Julian Moxon/Paris

Dassault Aviation is studying the separation of its military and civil businesses in a move which is seen as preparing the company for a merger with Aerospatiale and eventual integration of the military business into a greater European alliance.

The move came as a further two senior members of Aerospatiale's administration, finance director Francois Auque and international business director Denis Verret, joined the Dassault Aviation board of directors, which contains Aerospatiale president Yves Michot.

It is the strongest indication yet that Dassault president Serge Dassault is beginning to accept that merger with state-owned Aerospatiale is inevitable, even though he is understood to have told the workforce only a few days previously that "nothing would change". This came as the company revealed a 15% rise in 1997 net profits to reach Fr1.3 billion ($210 million). Some Fr8 billion was added to sales, taking the total to Fr21 billion.

Sources close to Dassault say the civil and military businesses will be valued in preparation for "whatever happens next". While no official announcement has been made about the merger, it is clear that France, originally regarded as being in the driving seat of the European aerospace consolidation process, is now in danger of being bypassed altogether as Germany and the UK hint that they could press ahead on their own. "There have been a lot of talks at high level-France realises it has some catching up to do," says the source.

The merger of the two companies will take the form of the transfer to Aerospatiale of the Government's 46% direct and indirect holding in Dassault Aviation, and will involve only the military segment of the company. This could represent France's contribution to the combat aircraft arm of the European aerospace regrouping, that most believe would be led by British Aerospace.

Dassault had previously agreed to merger proposals from France's previous right-wing administration but only on condition that Aerospatiale was privatised. That was ruled out last year by the incoming left-wing government, leading to an effective freeze on the talks.

Source: Flight International