Julian Moxon/PARIS Kevin O'Toole/LONDON
At times it seemed that it might never happen, but it finally appears that Dassault Aviation and Aerospatiale are genuinely on course to merge.
Among those close to the negotiations, the word is that an outline deal could be in place within no more than a couple of weeks. Such timing would have some logic. French president Jacques Chirac and Germany's Helmut Kohl meet on 5 June to discuss the future of the Franco-German defence industry.
A clear decision over the future of a combined Aerospatiale/Dassault would seem essential to any meaningful discussion, given Aerospatiale's intimate links with Daimler-Benz Aerospace (DASA) and Dassault's position as France's major military-aircraft maker.
Details of the deal still remain cloudy, but it seems that the two companies would be put in the hands of a state-owned parent before being sold off. The Sogepa state holding-company, which already owns Aerospatiale, as well as 45.76% of Dassault Aviation, is a ready-made vehicle.
On the surface, there is little revolutionary in the proposals. The major UK airframe manufacturers were regrouped under British Aerospace (and then quickly privatised) almost 20 years ago and German aerospace has been rapidly gathered within DASA over the past decade. It has been the dream of more than one French president to follow suit in France.
What has made the consolidation seem impossible to date is the implacable opposition of the Dassault family, with its decisive 49.9% stake in the company. Even within the last few months, chairman Serge Dassault had appeared to rule out any suggestion of merger.
According to company insiders, he has finally become reconciled to the merger. In part, that appears to stem from some attractive terms on offer. One solution being mooted would leave Dassault with a 51% stake in the new entity in return for handing over executive control of Dassault Aviation to a new management board, presided over by a chief executive, who has yet to emerge. Such a divided ownership would also help to sidestep some of the difficulties over valuation which have bogged down the talks.
Perhaps most decisive, however, is a new-found determination of the Chirac Government to force through what is seen as an increasingly urgent reshaping of the French industry.
The Thomson group is rapidly heading for privatisation, with France's Alcatel and Lagardere groups, plus European partners, positioning themselves to win a share of its prized defence-electronics arm, Thomson-CSF. Snecma, too, has been informed, in no uncertain terms, that it is heading for privatisation, with a study due to be drawn up within the "next few months".
There have already been casualties. Thomson chairman Alain Gomez walked out after not getting his way on privatisation. Snecma's outspoken chairman, Bernard Dufour, apparently opposed to privatisation, has also now gone.
Against this background, the insistence by Chirac (who is an old friend of the Dassault family) that the merger would go through, needed to be taken seriously.
The second stage of the plan seems to centre on privatising the merged entity. "There are many problems with this, but they are not unresolvable," says one senior industry source.
Financially, the two groups are probably in better shape for privatisation than Snecma or Thomson. Dassault Aviation has already largely restructured, to take account of the fall in its fighter-aircraft business, and profits have remained consistent. In 1995, it turned in profits of Fr400 million ($78 million) on sales of close to Fr12 billion. It reportedly has a "war chest" of cash worth some Fr9 billion.
While Aerospatiale is still making losses, chairman Louis Gallois has quietly being repairing the worst of the group's problems with overmanning and debts. Since 1992, the group has shed 10,000 jobs, leaving it with a workforce of around 38,600. Under plans already agreed with the unions another 3,100 jobs will go by the end of 1997. With sales standing at around Fr50 billion and growing again, on a rough calculation Aerospatiale has some claims that its productivity is now better than that of Dassault Aviation.
Equally important, Aerospatiale's debt burden has been cut by Fr10 billion over the past three years, to stand at a relatively manageable Fr6.5 billion. Gallois still argues that the group would need a cash injection of about Fr10 billion to achieve the sort of financial ratios achieved by competitors elsewhere in Europe. A merger with Dassault could count towards that goal.
If the merger can be pulled off, it is certain that the new French aerospace giant would be at the heart of the re-organisation taking place across the whole European aerospace industry. The permutations are endless.
Dassault Aviation, for example, will be free to continue its move closer to British Aerospace, to create a fighter-aircraft business with sufficient critical mass to rival that of the USA. Talks on closer ties between the two have recently been stalled by the uncertainties surrounding the merger, but should restart once the tie-up goes ahead.
Aerospatiale brings with it an even wider network of European alliances, stretching from Airbus Industrie and the Aero International (Regional) consortium through to Eurocopter.
There is also the long-awaited "grand alliance" between Aerospatiale and DASA on satellites and missiles. If it goes through, the way will be clear for further rationalisation of Europe's missiles businesses now that the deal between BAe and Matra has been finally cleared.
Last-minute complications may yet scupper the deal between France's old aerospace adversaries, but the general consensus is that Chirac, pushed by insuperable budget problems, will have his way.
Source: Flight International
