National interests at stake in missile deal

Date: 03/10/1996

WITH their recent announcement that British Aerospace and Matra would link their missiles businesses, European governments and their defence industries finally got the cross-border merger ball rolling.

The gruelling negotiations to create the 800-million-ecu joint venture, known as Matra BAe Dynamics, demonstrate just how difficult it will be for national interests to be overcome in the pursuit of new defence jobs.

The merger made sense. Matra's parent group, Lagardère, and BAe had complementary product ranges, including medium-range air-to-air missiles, and the concentration will allow them to redirect resources into new lines to compete with the Americans.

The firm will have 6,000 employees and an annual sales revenue of close to a billion ecu, placing it within striking distance of the world's largest missile manufacturers - Raytheon, Lockheed Martin-Loral and Hughes.

However, unlike in other industries, the merger could not go ahead just because logic dictated it. Major French and British interests were at stake and threatened to scupper it more than once during three years of negotiations between the companies.

The most problematic of these was the French government's insistence that the UK government agree to award the new company an 800-million-ecu contract to supply the British armed forces with new cruise missiles.

Having opted several times in recent years for US rather than European equipment, the British government refused to have its hands tied.

A deal between Paris and London was only struck after it became clear that even a roughly competitive tender on specification and cost from Matra BAe Dynamics would win the contract.