to enter exclusive talks with India for a large combat aircraft order. Dassault and Saab are both in the running for a much-delayed fighter jet order from Brazil where competition is likely to include Boeing Co.'s BA -1.03% F/A-18E/F Super Hornet.

European defense contractors are also pinning their hopes on making up for declining military spending in the U.S. and Europe by selling weapons to emerging markets, particularly in the Middle East and Asia. But such competition risks playing into the hands of the purchasing governments in terms of pushing down prices.

Sweden has agreed to buy the latest generation of the Gripen multipurpose fighter, which is equipped with a more powerful engine and advanced electronics, for an order with a possible total value of 47.2 billion Swedish kronor ($7.1 billion).

The contract was a lifesaver for the Swedish group, said Carl Gustafsson, an analyst at brokerage house Danske Equities. "The Swedish [Gripen] order was really important for Saab," Mr. Gustafsson said. "Without it, they could have been forced to downsize."

With a price tag of around 400 million kronor ($60.2 million), Gripen is cheaper than many rival aircraft, said Mr. Gustafsson.

"It's a bit like the Volvo of fighter jets," he said, referring to the Swedish maker of no-nonsense sedans and station wagons. "It's not the best, but it's good enough and it's priced well." As a comparison, the average price for a Lockheed Martin Corp. F-35 Joint Strike Fighter is estimated at around $137 million.

Switzerland also plans to buy the aircraft though that decision hinges on a referendum. Saab hopes the Swiss contract will be completed by the third quarter next year, but "it's not a done deal until we receive the money," Mr. Bushke said.

Western countries, including Canada and Denmark, have started to reconsider earlier plans to upgrade their fighter fleets with Lockheed Martin's top-of-the-line but costly F-35 Joint Strike Fighter. Denmark earlier this spring said the Gripen might be an alternative.

"Canada is in some kind of information collection mode, and Denmark is starting up its process," Mr. Buskhe said. Finland, the Netherlands and some Eastern European states are also about to open up similar processes, he said.

Mr. Bushke acknowledged that Canada and the Netherlands are among the partner countries behind the F-35 program and are under pressure to buy the aircraft they have helped build. "We'll see what happens," Mr. Buskhe said.

Saab, which also makes missiles, small naval vessels, and surveillance equipment, believes one of Gripen's main selling points is its modular design, which makes it easy to upgrade and change components.

Asian countries are showing "tremendous" interest in Gripen, which is already used by the Royal Thai Airforce. Thailand has ordered 12 Gripen aircraft, with the first ones delivered in February 2011. Saab also hopes to sell the fighter to Brazil, where it has been in talks for many years, Mr. Buskhe said.

Source: STOCKHOLM - By GUSTAV SANDSTROM - WSJ.com News - 30 May 2013

Photo: The Swiss Air Force Saab’s Gripen F Fighter Jet performed on Oct. 11, 2012, during a flight demonstration of the Swiss Air Force over Axalp in the Bernese Oberland. (Photo by Agence France-Presse/Getty Images)



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