Defence industry makes headway on consolidation

Date: 25/06/1998

By Peter Chapman

EUROPEAN defence groups are set to clinch a deal on consolidating their industry to fight off US competition, but sources say they are unlikely to meet the original June deadline for finalising their plans.

Key defence and aerospace firms across the EU promised in March to come up with detailed plans for consolidation of the industry by the end of this month. This was meant to result in a 'fully integrated' European aerospace and defence company.

However, progress has been hampered by the French government's reluctance to hand over the reins of its own industry. Privately owned firms such as British Aerospace (BAe) are unwilling to tolerate high levels of French state interference in their partnership, which is designed to put the EU's industry on an equal footing with US competitors Boeing, Lockheed Martin and Raytheon.

But BAe says consolidation plans are now back on track after French Prime Minister Lionel Jospin, in a surprise move earlier this month, gave the green light for Aerospatiale to present proposals for privatising the company.

"Any news of this kind has to be welcomed. This may be a very important step towards consolidation, although we would hope that they go further," said BAe spokesman Charlie Miller.

Industry is now poised to agree to an outline plan to form a separate private aerospace mega-company around the existing Airbus consortium. Core members of the new Airbus grouping are set to include Germany's Daimler-Benz Aerospace (DASA), Spain's CASA, BAe and Aerospatiale.

However, Miller said industry was more interested in thrashing out a watertight agreement than rushing to meet its original June deadline.

"There are meetings going on all the time and we are looking to produce an outline as soon as possible. We are not working to any formal deadline. It could be June, July or August," he said. "We are not going to rush into anything. The talks are obviously very complex. But a hell of a lot has already been agreed."

Uncertainty over France's plans for its own industry led to tensions with other Airbus partners, particularly Germany, with Bonn flexing its muscles in the political debate over the consolidation issue.

German Aerospace Secretary Norbert Lammert told the Berlin airshow last month that Europe must resolve remaining disagreements as soon as possible, and made it clear that Bonn supported "private economic structures" for the new Airbus firm.

His economics counterpart Günter Rexrodt even threatened to withhold state aid for the Airbus A3XX, which is set to challenge the dominance of Boeing's 747 400 jumbo passenger jet.

At the same time, Bonn supported a Russo-Ukranian rival to an Airbus plan for its Future Large Aircraft (FLA) military transport workhorse.