Framatome SA - Company Profile, Information, Business Description, History, Background Information on Framatome SA

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History of Framatome SA

Framatome SA is a diversified, international manufacturing company and also the world leader in nuclear power generation. There are 64 nuclear power plants operating Framatome-built reactors worldwide, and another six reactors under construction in France and the People's Republic of China, representing a total energy output capacity of more than 58,000 megawatts. Beyond designing and constructing nuclear power islands, the company provides a full spectrum of nuclear power services, including maintenance, inspection, and upgrading services for utilities operating its own and third party nuclear plants; manufacture of nuclear components for power plant construction and maintenance; and the design, fabrication, marketing, and sale of nuclear fuel assemblies.

Although nuclear power continues to represent approximately two-thirds of Framatome's annual sales, the company has responded to the worldwide slowdown in the nuclear power market (in the United States, for example, no new nuclear power plants have been constructed since 1980) by diversifying into other areas of manufacturing. Chief among these, producing nearly one-fourth of the company's annual sales, is the connectors business, operated through Framatome's wholly owned Framatome Connectors International subsidiary. Connectors refer to the wide variety of interconnection techniques and devices used to transmit electrical energy or electronic and optical signals between and among equipment and electronic circuits. Framatome supplies connectors to the automotive, electronics, aerospace, telecommunications, computer and computer network, and other industries. Framatome is the leading European supplier and third largest worldwide in the design, manufacturing, marketing, and sale of connectors.

The next major area of Framatome diversification is mechanical engineering. Framatome and its subsidiaries design, manufacture, and install equipment and machinery for a range of industries and applications. The mechanical engineering division's products include heavy components for nuclear steam supply systems, reactor coolant systems, control rod drive mechanisms, closure heads, and other electromechanical components for the nuclear power industry. Beyond nuclear power, Framatome supplies turbines and compressors, large-capacity heat exchangers, electric generators and motors, twin-screw extruders, tunneling machines, large astronomical telescopes, and other machinery and equipment on the leading edge of technology.

An attempted merger with GEC-Alsthom, a joint venture operation between Britain's GEC and longtime Framatome rival Alcatel-Alsthom, the former French electric monopoly, was successfully scuttled in April 1997. Framatome, which posted revenues of FFr 17 billion in 1995, remains 51 percent owned by the French government.

Building the Nuclear Society in the 1950s

When the world turned toward peacetime use of the newly emerging nuclear technology after the Second World War, France, with limited natural fuel resources of its own, determined to develop its own nuclear reactor program as a means for preserving its independence. By 1955, the country, in a joint effort with England, had debuted a reactor technology that could rival that developed by Westinghouse in the United States. Although there were as many as 12 competing technologies, an atomic summit among European countries confirmed the French-English GCR (gas-cooled reactor) and the American PWR (pressurized water reactor) as the two most viable technologies. Both types of reactors were already in operation. But GCR offered the French the independence they sought, as that technology made use of natural uranium, rather than the enriched uranium of the American system. The process of enriching uranium for use in nuclear reactors was too expensive for the postwar European economy. While the Americans offered to supply enriched uranium for European reactor use, the French government, jealous of its independence, appeared to lean toward authorizing GCR as the "national" nuclear reactor technology. Spurring this preference was the crisis in the Suez of 1956, an event that helped expose the French dependence on foreign-supplied fuel resources. The first three reactors built in France were of the GCR type.

In Belgium, however, PWR reactors were preferred. In the late 1950s, the Belgians sought bids for building their first full-scale nuclear reactor, eventually called Chooz 1, to be built in the Ardennes region near the French-Belgian border. Although the French government, through the CEA (the French atomic energy commission), favored the GCR technology, a group of French engineers saw an opportunity to pursue the PWR technology and to compete for the Belgian reactor contract. In 1958, several companies of French industrial giant the Schneider Group joined with Empain, Merlin Gérin, and the American Westinghouse to license Westinghouse's PWR technology and develop a bid for Chooz 1. Called Franco-Américaine de Constructions Atomiques, the new company flew in the face of the rising anti-Americanism of the rebuilding French society. The original mission of the company, which consisted of four engineers, one each from each of the parent companies, was to act as a nuclear engineering firm and to develop a nuclear power plant that was to be identical to Westinghouse's existing product specifications. The first European plant of Westinghouse design was by then already under construction in Italy.

Meanwhile, the EDF (the French government-owned electric utility), in opposition to the CEA, maintained an interest in PWR technology. The Chooz contract offered the EDF, which joined with the Belgian electric utilities to call for the Chooz bids, the opportunity to explore PWR without offending the French national pride in its homegrown GCR technology. By the beginning of 1960, only two bids remained in contention; in the middle of the year, Framatome received informal permission to begin the design work on the Chooz reactor. A formal contract was signed in September 1961 for Framatome to deliver a turnkey system, that is, not only the reactor, but an entire, ready-to-use system of piping, cabling, supports, and other auxiliary systems, propelling Framatome from a nuclear engineering firm to an industrial contractor.

Through the 1960s, Framatome worked very much as a Westinghouse protégé, and development of the Chooz plant was restricted to Westinghouse requirements. The Chooz 1 reactor went critical in October 1966 and was attached to the French electric system in April of the following year. Several months later, a deformation in the reactor core's internal thermal shield, which had begun to break apart, caused the reactor to be shut down. The unprecedented nature of the repair work that needed to be performed, however, placed Westinghouse and Framatome on equal footing. This development was seen as an integral part in the creation of a true French nuclear technology. From this point, Framatome, aided by the French nuclear and electric agencies, began to "franconize" the Westinghouse technology. Chooz 1 went back on line after two years of repair work and continued to operate without incident until 1993, when it was shut down.

In the meantime, the French government appeared to have decided on GCR as the national nuclear technology. Much of the Framatome team returned to their parent companies. A break for the company came in 1966, with a report from leading members of both the EDF and the CEA recommending that France continue to pursue an interest in PWR technology. Then, in 1969, Framatome won its second nuclear plant contract, again from a French-Belgian cooperative agreement, to build the Tihange 1 plant in Belgium. Tihange not only breathed new life into Framatome, it also allowed the company to begin diverging from Westinghouse specifications with its own improvements on the design. By 1969, the company received a new boost: the French military had successfully built a uranium enriching plant, freeing the light water reactor technology from dependence on U.S. or Soviet Union supplies of the material. GCR faded from the French focus. But two competing light water reactor technologies remained--PWR, used by Framatome, and BWR (boiling water reactor), developed by General Electric and promoted by the CGE in France.

The two technologies went head to head for a contract to build the first Fessenheim plant. CGE had yet to build a light water reactor, while Framatome had not only Chooz, but Tihange, under its belt. In a meeting with CGE, Framatome's chief executive, Maurice Aragou, warned of the high cost associated with building the Chooz reactor. CGE took his advice to heart and submitted a bid of 360 million francs for the Fessenheim reactor. Framatome, however, was able to base its bid on its costs of building Tihange (at the same time the company was able to extrapolate the cost of building a series of reactors) and brought in a bid of only 242 million francs. Framatome won not only the Fessenheim 1 contract, but an option to build Fessenheim 2 as well. The following year, Framatome repeated its success, winning the contracts for two new French reactors, Bugey 1 and 2, as well as the options to build Bugey 3 and 4. Nonetheless, the French government pursued a course of encouraging the development of both light water reactor technologies.

Benefiting from the Oil Crisis of 1973

The French economy boomed during the 1960s, and with it, the national energy demand soared. Petroleum and coal continued to be the focus of the country's energy supply, despite the French dependence on foreign suppliers; 76 percent of the country's oil, gas, and coal supplies were imported. The oil crisis of 1973, however, forced France to revise its energy policy entirely. Weeks after the OPEC decision to raise the price of oil, the French government directed the EDF to step up its nuclear plant construction, with a goal to achieving a 50 percent domestic supply of the country's energy needs. EDF, in turn, adopted a policy of ordering plants on a standardized, series-built, multiyear contract basis, and not one by one as had been the previous policy. Framatome won the first of these contracts, for 16 plants, in 1974. But the company's future was not fully assured until the following year, when the EDF finally abandoned its policy of encouraging competing nuclear reactor technologies. On August 4, 1975, the nod went to PWR and Framatome.

In 1976, Framatome was awarded the second multiyear contract, this time for ten reactors; this was soon followed by a third contract for eight reactors, which was later extended to include 12 more reactors. In that year, also, Framatome began accepting its first foreign orders. By the end of the decade, the company had become the leader in the worldwide nuclear power plant industry. Many, including parent Westinghouse, expressed doubts that the company could meet the challenge ahead of it. But Framatome rose to the occasion. At the beginning of the decade, Framatome numbered only some 200 employees, including only 25 engineers. By 1975, the company's payroll had swelled to 2,000. By 1981, Framatome employed some 5,000; the following year, its engineering staff alone numbered 5,000 employees.

The nuclear power industry hit a bump in 1979 with the accident at Three Mile Island. With U.S. nuclear plant construction already slowing down under the Carter administration, new construction orders ground to a halt. Elsewhere in the world, orders for nuclear power plants were being put on hold. But the French nuclear power policy remained intact, allowing Framatome to continue to thrive. Meanwhile, the company was also gaining its independence from its parents. In 1982, its license contract with Westinghouse expired, allowing Framatome to develop its own in-house specifications for the first time. Then, another Framatome parent, the industrial manufacturing giant Creusot-Loire, went bankrupt. As its largest creditor, Framatome took over much of its former parent's operations, including the mechanical engineering and metalworking businesses of Creusot-Loire and its subsidiaries. A reorganization of Framatome's shareholder base followed, with archrival CGE (which was shortly to become known as Alcatel-Alsthom when it was privatized as a public company) taking a major stake in the company.

Diversifying for Survival in the 1980s

Meanwhile, the global nuclear power plant market was reaching saturation. By the early 1990s, new plant construction orders were expected to dwindle to a handful, and the market's return to health was not expected until the year 2010 at the earliest. In response, Framatome, under leadership since 1985 of Jean-Claude Leny, who had served as a managing director for the company since the early 1970s, set out to diversify its operations to survive. The first steps toward this diversification had occurred in the 1980s, particularly with the move into mechanical engineering with the Creusot-Loire acquisition. The company had also taken steps toward vertical integration in the nuclear power industry, including supplies and maintenance operations for its own and third party reactors.

But Framatome was determined to look beyond the nuclear energy market for its survival during the industry's coming lean years. In 1988, Framatome saw its chance. When former parent Schneider attempted a takeover of Télémécanique, a French specialist in industrial control components and automated systems, that company approached Framatome as a white knight. Framatome placed a counter bid for the company and reached an agreement to acquire Télémécanique. At the last moment, however, one of Framatome's shareholders, CGE, blocked the acquisition. Télémécanique went to Schneider, and Framatome was forced to look elsewhere for its diversification effort.

The company had already taken a step in its eventual direction in 1987 when it had acquired a stake in the connectors business of Souriau. After the failure of its Télémécanique bid, Framatome decided to place its diversification strategy fully into the connectors industry. The company acquired full control of Souriau, as well as two other French connectors companies, Burndy and Jupiter, and in 1989 formed its Framatome Connectors International (FCI) subsidiary. FCI continued to expand into the 1990s, acquiring Schmid in 1991, and Daut + Rietz and Connectors Pontarlier in 1993, as well as taking control of Burndy Japan and OEN Connectors in 1992. By the mid-1990s, FCI had grown to become the largest European connectors supplier and the third largest in the world. The move was not without its difficulties; the prolonged European recession of the 1990s caused a drop in the connectors market overall. Nevertheless, the boom in the computer, networking, and telecommunications industries in the mid-1990s would help FCI overcome the difficulties of its early years.

Meanwhile, Leny and Framatome had already found their revenge on CGE, now known as Alcatel-Alsthom and shortly to become aligned with the British GEC. Knowing that Alcatel-Alsthom and Siemens were bitter competitors, Framatome entered negotiations with Germany's Siemens to form Nuclear Power International in 1989 to develop the next generation nuclear reactor technology. The alliance not only placed Framatome in direct competition with the British-French alliance, it also placed the company in opposition with its largest shareholder--Alcatel-Alsthom held 44 percent of Framatome.

Alcatel-Alsthom struck back the following year, when it received authorization from the French government to increase its position in Framatome to 52 percent; however, Alcatel-Alsthom was forced to back down, selling eight percent of its Framatome stock to Credit Lyonnaise, the CEA, and to Framatome management. Alcatel-Alsthom's next attempt against Framatome came in 1994, when the French government, under Eduouard Balladur, decided to privatize Framatome and give the government's controlling share of the company to Alcatel-Alsthom. This action fell through, but two years later, Alcatel-Alsthom, through its GEC-Alsthom alliance, struck again, proposing a fusion of Framatome with GEC-Alsthom. The merger nearly went through, but foundered as both the French government and GEC-Alsthom insisted on retaining 51 percent of the merged corporation. Leny retired as Framatome's chief executive in December 1996. He was replaced by Dominique Vignon as chairman and CEO. A future union between Framatome and Alcatel-Alsthom remained a possibility.

Meanwhile, contracts to build nuclear power plants in China helped spike Framatome's revenues to nearly FFr 20 billion in 1994. With no new reactor contracts on the table in 1995, however, sales slipped back to FFr 17.9 billion. The company's corporate share of net income had also slipped, from FFr 863 million in 1993 to FFr 663 million in 1995. The revitalization of the French economy, and the worldwide boom in the international connectors market, as Framatome entered the remaining years of the 20th century appeared to confirm the company's diversification for survival strategy. Framatome appeared healthy and able to maintain its nuclear power leadership position in preparation for the next wave of reactor construction expected in the early years of the next century.

Principal Subsidiaries: Nuclear: Cerca SA (France; 51%); Framex SA (France); Nuclear Power International (France; 50%); Fbfc International SA (Belgium; 51%); Framex South Africa (South Africa); Framatome USA, Inc. (U.S.); B&W Nuclear Technologies, Inc. (U.S.). Industrial Equipment: Atea SA (France); Athen SA (France); Clextral SA (France); Proser SA. Connectors: Framatome Connectors International FCI SA (France); Framatome Connectors USA (U.S.).

Additional Details

Further Reference

Framatome Corporate Communications, and Le Seac'h, Michel, Framatome: An Industrial and Business Success Story, Paris: Albin Michel Communications and Framatome, 1995.Gallois, Dominique, "Jean-Claude Leny, le Nucleocrate Obrageux," Le Monde, December 3, 1996, p. 14.Gallois, Dominique, and Martine Orange, "Le Gouvernement Est Favorable au Rapprochement de Framatome avec Alcatel-Alsthom," Le Monde, April 12, 1997.Gonnot, Francois Michel, "Framatome: Union Libre ou Mariage Forcé?," Le Monde, January 21, 1997."Trente-huit Ans d'Affrontements," Le Monde, September 2, 1996.

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