chaos wins in the cabinets

We have seen an increase in the number of missions for the defense sector, especially at the beginning of the school year in September”, said Florent Berckmans, partner at Eight Advisory. And for good reason: between inflation and the war in Ukraine, the arms industry is in full swing. Visiting Bourges at the end of October to the factory where MBDA designs and tests propulsion systems for its missiles, Emmanuel Macron reiterated his calls to speed up the production of military equipment. Especially since, since the start of the war in Ukraine in February, France has delivered some of its equipment to the country. In mid-October, it was decided to take delivery of 6 new Caesar guns manufactured by Nexter, in addition to the 18 already delivered; and 20 Bastion armored vehicles, manufactured by the Arquus Defense group.

However, as explained by Isabelle Carrère, the managing partner of the firm specializing in aeronautics and defense Alba & Co: “The conflict in Ukraine has highlighted the difficulties of the production chains that went up, indicating the difficulties observed in the aeronautics industry as soon as the Covid crisis appeared. » These obstacles offer the first point of entry for strategy consulting firms with defense groups. “A large part of our activity involves integrating supply chains”said the partner.

Former Director of Strategy for the Directorate General of Armaments (DGA), Jean-Pierre Devaux agrees: “If you want a war economy, you have to ask yourself the question of restructuring the industry. With a fabric of VSEs and SMEs, we cannot increase the speed as the public authorities want. » Some problems appear: setting up a production line and training staff takes time, especially for some very specialized professions. If not, “We must change the mentality of companies, which until now worked 8 hours a day and must go to 24 hours a day”complements this expert, who has become a freelance consultant.

The SME is looking for financing

Speeding up production therefore requires finding new financing. Already there, this need for money has suddenly increased this year. The Definvenst fund, created in 2017 by Bpifrance to support strategic SMEs for the defense of France, has invested in several opportunities in 2022 to secure nuggets in the sector, such as MASA, which designs command simulation software , or the precision machinist for Safran and Nexter HPM. As for private funds, Tikehau, for example, has invested heavily in defense, aeronautics and security with its subsidiary ACE.

This is an additional opportunity for companies, offering strategic due diligence, targeted research, reflection on build-up strategies or support for growth projects, with company executives of defense or funds as their clients.

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In the Ministry of Armed Forces, the American consultants kept their entries

Did the Ministry of Armed Forces really conduct a sensible diet on advice? Not so sure in view of the latest award of the contract in the four-year deal in 16 consultancies for a total value of almost 50 million euros. A reduction of almost 50% in the budget compared to 2018, but a large market that continues to ask.

Renegotiate contracts

Added to these different fields is a new parameter that further complicates the task of the arms groups: inflation. Their production costs have increased significantly, due to the increase in energy prices, but also in materials widely used in the sector such as titanium and aluminum. This unexpected situation raises further questions. “Defense manufacturers are encouraged to ask themselves: what is the impact of inflation on their activities, how to deal with it, if they should renegotiate with their customers contracts entered into for several years, while avoids reopening calls for tenders”, lists Florent Berckmans, partner at Eight Advisory. And here again, companies are demanding. “The analysis of the effects of inflation, their monitoring, the prospects for re-invoicing the main accounts are an important part of our missions”complete Isabelle Carrère.

Manufacturers must answer these various questions before securing new orders. The demand will definitely grow with the war in Ukraine, and the 2023 finance bill confirmed the increase in the budget of the Ministry of the Armed Forces, provided for the framework of the Military Programming Law for the period 2019-2025. Enough to generate new missions also on the side of companies, but mainly prospective for the moment. “Some missions are dedicated to the evaluation of orientations given or possible on the part of the General Directorate of Armaments (DGA)”Alba’s managing partner detailed.

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