Q&A: Thales Partners, Acquires, Expands

By Jonathan Ray | October 1, 2007
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As senior vice president, aerospace, for the Thales Group, Francois Quentin heads one of six divisions of the growing, $16 billion aerospace, defense and security concern based in Neuilly-sur-Seine, outside Paris.

A graduate of the ENS Telecom engineering school, Quentin joined the company in 1977, holding positions as engineer and project manager for communications and command systems. He served as chairman and CEO of Auxilec, a Thomson-CSF subsidiary, from 1992 to 1999, and then senior executive vice president of the former Sextant Avionique. When Thomson-CSF was renamed Thales in 2000, Quentin was named Thales Avionics CEO. He was appointed senior vice president, avionics systems, in 2002, and assumed his current title in 2004.

In an interview with Avionics Editor Bill Carey during the Paris Air Show in June, Quentin discussed Thales’s growth strategy and its work on unmanned aerial vehicles, the Sukhoi Superjet and in-flight entertainment, among other areas.

Q: Thales derives 50 percent of its revenue from military business, 25 percent from aerospace and 25 percent from security. Is there a plan to make defense and aerospace more equivalent?

A: We need to retain businesses, which have different business cycles, different time cycles. It takes longer in defense to develop a new radar system. It is in Thales’s interest to have three key different businesses, separately leveraging the same technologies, leveraging the same commercial skills, organization, that we have, but addressing different businesses with different products.... We have an interest in having a strong position in several businesses with very different cycles, but the ambition is to move toward a more balanced situation. It’s a matter of opportunities. We made a big move by acquiring the Alcatel Lucent divisions [in 2007], one specialized in transportation systems, the other one in space. Both are bringing new products, new markets. [This is] primarily another area, which is not linked directly to defense.

Q: You work closely with a number of companies, such as Diehl in Germany and Elbit in Israel. What is the thinking behind these partnerships?

A: By combining assets, rationalizing the assets, we have a very valuable company we would not have if we were standing alone. That’s the rationale. When we can reach a critical mass, we combine forces. If we need to partner to address the market, we combine forces.

We operate in Korea a very sizeable company in conjunction with Samsung, the former defense branch of Samsung. They agreed to sell 50 percent of it five or six years ago. They thought at that time they had to be backed by a defense company just to bring technologies, expertise and program management — a lot of competencies they did not have within Samsung Group because they were focusing on many other segments of business, but not this one. That’s the way we go to market in some areas. It depends on product lines.

With ACSS [a joint venture with L-3 Communications in the United States], it’s a product line. We have control of the product line without having the full ownership of it. We are very comfortable with this kind of agreement. With Diehl Group in Germany, it’s a market agreement. One know-how of Thales is to manage complex relationships between partners [and] partial competitors.

Q: Is that the model going forward — joint ventures, something short of an acquisition?

A: It has to make sense. Joint ventures have to make sense as joint ventures. When we believe it doesn’t make sense, we either acquire or we don’t do it at all. We want to have a reasonably good organization.

Q: You announced a partnership at the Paris Air Show with Dassault on a UAV for the French Air Force. Could you expand on that?

A: We are discussing very seriously cooperation with Dassault for the so-called MALE [Medium Altitude, Long Endurance] segment, in between Global Hawk and Watchkeeper for theater surveillance, which is a different story from tactical usage. It has bigger radar, it’s a bigger platform with more bandwidth for the data link.

Q: How does it break out between Thales and Elbit on the Watchkeeper program?

A: It’s very clear. We are not interested in designing and manufacturing unmanned aircraft, so we have made the decision to partner. In the specific case of Watchkeeper, it was a requirement from the U.K. MoD, to secure access to the IPRs [intellectual property rights], if the U.K. government made the decision to do it. So it was decided to set up a joint venture in the U.K. and to take some provisions for the IPR to be owned by this joint venture.... We could have bought the platform direct from Elbit if we had not had that type of restraint. We are extremely flexible. If we had a requirement to use a U.S. platform or an Italian platform, we would have done it. That’s very much the same strategy in France.

Dassault is a good partner of ours. We have a lot of joint interests in fighter programs, in maritime surveillance programs, so it’s quite a natural decision to go for a UAV-based surveillance system with them. They are responsible for the aircraft, they are responsible for the airworthiness of the aircraft. We are supplying the equipment to the aircraft and we are responsible for the function delivered to the end customer. We manage ground station integration into the system, we manage the global function and the delivery of the function to the customer. That’s a good arrangement.

Q: Would Thales also provide the payload?

A: Yeah, sure. We have some expertise in radar, in optronics, in data links. We bring what makes sense to the function. We have a very flexible ‘make or buy’ policy. We team with platform suppliers. We sometimes buy the sensors — we may not want to develop one because it’s a limited interest. Every single bit is reviewed under a ‘make, team, buy’ option, and we make the smartest decision we can. We don’t want at any cost to put everything we have on the shelf on the UAV. It’s not our policy. We make what makes sense.

Q: You have said the design of the next-generation narrowbody will present a challenge to Thales as it will to the airframers and engine manufacturers. Could you describe that challenge?

A: Providing some significant improvement in operational cost, in dispatch availability, environmental impact and so on, will put a constraint on the industry at large. We need to remember that the current versions of the 737 and A320 are 25 years old in design. Technology, architectures, aren’t what they were at that time. So the responsibility we have is to help both Boeing and Airbus with tradeoff studies, proposals, insight about our strategic research plan, the potential technology insertion within the next five or six years, just for them to know what we can deliver at a reasonable level of risk or without major risk. We will achieve real efficiency at platform level if we can provide some breakthrough by combining two functions into a single solution at much lower cost, lower weight, lower power consumption and more reliability. That’s the idea.... I believe this new generation of airplane will have to blur boundaries.

Q: The goal of a 15-percent improvement in performance is being discussed.

A: That’s the advertised objective. It will be provided by better aircraft design, wing profile and better engines and better systems. Of course, airframers will have to make trade-offs. It’s not an easy task. Today, aircraft designs are very traditional. Is it the right solution for an airplane that is flying in 2060? We are in the research stages.

Q: The Sukhoi Superjet 100 will fly by the end of this year. What has been the experience of working with Sukhoi?

A: We have an extensive experience working with Sukhoi, because we started at the beginning of the 90s working with fighter jets. When Sukhoi sells two fighters on the export market, one is equipped with our laser designation pod, displays, [and] computers.

We have an extensive knowledge of how to cooperate with the Russian industry and we have drawn on this expertise to make a success of it. To be very frank, Sukhoi engineers are excellent — first class. What they are learning is the processes and the Western standards. They used to have their own standards, widely different from ours. For obvious reasons, their own standards are gone and now they have to adapt to new standards, which is a challenge for them. This is where we bring expertise in maintainability, certification, etc.

Q: Would you pursue other opportunities with Sukhoi or another Russian company?

A: We have opportunities with them in fighters and transport aircraft and commercial derivatives of the Superjet. I believe the investment we have made, all of us, will be leveraged on new applications.... The boss of Sukhoi, Mikhail Pogosyan, is in charge of the strategy for new products, and we’ve had interesting discussions with them to investigate the best opportunities for both. We are involving some Russian companies in the process because we believe that some of them have excellent technology.... It’s a team option, and we believe it’s time for them to get out of the Russian-only market and access the rest of the world.

Q: How important is in-flight entertainment (IFE) to Thales?

A: It’s important because it used to be negligible in 2004. It has increased ten times in two years, and we are at a level where it provides us with several hundred million dollars a year. We had to manage huge growth. We increased manufacturing rates by ten in 2005.

Q: And you see further growth ahead?

A: Yes we do. We are enormously successful on the [Boeing] 787, capturing most of the competitions. And the more Boeing is successful with this program, the better it will be for us. We have a very competitive product. We believe this domain is very strategic with services, because we have to support the product. Some airlines require us to provide content, and we distribute content and load content in the airplane systems, and manage the airplane systems in order to have a weekly or monthly refresh of the content depending on the airline. We are packaging content, we are formatting content and we are distributing content.

Q: How would you rate the progress of the Single European Sky ATM Research (SESAR) program?

A: The definition phase went through stage 2 in January and stage 3 is proceeding. The end of the definition phase is next year. The SESAR development body is created and will be operational next year. The development stage will end with the implementation phase based on dates issued by the European Commission. It will be a big undertaking, probably years to be achieved. We are talking about 15 years.

Q: Are you content with the progress to this point?

A: Yes. As Thales, we were very much involved in creating SESAR, or enabling SESAR. We formed a joint initiative with Airbus and EADS to push that initiative through. We are in the core of the definition phase. We are quite satisfied with the way it is moving forward. The critical stage will be when the definition is mature enough to switch to implementation, to trigger the decisions to issue mandates.

I think governments and the European Commission are ready to move in this direction and I would say they have no choice, because the regulatory framework is in place — that’s Open Sky. It started at the beginning of 2000. It took seven years just to come to the definition phase, but there is enormous momentum.

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