TASSOS PHILIPPAKOS CEO of HAI

P.M. COMMUNICATIONS: One of the main priorities of the New Democracy government is to reform the country's defence industry by restructuring and consolidating this mainly state run sector in order to make it more competitive on a global stage. Mr. Philippakos, you were brought in to radically restructure the company and turn it into a profit-making enterprise. As a leading expert on defence and aerospace companies for many years, what was your evaluation of the state of the company when you took over?

MR. PHILIPPAKOS: In the era of globalisation the consolidation of the industry has taken place in a very drastic manner in the United States as well as in Europe to a certain degree, where we have a small number of companies. The number of companies in Europe is shrinking day by day and the main cause for that is to achieve competitiveness and create centres of excellence. I believe that Greece has not done enough in terms of consolidation. It is a necessity and we have to go through that process in order to get the economic scale and avoid duplication of efforts. I believe that we will be moving in that direction as long as the government allows it and the management of this company have it their way.

HAI is a government owned company and in order to understand the company it is important to understand exactly why it was created. It was established 30 years ago with one goal: to service the Hellenic Armed Forces. It was formed as a S.A. company and as it was state owned, if there was a loss or cash flow deficit, which was common practise at the time, the government would take the responsibility.

When I took over HAI I looked for the weaknesses and strengths of the company. The company had high levels of deficit, low activity and a tendency of not looking for activity improvements or profitability. However, the company always offered high technological skills and had a tremendous technological base. We have done surveys with our clients and there were a few complaints because of the delays in the delivery, but there was never a question about the quality of our products. Since we are part of the armed services what we mainly care about is providing the best quality.

Being a government owned company HAI also faced certain limitations, such as the lack of flexibility in operation. On the other hand, we inherited one very positive thing, a dedicated customer, which means that over 50% of the company sales are still coming from the Armed Forces of Greece. We were given the mandate from the government to improve the company's performance on a financial level whilst looking for new prospects. I had to analyse carefully the company profile to see what could be done. HAI is a company with a fixed post orientation because the compensation for employees is a given, as Greece is not a country where you can lay off people, so we focused on the significant growth in the top line.

Firstly we looked at the domestic customer and tried to maintain a good relation with the customer, while at the same time we worked on increasing our sales by capturing a higher market share.

Secondly we looked into adjacent markets, for example HAI has a tremendous capability in servicing engines and aircrafts, primarily military. So we decided to enter the civil market and we are dedicating a lot of effort to this sector. We already have an agreement with Aegean Airlines, the fastest growing airline in Greece. We certainly have a vision and a strategy for HAI in order to expand in every sector furthermore through joint ventures.

We also had the capability in the satellite services business that was in some kind of lethargy, so we reactivated this business and we are pursuing this sector very intensively. We already signed some promising contracts with the Ministry of Mercantile Marine for surveillance purposes, as well as with the Hellenic Armed Forces and we are focusing on taking further steps with a program that we are biding for with the Satellite services for the Armed forces in Greece. We are very hopeful that we can work out a contract together and hope for a positive outcome.

The next point that we need to take into consideration is the reduction of the budget for the defence sector. As a consequence we had to look beyond Greece into the Global markets. Having lived outside of Greece for thirty years helped me to see the market from a different perspective and conduct successful business ventures. We set up a new strategy and created domestic and international alliances. At the same time we are pursuing the off sets and we have decided to work on off sets on a global basis, because the idea is to turn HAI into a global player.

So far we have been very successful. In 2005 we doubled the value of signed contracts compared to 2004, whilst the value of international contracts was tripled. Furthermore, by the end of May of this year we had already exceeded the results of the whole 2005. At the time, we set targets that we considered reasonable, but looking at the outcome we are proud to announce that we can aim a lot higher then we even imagined. We will continue with the same strategy and we are ready to compete on the global market.

The main challenge that we are facing now is how to keep growing rapidly whilst being able to deliver with our costumers on competitive level. For that reason we are organizing a conference to discuss the topics of labour, production processes and infrastructure, as HAI needs to improve all three areas in order to keep up on the global stage. Understandably, we cannot make drastic changes from one day to another, but within the parameters of our capabilities, we need to focus on becoming increasingly competitive in every sector. The international investor will do business with us if we deliver quality products on time and offer competitive prices.

We have a fairly good relationship with the Unions and we were the first public company to sign a two-year agreement with them. We will continue to work more intensively with the Unions to make sure that the productivity grows. At the same time we look at improving our processes, for example one of the three major manufacturers of engines, Pratt & Whitney, is one of our main partners. Thirdly, we have to invest in the equipment. There is a forth aspect which is outsourcing, which helped us develop successful business ventures abroad, for example with Romania with whom we signed an agreement a few days ago. We have visited several countries in the Balkans and we are looking for possibilities where we can also keep the cost low while at the same we can expand and increase our production, without major increases in capabilities including the labour force.

P.M. COMMUNICATIONS: The Defence Industry's role is of critical importance in the ND government's push to improve the competitiveness of the Greek economy. The government is focused on Research & Development and is keen to promote high-tech industry and jobs within the country. The future for HAI lies in R & D. Could you please tell us more about HAI's current projects and activities in this area?

MR. PHILIPPAKOS: Our company shares the views of the government and we believe that nowadays a country cannot progress without technological advancement. It is unfortunate that Greece ranks at a lower level in the overall technological development and every day that we do not invest in technology, we go one step back. I believe that we have to grow tremendously in order to develop our technology.

With limited resources we have upgraded the R&D sector at HAI to a managing level. We work very closely with the European Union and are achieving concrete results. I'm delighted to say that four months ago we began the construction of a composite factory in the presence of the President of Greece. We also collaborate closely with the government and we are working towards opening a design centre in the near future. To be a player in the defence market you have to create a design capability as the commercial part of the Aerospace industry is moving towards risk sharing partners. In order to hold more responsibility we need a space to develop the parts and then we will have the part for the life of the product. The outsourcing at the production level is not the trend in the industry and is not as profitable. However, if you create the designs for the beginning you have more credibility and more room for negotiation in the market. We set certain targets and we have chosen the technologies based on where we see HAI progressing in the near future. The other successful achievement that we can be proud of on the technological side, is that we are one of 5 -6 companies and countries in Europe that are participating in the development of UCAV ( Unmanned Combat Air Vehicle) - NEURON.

P.M. COMMUNICATIONS: How are you encouraging increasing dialogue between research institutes, academics and the private sector?

MR. PHILIPPAKOS: I have had various discussions with the leaders of the Air Force because they are interested in new technologies as well. We have agreed to organise a conference where we plan to gather all the professors that have developed or completed their research on new technologies in front of the Air Force and hopefully the Armed forces, to look at technologies and have a subsequent meeting with the teams of the Armed Forces. That way we can decided where we want to move in the future in terms of technology and what we want to achieve and we will work on that. We are very interested in joint forces in the future and so far we have the support of both, the Armed forces and the Pentagon.

P.M. COMMUNICATIONS: The EU defence ministers have adopted a plan in November 2005 to open up the arms industry to cross-border competition in a bid to help secure lower cost. The plan is to voluntary and non-binding but most members are expected to take part. How do you expect this to affect the the Defence industry?

MR. PHILIPPAKOS: While we were in the process of considering this proposal of the EU, the position of HAI was very positive. However, we needed a grace period granted from the EU in order to catch up and implement a new set of rules. We negotiated it with the EU but they did not accept our request. So now HAI needs to adapt quite quickly and speed up their process, which is difficult since we are a government owned company with tremendous limitations and rules that we have to obey. We need to go through international tenders for approval and that can take several months. I believe there is an issue as to how the EU imposes certain rules on companies that operate under different legislations. The situation is complicated at the moment, as HAI has to catch up and adapt to the new agreement. On the other hand, I am sure that the plan will be implemented just fine on a long-term basis.

P.M. COMMUNICATIONS: You are leading HAI through a very challenging period. What were the major issues that you had to deal with?

MR. PHILIPPAKOS: There is a culture and mentality typical for government owned companies and HAI is not an exception, specifically being a monopoly of Air Force supply. The question was how to motivate this huge engine to become competitive. The environment and times are changing and the government has now more limitations and is less willing to support sizeable deficits and lower the costs. Therefore, there is a tremendous pressure on HAI to become self-sufficient within a certain period of time and we work under this mandate. I believe that HAI is moving in the right direction and in two years we should be in cash flow neutral. From that point on we should be able to pay some of the loans and invest more in the advancement of the company.

P.M. COMMUNICATIONS: You have recently signed a partnership agreement with the UK's BAE systems, under which the two companies will examine potential areas of co-operation in both, Greek domestic and export markets. How do you expect this agreement to mutually benefit both companies?

MR. PHILIPPAKOS: This agreement goes along with the strategy of creating business alliances on a global basis, not just in Greece. There are obvious benefits for both sides. For us the agreement increases the sales and HAI becomes more technologically advanced. Whatever contract we sign on a commercial basis, there are no charges involved, BAE will give us the contract as long as we are competitive and deliver quality. What is positive for BAE is the fact that Greece is a key player within the region and has strong business ties with the Balkan and Arab countries. The partnership and collaboration with HAI increases the marketing potential in the region for Greece as well as the UK, so it is beneficial for both parties.

P.M. COMMUNICATIONS: Mr.Philippakos, on a personal level, what legacies do you want to leave at HAI?

MR. PHILIPPAKOS: My vision for the company was very clear from the first day I started working at HAI. This management team has transformed the company into a major partner for the leaders in the industry throughout Europe and on the global stage. We have three main targets: to have HAI become profitable, financially self-sufficient and to move the company in a growth trend. When I achieve these three goals I can step down and move on to something else.