Saab chief urges UK and EU to avoid defence co-operation ‘disaster’

The head of Saab, Britain’s partner in the Tempest next generation fighter jet programme, has warned it would be a “disaster” if the UK quits the EU without a defence co-operation agreement that ensures access to both markets for industry.

Micael Johansson, who took over as chief executive last autumn, said there was a risk to Europe’s strategic interests and to defence industries on both sides of the Channel if the UK forged even closer ties with the US at the expense of European collaboration.

“If we lose the UK, if it is too close to the US, we will lose critical mass, capability, technology, and partnership with UK industry. That is not good,” he said in an interview with the Financial Times ahead of the group’s results on Friday. 

He called for UK companies to have access to the European Defence Fund’s €8bn budget and for EU industry to participate in UK equipment programmes. “It must work in both directions,” he said.

Both the UK and the US want the EU to give them the chance of joining European Defence Fund projects.

Mr Johansson’s comments come as the Swedish defence group, which makes the Gripen fighter jet, searches for strategic partnerships as part of a global expansion programme. 

Saab, which is 30 per cent owned by the Wallenberg family’s investment company Investor AB, and has most of its production facilities in Sweden, intended to invest more in the development of intellectual property in countries such as the UK, US, Australia, and Brazil, Mr Johansson said. 

It would also “look at changes in the supply chain” to accommodate the international strategy.

Mr Johansson has taken charge at a critical moment. 

Two years ago, the group called on shareholders for SKr6bn to fund development of new technologies and expansion into new markets. Saab had already invested heavily after a contract win for its Gripen fighter in Brazil, which required manufacturing facilities to be built there, as well as for a training aircraft to be developed with Boeing.

The rights issue sent the company’s shares into a tailspin from which they have never recovered. On Tuesday, they were trading around Skr244 a share, against close to SKr400 the day before the rights issue in October 2018.

Heavy cash outflows over the past two years have weighed on investor sentiment. However, Saab has promised it will return to positive operating cash flow in 2020, even with the disruption from the pandemic to the roughly 15 per cent of the business that is not defence related.

A prototype of a Tempest stealth fighter jet © PA

That means a smooth acceleration in production and deliveries of its new Gripen-E/F variant for Sweden and Brazil and of its airborne surveillance platform, GlobalEye.

Investors are watching for any hiccups that could affect the company’s chances in big fighter contract competitions under way in Finland, Canada, Columbia and India. 

This year should mark a change of direction in cash flow, said Pavan Daswani, aerospace and defence analyst with Citi investment bank: Gripen deliveries are accelerating and R&D spending is starting to fall.

Saab is 36th in the league table of global defence companies, on sales of Skr35.4bn last year. Without the resources or political influence of a Lockheed Martin (annual defence sales of more than $50bn) or a Boeing (defence sales of $26bn) to clinch export orders, Saab has had to make its living from engineering ingenuity. 

“Saab is a remarkable company,” said Sash Tusa, aerospace analyst at Agency Partners. “They do a fully fledged combat aircraft on their own. Their radar technology is up there with the far bigger Leonardo and Thales. And they retain the ability to design and build conventional submarines. None of these are easy, and they are done . . . [by] a company with annual revenues of about $4.1bn, and in a country with a population of only 10m.”

One of Saab’s strengths has been to design an aircraft that is more affordable for governments that do not need the full capabilities of Lockheed Martin’s F35, Dassault Aviation’s Rafale or Europe’s Eurofighter.

“Their target audience is quite niche,” says Mr Daswani. “They are the low cost equivalent, but it is still quite a strong product . . . It is cheaper than peers not just to buy, but to operate.”

Saab’s use of digital technology to cut development costs and design an easily upgradeable jet has also helped.

“They haven’t just broken the cost curve — where every generation of jet gets more expensive than the last. They have pretty much knocked the cost curve out of the park,” said one aerospace executive from a rival jet maker. “We have been on the driving range, while they have been out on the golf course.”

The digital design and modelling processes used by Saab were a major draw for Britain, France and Germany when they began to consider partners for their own next generation combat aircraft.

Mr Johansson said Saab had been asked to participate in the Franco-German project launched in 2018. Instead it chose to be part of the UK’s Tempest. The UK had offered Saab involvement in design and development, while the Franco-German offer was to participate only once the concept had been decided.

“It was a no-brainer for us to choose that option instead of waiting a couple of years to get a fraction of the Franco-German programme.” 

For Saab, a next generation programme such as Tempest — which could be a jet or perhaps a complex system of systems — may be the path to an even bigger market. “Technology is moving so fast . . . we have to work with other countries,” Mr Johansson said. “Everything will not be in Sweden going forward.”

Additional reporting by Michael Peel in Brussels