France's - and Europe's - aerospace sector is still crying out for consolidation. But it is hard to see the logic behind the latest merger
From Michael Jackson and Lisa-Marie Presley, through Lyle Lovett and Julia Roberts to Marilyn Monroe and Arthur Miller: in show business, as in industry, there have been many eyebrow-raising unions. Occasionally, in both worlds, the doubters are confounded and the marriage proves happy and long-lasting. Often, however, it ends up messy and short-lived. France's financial community has certainly reacted with scepticism to the merger of Snecma and Sagem, viewing it, not as a logical consolidation of two highly regarded technology companies, but as an opportunistic attempt by the French government to create another industrial superhero spanning aircraft engines and hardware, defence electronics and mobile phones, as well as to cash in on the sale of a billion euros of its Snecma shares.
The government, in the form of departing finance minister Nicolas Sarkozy, has denied any involvement in the merger, insisting the move was instigated independently by both companies (given the record of successive administrations, that appears to stretch credibility). And on paper - while there appear to be few opportunities to make savings through rationalising competing activities - there clearly are a number of synergies between the two very different businesses.
Sagem is a high technology group, whose name is familiar to families in France and beyond as a supplier of mobile phones and other household electronic devices. It is the second largest French player in telecommunications and third largest in defence and security. The company is owned largely by its employees, and as a result has developed an adventurous, entrepreneurial ethos.
Snecma has been at the forefront of the consolidation of the French aerospace industry since the late 1970s, acquiring over the years the likes of landing-gear manufacturer Messier and small-engine manufacturer Turbomeca. It is two-thirds owned by the French state, but Paris has long been keen to offload its stake.
Both companies talk about a "compelling industrial rationale" behind the merger, which will create a "common base" to capitalise on the increasing importance of electronics in aircraft technology and bring together Sagem's strong Asian presence with Snecma's hold in the US market, mostly through its CFM International joint venture with General Electric. Snecma's exposure to the dollar - it sells in the US currency, but pays suppliers largely in euros - is balanced by Sagem's largely dollar and yen-based supplier base. There may be opportunities to bundle the technologies of both companies into single offerings to customers, and pool expertise to develop new products. Like any merged company, Snecma-Sagem will have stronger buying power, assuming some overlap in supplier base. But with no prospect of workforce reduction, it is difficult to see where major savings can be made.
If the size-matters logic behind a Snecma and Sagem merger applies, then surely the stronger suitor for Snecma would have been Thales, which operates in many of the same markets as Sagem, but - with sales last year of €10 billion ($12.7 billion) - is considerably bigger with a genuinely international footprint in aerospace and defence. Such a marriage would have created a $20 billion turnover French-owned European aerospace giant to rival EADS. However, Jean-Paul B‚chat, Snecma's president, rejected any deal saying it would be "neither useful nor necessary for us".
If industrial synergies were the driving force, then the most likely option should surely have been GE taking a stake in its French partner, something that appeared to be on offer when the government partially privatised Snecma earlier this year. But in the present climate of prickly transatlantic relations, one of the US's biggest corporations buying even a foothold in one of France's industrial champions was always going to be politically controversial.
Unlike some ill-fated Hollywood pairings, Snecma's merger with Sagem is unlikely to be a disaster. In fact, like a lot of difficult marriages, both parties will probably go on cohabiting happily enough together, while largely getting on with their own lives.
But in a decade when Europe's aerospace industry finally appears to be finding its feet and creating genuine global players such as EADS and Airbus, Finmeccanica and Thales to compete head-on with the US's long-ago consolidated primes, we wonder if France and Europe have passed up on the real opportunity, and made a wrong match at the right time.
Source: Flight International
