By Joanna Plucinska and Christina Amann
BERLIN, June 10 (Reuters) - Germany's ILA air show, among Europe's premier aerospace showcases, opened on Wednesday under the twin shadows of the Iran war and the collapse this week of a flagship Franco-German fighter jet project.
A large slice of Europe's defence industry is on display at the Berlin event as manufacturers, aiming to narrow the gap to U.S. rivals and cash in on a boom in defence spending, pitch new technology to governments and military buyers.
The build-up to the show, however, was dominated by the scrapping of Franco-German collaboration on the Future Combat Air System (FCAS) jet, long billed as Europe's most ambitious defence project but ultimately undone by a rivalry between developers Airbus and Dassault Aviation.
Its demise has underscored the difficulty Europe faces in building military capacity at scale even as Western officials warn of the growing threat from Russia and the U.S. presses Europe to ramp up its defence capabilities.
Speaking on the issue for the first time since he and French President Emmanuel Macron scrapped the jet project, German Chancellor Friedrich Merz told the air show the two countries would still co-develop a joint defence system.
Such a scaled-back and potentially face-saving plan could focus on systems like the so-called combat cloud, or digital backbone, that would enable data exchange between jets, drones and other sensors such as ground radar.
"This presents a great opportunity for a central Franco-German defence industry project of the future, one that we intend to realise together," he said.
"Our defence ministers will now work out how this can be implemented in the run-up to the next Franco-German intergovernmental meeting in Germany, which we will be holding in July," Merz added.
Germany and France would also proceed with cooperation on nuclear deterrence, he said.
STILL READY TO DEVELOP SIXTH-GEN JET, INDUSTRY OFFICIAL SAYS
Speaking just before Merz, Michael Schoellhorn, president of the German Aerospace Industries Association, said the deadlock over FCAS was broken and future development was still possible.
"We possess the expertise, the technologies, the capacity, and the clear will to develop and build FCAS and the sixth-generation fighter jet for and with Europe," said Schoellhorn.
He called on the government to provide a "clear mandate" on FCAS's future.
"We are not advocating for Germany to go it alone. We think in European terms, and we want to see German industry significantly and responsibly involved," he said.
Schoellhorn is also CEO of Airbus Defence and Space, which had represented Germany and Spain in FCAS.
As companies jostle to reshape industrial alliances, Airbus is increasingly looking to Sweden's Saab as a preferred partner, three people familiar with the matter told Reuters.
MTU Aero Engines Head of Programmes Ottmar Pfaender said decisions on how to proceed with the project must be taken in the coming weeks, adding the engine maker was open to working with other companies.
And Stephanie Lingemann, a senior executive at defence startup Helsing, said technologies such as software-driven defence systems and autonomy in warfare could now be folded into whatever follows the FCAS fighter project.
"There's always a chance in these kinds of endings," she said.
IRAN WAR SOWS GLOOM OVER EUROPE'S DEFENCE FUTURE
The Iran war, which has exposed strains in transatlantic ties and even raised questions about NATO's future, has only added to the sense of unease at the air show over Europe's defence stance. And it is also hitting commercial airlines as flights are cancelled and jet fuel costs rise.
Emirates President Tim Clark is using the air show to press the German government for landing rights in Berlin, with one of the Gulf airline's A380 jets on display.
The opening day was disrupted by protesters who blocked roads to the venue while chanting slogans including "Free Palestine".
A Reuters witness said dozens of police were deployed, with buses unable to reach the site and hundreds of visitors forced to walk in, some complaining about the disruption.
Running from June 10 to 14, the ILA show will host more than 750 exhibitors from 37 countries.
Coinciding with its opening, Germany's cabinet approved a new 15-year aviation strategy aimed at cutting costs and boosting research to tackle rising expenses and intensifying foreign competition.
(Reporting by Joanna Plucinska, Christina Amann, Andreas Rinke, Tim Hepher, Matthias Williams, Ludwig Burger, Maria Rugamer; writing by Matthias Williams; editing by Thomas Seythal, Mark Potter and Joe Bavier)
