France throws spanner in Airbus’ works

Date: 28/05/1998

By Peter Chapman

EUROPEAN moves to consolidate ownership of the continent's fragmented defence sector have run into heavy turbulence, amid political infighting over French state control of its own firms and a rift over a new military transport aircraft.

Union governments are keen to see a single Airbus-centred European company emerge from the EU's loosely bound web of private and public firms, which would be capable of vying with US giants Boeing, Lockheed Martin and Raytheon.

That view was underlined last December when the French, British and German governments called on the industry to come up with a clear concept and detailed timetable for the restructuring and integration process.

The four Airbus partners, Aerospatiale, Daimler-Benz Aerospace (Dasa), British Aerospace (BAe) and Spain's Casa, promised in March to work towards a "fully integrated European aerospace and defence company".

They agreed the new Airbus would have a single headquarters with centralised financial, managerial, strategic and planning responsibilities. Core businesses would include Airbus civil aircraft, military aircraft, guided weapons, space flight and helicopters.

But differences of approach soon became apparent. The non-French partners wanted the new company to be privately run, with access to capital markets and a stock-market listing. Paris, on the other hand, preferred state control over its domestic defence giants.

Analysts say France's decision earlier this month to hand over its 46% stake in the private Dassault to state-owned Aerospatiale is likely to deter privately owned non-French defence partners from forming a merged EU mega-firm with French involvement.

Although the move consolidates the French industry, the fact that the government's Dassault shares are moving into state-owned Aerospatiale's hands demonstrates Paris' determination to maintain firm control. Instead of privatising the industrial combine , it appears to want to make Dassault state-run.

Industry insiders say profitable private entities such as BAe and Dasa would not merge with a French firm in which the state maintained a long-term stake. Instead, they are continuing to forge smaller alliances, such as BAe's purchase of 35% of Sweden's Saab AB.

In the longer term, analysts believe a tie-up between UK defence giants GEC and BAe is a more likely way forward than a privately owned pan-European defence venture built on Airbus.

France's desire to keep central ownership of its main defence players also perplexes fellow governments who prefer private sector involvement.

German Aerospace State Secretary Norbert Lammert told this month's Berlin air show that the future shape of the new EU mega-firm needed to be settled without delay.

"Central questions about the structure of the company have to be resolved. They have to be made clear between the various firms and shareholders," he said.

Lammert added that Bonn supported "private economic structures" which, he said, should be the aim of the consolidation process. "We can point to good experiences which we made with the current restructuring of the German aviation and space industry under private economic conditions," he said.

Although Lammert said he was "confident" that the main uncertainties over the Airbus structure could be ironed out by the summer, he stressed that much remained to be done.

"It is up to industrialists and politicians not to surrender in the face of the difficulties that the task brings with it," he insisted.

Bonn has shown it is not afraid to direct its industry elsewhere if its patience with Paris runs out.

The German government has given its political support to a Russo-Ukranian Antonov military transport plane, even though allies France, Italy, Spain, the UK, Belgium and Turkey are calling on the Airbus consortium to build its own future large aircraft (FLA).

Bonn's preference for the An-70 aircraft paves the way for Daimler-Benz Aerospace to get involved in its development, even though many see the plane as inferior to the Airbus design.

Antonov predicts that demand for military and civil versions of its 70-million-ecu workhorse vehicle will be as high as 1,500 aircraft, although US competition, which led to the call for EU consolidation in the first place, is never far away. Some countries such as the UK have already ordered Lockheed Martin C130-J Hercules airlifters to update their old fleets.

If a solution to the EU merger problem cannot be found, such conflicts are likely to occur more often.

Despite the FLA rift, however, Lammert touts the new Airbus-centred structure as a "pre-requisite for a technologically and economically viable European aviation and space flight industry in the 21st century".