Albeit only a square or two. The big problem in forming the pan-European aerospace company that Europe’s governments say they want is figuring out who will control it. British Aerospace and Germany’s Daimler-Benz Aerospace (Aerospatiale’s putative partners in the effort) say shareholders should be in control. That makes sense: BAe and Dasa are private-sector companies. The French government agrees, up to a point. The plan announced last week is to merge Aerospatiale with the fully private defense and publishing group Lagardere. Since the French state will remain the largest shareholder, with a 46 percent share of the new company, it’s only a partial privatization. So it won only partial approval from Aerospatiale’s counterparts. “It’s a step in the right direction, but privatization has to go further,” says Christian Poppe, a Dasa spokesman. “A future European company has to be a private corporation. It has to be focused on the stock market and be able to raise capital. The majority of our European partners agree on that, and we’ll continue to press for it.”
BAe will press the hardest. Having worked most of this decade to position itself as a survivor in the post-cold-war defense shakeout, the company isn’t about to let up now. In a June interview, CEO John Weston spoke proudly of the engineering that went into the Eurofighter, which BAe is building together with Dasa–but no less proudly of the re-engineering the company itself has undergone. BAe is now as efficient as the best U.S. companies, which should make the company a magnet for Europe’s consolidating defense companies. Weston, who has a stock-market screen in his office, is blunt. “A new European company,” he says, “has got to be run on Anglo-Saxon principles.”
Those are fighting words in France, where defense executives have worried for some time that the Germans and British might give up on the French and merge with each other. It’s a fear that Dasa and BAe cheerfully decline to dispel; spokesmen for both report that while their preferred outcome is a joint European entity, they are naturally talking with all possible partners. The surprising announcement earlier this month that the Frankfurt and London stock exchanges would team up–leaving the Paris Bourse out in the cold–increased the pressure on the French. True, BAe, Dasa and Aerospatiale share some interests, most notably their partnership in the Airbus consortium. But that’s no guarantee that BAe and Dasa can’t go their own way. Airbus will be restructured as a corporation by the end of next year. It may become part of a broader European aerospace company–or it may not.
Yet without the French, a European company won’t be a real giant. The endgame in aerospace consolidation will consist of transatlantic deals. BAe knows this; it already does _GCP_1.43 billion of its _GCP_8.54 billion business in North America. It works with Lockheed Martin on the joint strike fighter program, and has a long-standing relationship with the former McDonnell Douglas. But BAe is much smaller than the U.S. giants; Boeing-McDonnell has revenues of about $50 billion. So almost any deal with the Americans would turn it into little more than a subcontractor. Better by far, Weston says, to come to the table later, as part of a much bigger European entity.
Provided, of course, that one can be achieved. Can it? Paris might still veer back to the “Franco-French” approach exhibited in last year’s decision to privatize the military electronics firm Thomson CSF through a restructuring deal involving national champions Alcatel, Dassault Industries and Aerospatiale. “Nothing will ever satisfy the British,” snorts a French industry observer. “Even if the French had said they were giving up 100 percent control of Aerospatiale, it wouldn’t have been enough.”
If you think this is complicated, the U.S. antitrust authorities just made things worse. By stopping Lockheed Martin from merging with Northrup Grumman, they triggered a new set of moves. Are BAe and Dasa now talking to Northrup Grumman, a company about the same size as BAe? Of course, say spokesmen for the two European companies: everybody is talking to everybody. And hoping the French are listening.
