Balance of power and tension in the sector: the turbulent path to making Indra the "champion" of defense

MadridIndra aims to be the "champion" of the defense sector in Spain. This is a goal also shared by the Spanish government, its largest shareholder through SEPI with 28% of the company's capital. However, the path is not smooth, at least not in recent weeks. The possibility that this leadership could be achieved through the acquisition of other companies—as is the case with the Escribano Group, co-founded by Indra's current president, Ángel Escribano, who still owns a stake in the company—has put the State on alert regarding its influence within the company and, therefore, its ability to control key decisions.

This journey to become the leading Spanish company in the defense sector has also brought tensions to the surface, within an industry where resources have historically been concentrated among a select few companies. And now that Spain is spending more on defense than ever before, none of them want to miss out on what they see as an opportunity to boost their profits. This includes even those not directly involved in the military business. They see it as a window of opportunity to indirectly collaborate at some point in the production chain: from the design of a software, up to the manufacturing of components.

Balance of power

We're taking it one step at a time. It's well known that the Spanish government, whatever its political affiliation, has a significant interest in playing a role in Indra, which translates into a kind of "tacit agreement". Sources within the sector indicate the ARAThe issue lies in the alignment between the company and the current administration. One of the underlying reasons is the close ties between Indra and the Ministry of Defense, its main client. Therefore, safeguarding "the general interest" in the company's decisions is a non-negotiable matter for Pedro Sánchez's government, or at least that's how they maintain it. For all these reasons, Ángel Escribano's appointment as president just over a year ago raised no doubts about whether he had the executive's approval.

However, the possibility of acquiring the Escribano group, which also holds a 14.3% stake in Indra and is the family business of the company's president, has created a rift with the Moncloa Palace (the Spanish Prime Minister's office), where there is a reluctance to relinquish control and fears of a conflict of interest have intensified. The enthusiasm shown in recent months by Ángel Escribano, as well as by the CEO, José Vicente de los Mozos, regarding the acquisition has been overshadowed by the government's recent request, through SEPI (the Spanish State Holding Company), to consider alternatives to a merger if the deal is to proceed.

"Perhaps they've dug in their heels [on the merger] and the government has tried to impose limits," says a source in the sector, who asserts that the operation "has many enemies." Negotiations, for now, continue, and the same source believes an "amicable" outcome will be reached, especially since Sánchez's government cannot afford "another firestorm."

Meanwhile, rumors have circulated about the possible dismissal of Ángel Escribano, something he himself has denied. "It's all part of the same thing," a source believes. In fact, some reports even suggested alternatives, such as Raúl Blanco, the Catalan current executive director of strategy at SAPA, who is also an Indra shareholder. The information surfaced Wednesday night and spread like wildfire at the Guggenheim Museum in Bilbao, where one of the events of the 8th National Industry Congress was being held, and Blanco was present. "It was the main topic of conversation," explained sources present at the event.

Adding to the situation, Indra's dismissal of Carmen Pérez as Director of Communications hasn't helped matters. Pérez joined the defense company eight months ago from the Prime Minister's office, where she was Director General of the International Information Department. "[Within the government] it's been interpreted as a slight," a source told ARA.

The brawl reaches the Supreme Court

But alongside all this—and as the final straw—the tension in the defense sector over Indra's rise to undisputed leadership has culminated in a power struggle between companies that has reached the Supreme Court. "It's yet another headache [for the government]," says a business source at the ARA.

Specifically, the companies at the center of this rivalry are Santa Bárbara Sistemas, the Spanish subsidiary of the American company General Dynamics, and Indra itself. The main reason is a long-term race for the spoils of Spanish government funding. Specifically, a clash over two loans totaling €3 billion, distributed through a royal decree awarded to Indra and the Escribano Group. Santa Bárbara has filed an appeal against these loans and requested their suspension as a precautionary measure. The Ministry of Industry is the most affected, but so far, no action has been taken, and they are awaiting the Supreme Court's decision. Other companies have also been implicated and have joined the proceedings: Escribano and Telefónica. The issue, according to legal sources speaking to ARA, is whether the appeal should be interpreted as affecting only the two loans or the entire decree and, therefore, other government contracts. But Santa Barbara intends to appeal two awards of the specialized modernization programs (PEM) that depend on the Ministry of Defense and whose appeal, according to business sources, will be filed this February.

"It's not a desirable situation [...] but it's the only way to continue participating in these programs," said Alejandro Page, CEO of Santa Bárbara, at a press conference. Indra, on the other hand, maintains its "greater" capacity to respond to these programs.

But this tension with Santa Bárbara hasn't arisen solely from the disbursement of public funds. Indra, now under the leadership of Ángel Escribano, not only proposed buying the company's factory in Asturias, but also accused its US parent company, General Dynamics, of "destroying almost the entire industrial fabric that the company [Santa Bárbara] once had." These accusations were quickly refuted by the company. Furthermore, throughout the past year, Indra poached several senior executives from Santa Bárbara: from Ángel de Álvaro, who was the legal counsel for the General Dynamics subsidiary, to Rafael Moreno, Indra's current communications director.