VZCZCXRO0078
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHFR #1076/01 0791005
ZNR UUUUU ZZH
P 201005Z MAR 07
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC PRIORITY 5775
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUCNMEM/EU MEMBER STATES  PRIORITY

UNCLAS SECTION 01 OF 02 PARIS 001076 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS NSF AND NASA 
STATE FOR OES/PCI (EISENSTAT), STAS, EB, EUR/WE 
USEU FOR SMITHAM 
 
E.O. 12958: N/A 
TAGS: TSPL EINV EAIR TSPA TNGD EIND ECON PGOV FR
SUBJECT: FRANCE'S AEROSPACE CLUSTER 
 
REF: A. 06 PARIS 7882, B. Paris 1075 
 
¶1. (U) SUMMARY:  As part of France's new scientific and innovation 
policy (see ref a), France embarked on an ambitious program of 
naming competitiveness clusters throughout the country (ref b). 
Possibly the most visible of these clusters focuses on aerospace and 
embedded systems in the Midi-Pyrenees and Aquitaine regions, home to 
Airbus and Dassault Aviation.  Although almost six hundred companies 
already belong to this grouping named "Aerospace Valley," one of the 
program's goals is to grow the cluster.  Toward this end, the 
government is offering significant tax incentives to draw firms and 
institutions to the cluster in addition to central and regional 
government funding.  End Summary. 
 
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BACKGROUND 
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¶2. (U) Toulouse is playing a significant role in the GOF's promotion 
of competitiveness clusters ("poles de competivite" in French), 
combining the efforts of enterprises, research entities, and higher 
education institutions to develop technologies into products with 
practical applications.  The GOF believes its designation of 
sixty-six competitiveness clusters (six of which are labeled "global 
level") provides a partial answer to its industries' declining 
comparative advantage faced with increased competition from emerging 
economies (see ref b for more information on the general strategy). 
Especially aimed at innovative, high value-added industries, such as 
biotechnology, medicine, and aerospace, the clusters policy seeks to 
support those sectors that hold the key to remaining a major 
economic power.  Two of the clusters, one specializing in aerospace 
and another in cancer and other health issues, are based in 
Toulouse, with aerospace being one of the "global level" clusters. 
 
 
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AEROSPACE CLUSTER 
----------------- 
 
¶3. (U) The GOF selected Midi-Pyrnes and Aquitaine regions, home to 
Airbus, Toulouse's prestigious engineering schools, and a plethora 
of Airbus suppliers and other aerospace firms, as one of France's 
six global-level clusters.  Dubbed "Aerospace Valley," the regions 
boast almost six hundred French and foreign firms.  In addition to 
Airbus, some of the larger groups involved are Alcatel, Dassault 
Aviation, Siemens, EADS Space Transportation, and Thales.  A number 
of important U.S. aerospace suppliers, as well as U.S. semiconductor 
company Freescale and Sun Microsystems, are also present.  Presided 
over by Airbus France's president, a Director, three engineers, and 
a secretary carry out Aerospace Valley's day-to-day operations. 
 
 
¶4. (U) The French government aims for the cluster to become the 
world leader in aerospace and embedded systems, creating 40,000 new 
jobs in the next twenty years, which would increase the sector's 
employment by approximately fifty percent.  It also hopes to attract 
more foreign direct investment and stimulate the economy by 
developing new marketable technologies in the highly competitive 
aerospace industry.  To ensure its competitiveness, the cluster has 
contracted a French strategic intelligence company, ADIT, to develop 
an economic intelligence program. 
 
¶5. (U) The aerospace cluster is scheduled to receive 250 million 
Euros (USD 325 million) over three years of a total budget of 1.5 
billion Euros (USD 1.95 billion) for all clusters (two years remain 
in this budget cycle), with fifty percent funded by the central 
government and the other half by the regions.  Among the cluster's 
seventy projects announced, forty have already been selected to 
receive 57 million Euros (USD 74 million) in central and regional 
government funding.  In addition, the government is granting 
substantial tax incentives to draw firms and institutions to the 
cluster.  It is offering a hundred percent tax exemption for a 
business' first three profit-earning years and a fifty percent 
exemption for the following two.  Furthermore, the government is 
giving small and medium-sized enterprises a twenty-five to fifty 
percent rebate for employer social charges for employees involved in 
research and development projects. 
 
¶6. (U) The cluster's projects include EGNOS/GALILEO, primarily 
located in Toulouse, which seeks to develop real-time satellite 
pinpointing for ground vehicles.  The MONADE project is creating an 
inter-agency digital simulation system of prototype aircrafts, 
satellites, and onboard systems.  The BATTLION project seeks to 
develop lighter batteries for airplanes.  French company MTS is 
developing composite materials for aircraft and space use.  Even an 
American company, Rockwell Collins, has an official project, working 
with a small French enterprise to develop a device that allows blind 
 
PARIS 00001076  002 OF 002 
 
 
people navigate with the assistance of Galileo.  In addition to 
these projects, the cluster will build "Aerospace Campus" to bring 
together the numerous aerospace engineering programs already in 
Toulouse and house Galileo Industries. 
 
¶7. (SBU) COMMENT: Fearful of losing its place among economic powers, 
the French government is seeking a way to ensure that its industries 
innovate.  Its belief that the government should play a role in this 
process is clearly evident in its clusters policy.  The GOF appears 
to view the aerospace cluster as a means to gain political advantage 
by supporting its aerospace companies when times are tough at 
Airbus.  In November 2005 following disclosure of Airbus' difficult 
financial situation and the first leak that Airbus planned to 
drastically reduce its number of direct suppliers, Prime Minister 
Dominique de Villepin specifically pledged 50 million Euros (USD 65 
million) in supplementary aid to the cluster.  Last week, the Prime 
Minister announced 100 million Euros (USD 130 million) for 
composites, some of which will probably be funneled through the 
cluster.  Obviously aimed at reassuring French electors in advance 
of the upcoming Presidential election, even those close to Aerospace 
Valley do not know if either pledge represents "new" money or if the 
government is just repackaging old programs for short-term political 
gain. 
 
¶8. (SBU) Viewed from the other side, it remains unclear what, if any 
role, the cluster will play in Airbus' current attempts at 
restructuring/cost cutting.  Still, the regions' strong stake in the 
success in the cluster may have encouraged their recent moves to 
attempt to buy into Airbus capital. 
 
¶9. (SBU) Another issue apparent in this program is a desire to 
please as many regions as possible, hence the naming of sixty-six 
clusters throughout France-although only six are labeled 
"world-class."  France's seriousness about advantaging the 
world-class clusters will become apparent after the latest round of 
cluster submissions given that the Ile-de-France region (home to 
Paris and the headquarters of many aerospace offices) has now 
applied to have its own aerospace cluster. 
 
STAPLETON