European Union Launches Defence Industry Financing. Polish Companies Involved

The European Commission has adopted a number of decisions launching a financing scheme for defence programs in late June. They pertain to the European Defence Fund worth almost EUR 8 bn., allocated to the years between 2021 and 2027, but also to the European Defence Industry Development Programme (EDIDP). The latter initiative involves the Polish businesses as well.

European Defence Fund

When it comes to the EDF, the European Commission announced that it has issued 23 calls for proposals, regarding the programs supporting the development of defence capabilities, in support of collaborative defence research and development projects. This also entails the first co-financing scheme concerning large projects, in the amount of EUR 1.2 bn. The amount includes assets envisaged in the Fund’s 2021 financial plan (EUR 930 million), along with EUR 290 million that would push the plan to 2022, to accelerate the “ambitious” projects.

Thierry Breton, the commissioner for Internal Market, said: “In 2021, the European Defence Fund is coming to life. With the EU’s first-ever dedicated defence programme, European cooperation in defence will become the norm. Public authorities will spend better together, and companies - big or small - from all Member States will benefit, resulting in more integrated European defence industrial value chains. In 2021 alone, the EDF will finance up to EUR 1.2bn in high-end defence capability projects such as the next generation of aircraft fighters, tanks or ships, as well as critical defence technologies such as military cloud, AI, semiconductors, space, cyber or medical counter measures.”

In total, EDF plans to spend EUR 8 billion between 2021 and 2027. 5,3 bn. has been allocated to develop capabilities co-financed by the member states (development of new systems/equipment, up to the prototyping and certification stage, with procurement being excluded). Amount of EUR 2.7 bn. would be allocated to EU-funded technology R&D.  In 2021, the EDF will allocate around €700 million to the “preparation of large-scale and complex defence platforms and systems such as next-generation fighter systems or ground vehicles fleet, digital and modular ships, and ballistic missile defence.” Another 100 million Euros would be used to develop critical tech (semi-conductors, AI).

The remaining funds would be used to reinforce capabilities build with the use of synergy with other EU-financed areas (cyber-security, space, medical systems). Further funding, addressed to SMEs, would be used to develop future technologies, such as over-the-horizon radars, or quantum tech.

European Defence Industry Development Programme (EDIDP)

In parallel to the financing provided by EDF, the European Commission, following the submission of proposals, decided to award contracts within the framework of the second, and last, tranche of funds tied to the European Defence Industry Development Programme (EDIDP). EDIDP was launched in 2018, with financing in the amount of EUR 500 million, provided via 2019-2020 budgets.

The main assumption behind this programme was to create a possibility to start EU-budget co-financing for defence capabilities (up to the prototyping stage), before the EDF starts its formal actions. The programme is associated with the timeline between 2021 and 2027. EDIDP is the second instrument allowing for financing the defence industry initiatives with the use of EU funds. The first one is the Preparatory Action For Defence Research. However, the latter pertains solely to research and development programmes financed by the EU completely. The EIDP, meanwhile, covers the establishment of specific capabilities (armament systems, procurement phase excluded), and assumes that these would be co-financed via the EU budget.

Following the assessment of proposals submitted by industrial consortia, the 2020 EDIDP has an amount of EUR 158.3 million allocated to 26 projects in total, with 15 of those projects being in alignment with PESCO priorities. According to the data published by the European Commission, the division is shaped as follows: Undersea - EUR 23.5 million, Air Combat - EUR 18.1 million, AI - EUR 5.7 million, CRBN protection - EUR 6.7 million, Cyber - EUR 14.5 million, Counter-UAS - EUR 13 million, Ground Combat - EUR 9 million, Maritime - EUR 21.5 million, Precision Strike - EUR 7 million, SME projects - EUR 13.6 million, Space capabilities - EUR 22.5 million, Simulation - EUR 2.6 million.

Among the 26 projects that received financing within the framework of the competition, some involve Polish entities - 7 in total, 6 companies, and one academic institution.

• • “Comprehensive Underwater Intervention Information System, CUIIS” is a programme that is to improve the capabilities to identify and act against undersea threats. This would be achieved through the creation of a C4I system that would coordinate activities of divers and unmanned platforms, fusing numerous data sources. The initiative involves several entities, including the Polish Naval Academy. EUR 5.745 million is the maximum value of the programme, whereas the EU may provide EUR 5.497 million. The project is coordinated by the Bulgarian Defence Institute.
• Cyber4D – is aimed at creating a cyber toolbox that would be used to handle cybersecurity incidents in a national and international setting. The project involves 10 entities in total, including the Polish Asseco Poland S.A. company. The total cost has been defined as EUR 9.686 million. The maximum subsidy expected is EUR 9.325 million. Baltic Institute of Advanced Technology (BPTI) from Lithuania acts as the primary coordinator here.
• FIRES (Future Indirect fiRes European Solution) is a programme related to study and design efforts regarding new 155 mm artillery ammunition types, and rockets for artillery assets. The project is to be pursued for 24 months, its value is estimated at the level of EUR 3.5 million, and it is aligned with the possible subsidy. CRW Telesystem-Mesko Sp. z o.o. is the Polish participant of the project that involves 18 entities in total, all being coordinated by Nexter. The project is aimed, among other objectives, at creating 155 mm extended range, precision-guided munitions. CRW Telesystem-Mesko is a Polish entity specializing in optoelectronic seekers and missile electronics, as well as PGMs. Joining the European project alongside Nexter, or MBDA, can be viewed as a major success, by the Polish company.
• INTEGRAL - project aimed at the development of a European C2 system that would provide the users with space situational awareness, and space situational picture. Sybilla Technologies Sp. z o.o. is the Polish participant of this programme that, in total, involves almost 20 entities. The project is expected to last 28 months, with a total value of EUR 8.364 million. The EU may provide financing in the amount of EUR 7.5 million. The initiative is led by the Italian VITROCISET S.P.A. company.
• MIRICLE - project aimed at creating a stand-off mine countermeasure system, also involving heavy use of AI. The initiative is coordinated by the Belgian Naval Group, while PGZ’s OBR CTM is the Polish participant here.
• NEMOS - study project regarding a satellite system that would provide the users with land and sea situational awareness. The value is defined as almost EUR 4 million, with financing provided at an identical level. Solaris Optics S.A. is the representative of the Polish industry here, while Satlantis Microsats S.L. is acting as the coordinating party.
• ODIN’S EYE - study project regarding a space-based ballistic missile launch early warning solution. The project is coordinated by the German OHB AG company. It is to last 2 years, at a cost of EUR 7.814 million. 7.5 million euros would be provided by the EU here. Poland is represented by Hertz Systems S.A. here.
• SAURON – programme pertaining to enhancement of space situational awareness by creating a network of space and ground sensors interconnected together. The programme is worth EUR 8.221 million. The EU is providing financing in an amount of EUR 7.5 million. The initiative is coordinated by Ariane Group SAS, while the Polish industry is represented by Sybilla Technologies Sp. z o.o.

In total, the Polish businesses are engaged in 8 projects that received subsidies. Furthermore, within the framework of the EDIDP fund (outside of the proposals pool, as per procedures allowing for a solution as such), grants have been awarded for two programmes considered to bear a strategic value, that are developed within the framework of PESCO. The MALE Eurodrone programme received financing in an amount of EUR 100 million, while the ESSOR software-defined radio programme received funding in an amount of EUR 37 million. The latter project involves Poland - WB Group’s RADMOR company is the industrial partner.

This means that all of the EDIDP funds (EUR 152.8 million) have been spent within competitions, 137 million euros were allocated to strategic programmes of the 2020 pool, while a little over EUR 205 million come from the first pool - the one assigned for 2019. The launch of the European Defence Fund and the second batch of the EDIDP funds is a major milestone, on the path towards the development of the European defence cooperation. The EU funds are becoming increasingly more important, in financing the capacity of the defence industry. Polish entities, including the state businesses that are a part of the PGZ Group, should try to use this source to a broader extent, as it supports the development of relevant expertise, also allowing the European defence industry to tighten the cooperation, between the individual EU member states.