RUAG: Federal Council approves unbundling proposal
Bern, 27.06.2018 - At its meeting of 27 June 2018, the Federal Council approved an unbundling proposal submitted by RUAG Holding AG, the technology and armament corporation affiliated to the Swiss government. A new holding company will be formed to bring together all sections of RUAG which perform services for the armed forces, separating them from the other business areas operating in the international field. By unbundling activities in this way, financial flows and IT systems can be separated, thereby increasing security. At the same time, RUAG will continue developing its international activities and assess and present options for (partial) privatisation by the end of the year.
The Federal Council’s intention is to increase IT security and ensure robust, transparent and cost-optimised service provision for the armed forces. RUAG will continue to fulfil its statutory role – providing equipment and arms to the armed forces – and at the same time have the opportunity to develop its activities in other areas.
MRO Switzerland and RUAG International to be separated
Under the proposal it presented following the Federal Council decision of 21 March, RUAG’s activities will be unbundled and a new holding company formed. Under the umbrella of this new company, a new enterprise, MRO Holding, and its subsidiary, MRO Switzerland, will be responsible for providing services to the Swiss Armed Forces. This will primarily involve maintenance, repair and overhaul (hence MRO), activities currently conducted by RUAG as the materials competence centre, and maintenance of deployment systems such as the F/A-18 HORNET. MRO Switzerland will therefore be primarily responsible for activities which are currently carried out by RUAG Defence and RUAG Aviation.
The new holding company will also encompass RUAG International, a new company which will bring together all defence areas offering services on the market or conducting essential third-party business and which therefore have customers besides the Swiss Armed Forces. All non-security relevant sections, such as RUAG Space, RUAG Aerostructures, RUAG Ammotec and Cyber will also be part of RUAG International.
By unbundling activities in this way, the government’s aim is to increase transparency and IT security. MRO Switzerland’s IT systems in particular must meet the military’s security standards, as the armed forces require these services in all threat situations. According to initial estimates, unbundling will cost between CHF 60 and 70 million, costs to be borne by RUAG. There are two main technical possibilities for unbundling IT; one option is to be selected by the steering committee (comprising members of RUAG, the Federal Department of Defence, Civil Protection and Sport (DDPS) and the Federal Department of Finance (FDF) by the end of the summer.
Corporate governance: stronger role for the Confederation as sole shareholder
The Federal Council welcomes RUAG’s suggestion that the DDPS should be represented on the boards of MRO Switzerland and MRO Holding. The company will thus be able to benefit directly from the DDPS’s expertise and focus on the specific needs of the armed forces. This meets the demands of the Swiss Federal Audit Office and of parliamentary committees for greater transparency and a stronger role for the Confederation as shareholder.
According to RUAG’s time schedule, also approved by the Federal Council, the unbundled organisation will start operations on 1 January 2020, and IT systems will operate separately from that date. The next step is for RUAG to draw up a detailed implementation plan, to be presented in spring 2019.
Options for (partial) privatisation
At the same time, work is ongoing to develop RUAG International. The Federal Council understands that from a business point of view large-scale investments are required to develop the space and aerostructures divisions and the cyber sector. As long as the Confederation is the sole shareholder, such investments, especially those made abroad, are difficult to justify, since they do not sufficiently benefit the armed forces.
The Federal Council therefore expects the RUAG board to examine the options for (partially) privatising RUAG International. The board is expected to present initial options by the end of the year, showing the benefits and disadvantages compared to the current model. The sale of individual strategic business units will also be examined. Privatisation of the holding company is not an option for the Federal Council, which will remain its sole shareholder and so have total control of the company, which operates almost exclusively in the service of the armed forces.
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The Federal Council
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