In this interview, Mike Schoellhorn, CEO of Airbus Defence and Space, talks to McKinsey senior partner and coleader of the Aerospace & Defense Practice, Hugues Lavandier. Having initially been in the German military, Schoellhorn built a career focused on production efficiency and digital transformation. He joined Airbus as COO in 2019, before being appointed the CEO of Airbus Defence and Space in July 2021.
With rapid changes in technology and the shifting geopolitical landscape affecting the defense industry, and the increased importance placed on national security in Europe, Schoellhorn is well placed to discuss what he sees as potential solutions to the challenges facing the European defense and aerospace industry. He elaborates on the role that Airbus Defence and Space plays in this, and how to lead through turbulent times.
The conversation had been edited for clarity.
Hugues Lavandier: The past few years have seen quite a change in the European defense industry. Looking at industrial cooperation and major programs in Europe, what does successful collaboration look like for you? What is the key to reducing fragmentation?
Mike Schoellhorn: I'll start with the problem definition as I see it. I think fragmentation is at the core of Europe’s challenges. It’s well known that Europe has, on average, five times as many major systems—such as jet aircraft, transport aircraft, tanks, or ships—than the United States. But Europeans have, at least until recently, around only one-third of the US defense budget. Multiply that, and you get a “dilution factor” of 15. That doesn't even take into account that a lot of the European budget still goes into the United States. It’s a virtuous circle for the US defense industry, which penalizes us in Europe.
[When addressing fragmentation,] the first thing that comes to mind is collaborative programs. I pick the Eurofighter Typhoon as an example. The Eurofighter is still the most successful fighter aircraft in Europe, of European design. This is despite the fact that it was neglected for about ten years by most countries, and there was a shortage of orders. Now that has changed. That’s a good example of how collaboration can work. The A400, I would say, was semi-successful. It's now a great aircraft; it's the backbone of European airlift, but it took a long time to get there, and we lost a lot of money over it.
I think that just coming together and pooling demand is not good enough. What you need is a reasonable and practical approach to requirements. The A400M was the opposite. It was stacking up everybody's requirements, even conflicting ones. On top of that, another success factor was not sufficiently in place, which is early-enough technology maturation. You need to have these things in place to make it a successful program when countries come together.
And last, you need team spirit. You need to have the notion of “the best team”—yes, good leadership is required, but everybody needs to feel part of a winning team. Not only the primes, but also the suppliers, the start-ups, and the SMEs [small and medium-size enterprises]. They all need to feel their part of success in this. That can offset the scale disadvantage that we have. The scale disadvantage and the money per platform means that you are at a technology disadvantage, because you don't have enough money to develop all the very leading-edge technologies.
After collaborative programs, comes creating a European champion, like we’re trying to do with [Project] Bromo in the space sector. I think that is the pinnacle. It will not be possible in all areas, but where Europeans’ ability to design and our decision-making is affected, I think we need a champion.
Hugues Lavandier: I’d like to jump to technology and innovation in defense. There are a lot of buzzwords, such as quantum, drones, AI, and ISR [intelligence, surveillance, and reconnaissance]. How do you think about prioritizing those technologies for Airbus, and why?
Mike Schoellhorn: What we witness in recent conflicts—which are also driven largely by the steep advancement of technology—is that hardware and platforms matter. But, at the end of the day, you win because of decision superiority, or what could be called the best sensor-to-shooter capability.
You need to be able to orchestrate a whole set of assets—assets that sense, compute, can deliver an effect, and assess: the so-called OODA [observe, orient, decide, act] loop that needs to be mastered against threats, cyberattacks, and in electronic warfare. But you need the ability to make that better than the adversary, and that's where AI comes in. It helps you aggregate the sensor information faster and to reason better. It helps you be more robust against spoofing and other ways of deception. Quantum will become more and more a part of this, too, because it can help you be successful in your own encryption or in decrypting the other side.
All this comes together and will upscale what has always been the key to success in military battle: the effective mastering of the sensor-to-shooter chain. Platforms will still matter, because they are the embodiment of a lot of this. They need to have compute power, they need to be able to connect, and they need to deliver the effect. But platforms are not the only thing anymore; you need to master the whole architecture.
Hugues Lavandier: With new technologies and innovation, a new form of talent comes. How is Airbus acquiring this talent, growing it, and retaining it?
Mike Schoellhorn: First of all, many of the people who have made Airbus successful will still be required. We still need the best engineers and the best scientists. We still need people with pioneering spirits who want to do new things and break through existing borders of what is deemed feasible. That will still be very important, and it attracts a lot of people.
The other thing we offer, especially in Airbus Defence and Space, is purpose. I think we combine all this technology drive, all this spirit for innovation, with something that matters for Europe more than ever: We provide people with the opportunity to create a bright future and protect our way of life and our children’s way of life. This has attracted many more women than in the past.
Then there are the new start-ups—the defense tech guys who work differently and faster. At Airbus Defence and Space, we have our own AI clusters in which we work in similar ways. Yes, we are a bigger company, probably with more governance, but we find ways of insulating our teams from that. I push a lot for collaboration with these start-ups, so you get the best of both worlds: You have the prime and the architecture point of view, you have all the muscle that Airbus has, but you also interface with these young, wild start-ups—and it's a lot of fun.
Hugues Lavandier: If we look at the European NATO defense budget, which was about $200 billion in 2016 and $450 billion in 2024, it’s reasonable to think it could be $800 billion by 2028. How does that change the way Airbus Defence and Space looks at future defense requirements, where growth will come from, and what the biggest unlock is to serve this market?
Mike Schoellhorn: I’m an ex-military guy who saw in the mid-1990s how quickly we dived into the peace dividend, and how defense budgets eroded. However, the Ukraine war has turned this around. We're seeing that reflected in Airbus Defence and Space’s order intake. We have had a book-to-bill ratio of 1.4 times or greater over the last three or four years. We already have accumulated a large order intake that we need to execute and deliver on, and with it comes responsibility.
We see more coming, especially with the ReArm Europe Plan, and with countries like Germany that have doubled down. At Airbus Defence and Space, we're obviously well positioned in Germany. Across the board, we're seeing growth rates in everything that I would call command and control. For example, air defense solutions or battle management systems are not our biggest areas, but they are seeing the biggest growth, which I think will continue because that’s where the nerve center really is.
We see very healthy growth in our air power division that makes all the aircraft. Orders for fighter jets and Eurofighters have accelerated significantly, so we're doubling the build rate and might have to triple it. We're seeing growth in transport a little less; it’s still healthy, but we need to work on the future of the A400 and what comes after that.
We see a lot of growth in tankers, because to defend the eastern flank of NATO, aircraft need to stay in the air longer, and therefore they need tankers. That's where we have a role to play as we have a unique asset with the MRTT [multirole tanker transport], and its further development, the MRTT-Plus.
But I also see this growth in space, maybe only recently in the last one-and-a-half to two years. Space is really booming. We have been very successful in space, as recently we have been working on a bigger alliance in Europe with Leonardo and Thales [on Project Bromo].
The ability to unlock the growing demand is having the right technology. You need to be able to convince your customers that not only can you build this, but you can build it on time, because time is much more of the essence these days. Some countries are saying, "We need it by 2029, or we don't need it at all.” You need to ensure that you have the technology that meets the customer's needs, and you need to be cost-competitive. There is a lot of competition still, with the United States wanting to tap into the big, growing European funds.
I think we’re seeing two things that will be decisive in the future. First is open architectures—the ability to update your systems; I’m not going to say in real time, but very quickly. And then you need to be able to prove that your product has worked in battle and that it really can do the job with the armed forces. I think this is the difference from five years ago.
Hugues Lavandier: How do you think about multidomain connectivity and interactions, and the role that Airbus plays with unmanned systems?
Mike Schoellhorn: To a degree, multidomain has always existed. Now, with hyperconnectivity and the need to speed up the OODA loop, it becomes even more relevant. As a battle leader, you have to make a decision: Which is the right asset to fight my adversary? Maybe it’s not the closest, maybe it’s not what usually would be the case, maybe it’s not the tank that is right here, but maybe it’s a ship that can send a missile. The ability to connect us all is key. At the same time, it’s quite a daunting challenge because the different branches of the armed forces have different standards, and everybody’s fighting for their influence. Even the United States has struggled in its multiple attempts to implement real multidomain capabilities.
There are a lot of things that need to be overcome, but they will happen. Multidomain will come in steps and waves. I see it happening in the domain that we are active in, the somewhat artificially defined dividing line between air and space, which is only a human invention, at 80 or 100 kilometers, depending on whether you're American or European. That line will get dissolved so that it becomes a continuum between air and space. It’s already showing in early developments.
Hugues Lavandier: You have been in the German military, you have had leadership positions outside of Airbus, you have been its COO, and now you are the CEO of Airbus Defence and Space. How has this variety of experiences shaped the way you lead the organization today?
Mike Schoellhorn: Like everyone else, I'm a product of my experiences and the things that I've done in my life. I feel privileged with my current role; it feels like the coming together of almost everything I've done before.
I was a military aviator, and if there was something that I took away as a mission's success, it was the team—where everybody is fighting for a cause and is ready to go to extremely high risks for it. The team is everything; you can't do much as a sole fighter. The cohesion in the team is key to the success of the mission—maybe even more important than technology, although that is very important as well.
The importance of the team is a deep belief for me and one I try to convey to my customers. I need to show that I understand their missions and I know what they go through. It’s my responsibility to equip them with the best things I possibly can. And that—this is an important message in our company—we're not only doing this for money; we’re doing it for something bigger.
My industrial experience started in the automotive industry, which was a very good operational school. I was opening, building, and closing plants. I faced many crises where a quick reaction was needed. Anticipating and embracing change, even though it might be negative change, has to be there. If you just sit and wait and hope it’s going to get better, you’re going to get wiped out. Competitiveness is at the core of the automotive industry. I was lucky enough to be involved in the early days of automated driving, something that helps me now when we talk about automation and autonomy in aviation.
I joined Airbus as the COO of Airbus Commercial. That helped me to get accustomed to the aerospace industry, to build a network in the industry, to understand Airbus and its ways of doing things, which sometimes are not intuitive. But they make a lot of sense once you understand the European DNA that Airbus has. So, putting all of this together, when my board asked me if I wanted to be the CEO of Airbus Defence and Space, it felt like a natural extension of everything I've done.
Hugues Lavandier: You have been the CEO of Airbus Defence and Space for four years, and the industry and the organization have gone through a lot of changes. What is your opinion about what it takes to lead an organization like this to go through the next S-curve?
Mike Schoellhorn: What I have experienced is that you need a lot of humility and an understanding of the specific industry, because it's very different from other industries I've worked in. It has extremely long cycles, which are now accelerating, but they're still long. It has a very distinct procurement process that you have to respect. You always have the notion that this is not just a normal business, because, in the end, fighters’ lives depend on you doing a good job. I think this is where leadership starts, as you have to recognize that and convey it to your team. When you get pressure from your board asking why you can’t get better results, you need to put it in perspective. Money is important, but it’s not everything.
Then there is the notion of change. If we look at the changes that have happened since I took over in mid-2021: the Ukraine war, geopolitical disruptions, questions about the future of Greenland and Taiwan, war in the Middle East. What I try to do is to convey two things at the same time, which sounds counterintuitive. You need to embrace the change, even though it’s sometimes not what people like. People like stability; they don’t like change. But leaders at least have to anticipate the change, embrace it, and turn it into something positive.
You also need to give confidence to your people so that they don’t despair. People are nervous these days—not only in my company, but in society. It feels like everybody is on the edge. You need to give them the idea that you know what is going on, and you know what you’re going to do about it. And then focus on execution. The best strategy and the best vision mean nothing if you can’t execute.
