The sudden outbreak of enthusiasm among European Governments for a consolidation of their defence industries is as startling as it is welcome - but it is difficult to see what deep consideration of the real issues involved has led to their new stand.

This magazine has been arguing for years that the European aerospace and defence industries urgently need the sort of consolidation that has transformed the US industries in the last decade. Without such consolidation, the European industries will find it almost impossible to compete with the Americans in world markets - or even with the consolidated groups which will emerge from the current turmoil in Asia.

Nobody would argue that it will be easy for the Europeans to achieve the sort of consolidation which has happened within the single-country market of the USA. Although Europe is officially a single market (at least for the 15 countries of the EU), it is in reality a group of individual economies struggling to operate under a common set of general rules. Even the rules are less than comprehensive - issues of corporate tax, employment law, export rules, research funding and more are nowhere near as harmonised as they will need to be for a single European company to work.

Add in the continuing reliance on national defence procurement budgets and all of this makes cross-border mergers and acquisitions extremely difficult (although by no means impossible), especially in aerospace and defence industries which are partly or wholly state-owned. It is on such practicalities that the fine sentiments expressed by various defence and industry ministers in the last couple of weeks are likely to founder.

Although British Aerospace chief executive Sir Richard Evans advanced an alternative view in a recent lecture to the Air League, most people are satisfied that an inevitable feature of consolidation in an industry with as much excess capacity and needless duplication of effort as have the European defence and aerospace sectors will involve (probably massive) job losses.

In the abstract, that probably sounds entirely logical, but when it is translated into the reality of a consolidation meaning the closure of a factory in one European country in order to concentrate work in a more-efficient factory in another country, it is nowhere near as palatable for the country losing jobs. Yet that is what must be faced up to - and can only be achieved if those ministers who so enthusiastically embrace the principles of consolidation are willing to agree among themselves that it must be allowed to happen without political interference.

Of course, everybody would like to see Evans' vision of the future (in which consolidation would lead to significant growth rather than down-sizing) come true, but in the short term it could only do so were there to be a massive increase in European defence spending. That is (fortunately for the world, if not for the defence industry), highly unlikely. If the consolidation of the powerful US defence industry involved massive job losses (Lockheed Martin alone reckons that its consolidation cost 125,000 jobs, more than the total number of people employed now by any national European aerospace industry), it is fair to expect at least the same percentage from a weaker and more fragmented European industry.

The aerospace industry is already, by most counts, approaching the latest peak in its periodic cycle and - although there is a huge backlog of civil orders to be filled in the next few years - it must expect a cyclic fall in employment to begin early in the new century. To add to that with consolidation job losses will be hugely unpopular - especially if, as the UK Government seems to be doing, those governments refuse to back their enthusiasm for consolidation with funding to support the new project launches which just might help it to work.

"Aerospace is approaching a cyclic fall in employment. To add to that with consolidation job losses will be hugely unpopular."

Source: Flight International