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RUAG

Weiterentwicklung der RUAG

Overview

Bern-based RUAG Holding AG operates mainly in the aerospace, security and defence technology markets.

The Confederation is the sole or main shareholder of several enterprises (Swiss Federal Railways, Swiss Post, etc.). These enterprises affiliated to the Swiss government carry out tasks in the public interest. One such task is providing equipment to the armed forces, where the Swiss Confederation, with the Federal Council representing its interests, is the sole shareholder of RUAG Holding AG. 

Every four years, the Federal Council decides on strategic objectives for RUAG Holding AG, and the management board updates the Federal Council annually on whether the corporation has met these strategic objectives.

Unbundling with a new corporate group structure

Since its foundation in 1998, RUAG has developed from an arms manufacturer into an international technology group. Nowadays, its statutory task of providing the armed forces with equipment is only a minor part of its activities. Accordingly, the Federal Council decided in 2018 to separate all the parts of the group that provide services to the armed forces from the other business areas operating in the international field.

A company known as MRO Switzerland will be responsible for providing all security relevant services to the Swiss Armed Forces. This will primarily encompass maintenance, repair and overhaul (hence MRO), and maintenance of operational systems such as fighter aircraft. Plans are to develop RUAG International into an aerospace technology group, which will be fully privatised in the medium-term.

Unbundling the corporation will take place as of 1 January 2020.

Federal Act on Federal Armaments Companies (FArmCA)

The adoption of the Federal Act on Federal Armaments Companies (FArmCA) in 1997 laid the basis for RUAG's foundation, and authorised the Swiss Confederation to establish, buy or invest in companies in order to guarantee the provision of equipment to the Swiss Armed Forces.

 

FAQ

Unbundling

No, there is no need for a parliamentary decision. The Federal Act on Federal Armaments Companies assigns this competence to the Federal Council. In April 2019, both security policy committees will be briefed on RUAG's unbundling and further development.

Since its foundation in 1998, RUAG has developed from an armament manufacturer to an international technology corporation. Besides armaments, its business encompasses civil aviation and space technology, which is no longer in accordance with the core mission of providing equipment to the armed forces. In the aftermath of the 2016 cyberattack, the Federal Council decided to minimise the risks that had arisen from growth and diversification by unbundling RUAG. The Federal Council has also long considered that the current RUAG portfolio should be reviewed and refocused. Splitting RUAG's corporate structure into a national and an international group allows for the better provision of equipment to the Swiss Armed Forces and also strengthens Switzerland's position as a centre of work and technology.

On 1 January 2020, RUAG Holding AG will become a new holding company with two subsidiaries: "MRO Switzerland", which will be responsible for providing services to the Swiss Armed Forces (approx. 2,500 employees, manufacturing sites in Switzerland), and "RUAG International" (the remaining parts of today's RUAG Holding AG), which will be responsible for the other areas of business (approx. 6,500 employees, two thirds of whom are based abroad).

These subsidiaries will be managed separately, be legally and financially independent, and will operate separate IT systems. Subject to the Federal Council's approval, legal unbundling will be carried out gradually. Plans are to found the holding company in 2019, but to establish the other enterprises in the first six months of 2020. The security related IT infrastructure will be unbundled in 2019. The final work will also be concluded in the first six months of 2020.

Yes, the development took place according to the Federal Council's strategic objectives

The Federal Act on Federal Armaments Companies stipulates that the Swiss Confederation hold a stake in armaments companies in the form of an individual holding company.

This means that regardless of the reorganisation structure, the umbrella organisation must always be a holding company.

The Confederation remains the sole shareholder of "MRO Switzerland" and the holding corporation.

The Confederation also owns "RUAG International", which, however, will be privatised in the medium term. The Federal Council will decide on the privatising procedure in due course.

Both subsidiaries will be managed separately and will be legally independent. The holding corporation will not have an executive board but will fulfil a supervisory role to oversee its subsidiaries.

Full privatisation only makes sense when the objectives of profitability and a favourable market position have been achieved. For the Federal Council it is evident that privatisation must take place in a controlled manner, and therefore it is taking a gradual approach.

RUAG, the DDPS and the Federal Department for Finance will devise a detailed schedule together.

There is no public interest in the Confederation's participation in an internationally active technology group, and there is no legal basis. The Federal Council does not see a public interest in initiating such legislation, and therefore intends to fully privatise RUAG International in the medium term.

MRO Switzerland's IT will be completely separate from that of RUAG International and integrated into the DDPS security perimeter.

In the future, MRO Switzerland's IT will meet the DDPS security standards and the Confederation's requirements on ICT standards.

MRO Switzerland (responsibility DDPS)

  • RUAG MRO Switzerland AG, providing services for the Swiss Armed Forces
  • Mecanex AG (procurement agency for spare parts in the USA, no manufacturing site)
  • Glückauf GmbH (procurement agency for spare parts in Germany, no manufacturing site)
  • Munition disposal and regeneration in Altdorf
  • RUAG Real Estate
     

MRO Switzerland, with around 2,500 employees, will provide all the security-related services for the DDPS that RUAG has provided to date, which mainly encompass maintenance, repair and overhaul (MRO) of operational systems such as fighter aircraft. In doing so, the Federal Council confirms that MRO Switzerland fulfils the role of the Swiss Armed Forces' material centre of excellence, and at the same time strengthens the transparent and cost-efficient provision of services to the DDPS, and thus meets the requirements of the Swiss Federal Audit Office and the parliamentary commissions.

MRO Switzerland will also be able to provide services to third parties, but only from Switzerland and if synergies with business for the Swiss Armed Forces, for example in helicopter maintenance, can be created. It also makes sense for MRO Switzerland to extend the services it provides to the Swiss Armed Forces to the cantonal authorities as well, e.g. in the context of the Swiss Security Network. However, such services cannot lead to new IT interconnections and constitute an exception that requires prior notification to be given to the owner, the Confederation.

Yes, it is subject to the following conditions:

  • The added value must mainly arise in Switzerland (manufacture, workshops in Switzerland);
  • Synergies (i.e. economies of scale and knowledge transfer) with services for the DDPS are created;
  • No negative effects arise for the DDPS;
  • As a rule, business activities must be cost-effective, and the audit authority annually reviews and confirms compliance with the established cost accounting principles in a separate report to the management board.

 

These conditions apply not just to third-party business, but also to the entire product and project business. Restrictions on turnover are possible but currently not planned.
 

There will be additional audits not only for third-party business but for all business activities. In addition to regular audits, the independent audit authority will also verify and confirm compliance with the principles of cost accounting as stipulated by the Confederation.

MRO Switzerland will mainly be managed at a strategic level through strategic objectives and quarterly owner discussions. In addition, there will be an annual strategic workshop dealing with the development of the corporation.

The management board will continue to draw up an annual report on the achievement of objectives.

RUAG Real Estate and its real estate portfolio will be integrated into MRO Switzerland and remain, except for the Zurich Seebach location, in the ownership of the Confederation.

Yes, the business relationship between MRO Switzerland and RUAG International is the same as any other relationship between two independent enterprises.

Real estate that the Confederation brought in when RUAG was founded in 1999 will be transferred into MRO Switzerland's ownership and will therefore remain in the Confederation's ownership in the long term. Real estate that RUAG acquired after its establishment and that will primarily be used by RUAG International will be transferred into RUAG International’s ownership. This applies to real estate abroad and the Zurich Seebach site.

The MRO Switzerland management board has been tasked to develop the real estate portfolio managed by RUAG Real Estate and the current business model in agreement with the DDPS, the FDF, and the Federal Finance Administration (FFA). The Confederation's existing right of first refusal for real estate that is no longer in use will still apply.

RUAG International (responsibility FDF)

The RUAG division that encompasses international business that is not related to defence will be transferred to RUAG International (approx. 6,500 employees, two thirds of whom are based abroad). The Federal Council supports the RUAG administrative board's proposal to set up an aerospace group, which in the medium term will consist of the current Aerostructures and Space divisions. RUAG will submit an implementation plan to the DDPS and the Federal Finance Administration in 2019. The focus lies on developing the competencies RUAG has built up in these business areas in recent years, and in retaining the technical knowhow in Switzerland. This also guarantees the implementation of Switzerland's space policy in the long term.

Options examined ranged from selling the entire company to concentrating on ammunition production. However, it was decided that development into an aerospace group is the most promising option.

The options examined ranged from selling the company to flotation. The Federal Council will decide on the privatisation approach to take at a later point in time and takes the view that minority participation of the Confederation in RUAG International lacks a legal basis and that there is no public interest. Therefore, this option is unsuitable and the Federal Council has decided on a full privatisation instead. 

Participation in RUAG International is not necessary for the Confederation to implement Switzerland's space policy, and there is no legal basis. However, the federal expert authorities involved in connection with the privatisation will take account of this aspect in their work.

 

Should it become apparent in the medium term that an aerospace group managed from Switzerland cannot be successfully privatised, it will be possible at any time to sell individual business areas to suitable buyers. However, the Federal Council currently regards this as a fall-back option and is convinced that the planned aerospace group can create real and sustainable benefit for Switzerland as a business location.

To begin with, RUAG International will continue to manage the divisions that are incompatible with the new orientation of an aerospace group and must therefore be sold in the short to medium term or that cannot be integrated into MRO Switzerland because of their close ties with other countries. Buyers will be sought that offer better prospects for these divisions, which include parts of third-party business for customers abroad, Clearswift (cybersecurity), MRO International and RUAG Ammotec. Clearswift is already sold. A joint venture with a major partner in which MRO Switzerland holds a minority share is planned for Simulation & Training, in order to continue guaranteeing support for the Swiss Armed Forces.

 

The Federal Council believes that selling RUAG Ammotec will not affect the security of supply of small calibre ammunition to the Swiss Armed Forces and to partners of the Swiss Security Network. Swiss production of small calibre ammunition already depends on procuring igniter elements and powder from abroad and transporting them to Thun.

The Federal Council is aware that the potential buyer must be chosen very carefully and takes the view that when selling Ammotec it must be contractually guaranteed that operations at the Thun manufacturing site will continue. The disposal and regeneration of ammunition in Altdorf will be integrated into MRO Switzerland.

This cannot be entirely excluded. The plan is for the company to divest itself of the divisions that no longer form part of an aerospace group's strategy. In order to prevent closure and safeguard jobs, the Federal Council advocates selling these divisions.

The Federal Council will decide on a case-by-case basis if and how much of the proceeds RUAG International will re-invest in the development of the aerospace group. 

General

Yes. Since the enterprise will primarily perform services for the Swiss Armed Forces and third-party business must generate added value for the Swiss Armed Force, the criteria for the assessment of objective achievement can be more clearly defined and audited than they have been so far.

As long as the Confederation owns RUAG International, interests will continue to be managed and safeguarded by means of the usual instruments (strategic objectives, reports on objective achievement and quarterly owner meetings).

In summer 2018, the Federal Council tasked the RUAG management board to submit proposals for approval on unbundling and developing RUAG by March 2019. A project has been launched for the management of the project work. The project owner is the Head of the DDPS. The DDPS exercises supervision and project management powers and the Federal Finance Administration will closely monitor the project work.

Milestones

Milestones

As of November 2019
Issue Date
Implementation of RUAG unbundling as of 1 January 2020
Founding ceremony of the new RUAG holding companies 15 November 2019
Federal Council nominates board of new RUAG holding company 23 October 2019
Federal Council decides on RUAG's future 27 June 2018 and 15 March 2019
Federal Council responds to the CC-N's report 28 September 2018
CC-N report on the cyberattack on RUAG    8 May 2018
Federal Council issues unbundling mandate 21 March 2018
Cyberattack on RUAG 2016

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