Chris Jasper/LONDON
As the dust settles on the Franco-German accord that will ultimately lead to the formation of the new European Aeronautics, Defense and Space Company (EADS), one thing is becoming clear: the landscape of the aerospace industry worldwide has changed for ever. Beyond that realisation, however, some initial impressions of the European mega-deal appear less convincing.
When the EADS breakthrough was announced, many were convinced that Aerospatiale Matra and DaimlerChrysler Aerospace (Dasa) had pulled off a masterstroke, outflanking Europe's leading manufacturer British Aerospace. The dawning reality, however, is that while the pair have overcome some major obstacles, a mammoth task lies ahead.
Most merger deals are driven by the lure of cost savings, synergies and economies of scale, yet the EADS agreement has the feeling of a political accord - an industrial extension of the Franco-German project that still dominates post-war Europe. Several industry sources suggest the merger could take five years to deliver significant gains, while some of its financial targets look like fantasy figures.
The new company has several project-related issues to resolve in the short term - such as France's ties to the Airbus A400M as a future transport aircraft, against Germany's preference for the Antonov An-70. Early agreement on these would be a positive sign. Ultimately, however, the success of the venture will be determined by EADS' ability to reinvent itself as a lean, mean, global player.
Such a transformation will require many French job losses. But although EADS' commercial decisions are to be taken by Dasa, whether the French Government will really be able to stomach factory closures dictated from Munich is another thing. If not, the Germans have a built-in escape route, with a clause that could see the renationalisation of the entire company by the French Government in just four years should Dasa opt to cut and run. Given this background, BAe, already a lean player, seems a better bet to extract value from its own merger with Marconi Electronic Systems (MES).
As Europe's two new giants scramble to deliver anticipated gains, the spotlight shifts to the political reaction to recent moves, with governments on both sides of the Atlantic beginning to wonder if the creation of global aerospace players is lurching off track. While Paris and Berlin may be pleased with themselves, London is concerned that the UK risks exclusion from the great European defence project it has been keen to promote. UK prime minister Tony Blair was reportedly displeased by the BAe/MES merger, and the EADS deal will seem to confirm his fears.
Washington, on the other hand, may be beginning to take seriously the threat of a "fortress Europe" built around EADS, competing with the US giants and ultimately damaging the coherence of NATO. Because of this the US administration may decide that the Europeans - or at least the UK - must be allowed to bid for elements of US industry, and this can only favour BAe, which is intent on a major transatlantic move.
With the UK company now a minority Airbus player, its destiny has never been more clearly defence-led. There are problems to be confronted, however. On the combat aircraft front, BAe has 37% of Eurofighter, but 44% is controlled by EADS, and the fate of Finmeccanica's 19% stake is uncertain. EADS also has 46% of Rafale, so that it has split loyalties. BAe has a 35% holding in the Gripen, via Saab.
BAe claims it has no plans to leave Airbus, but such a move would open new possibilities. An expanded relationship with Boeing becomes an option, although the latter has played down suggestions that it might sell its St Louis-based fighter business, inherited from McDonnell Douglas. The award of the Joint Strike Fighter bid, in which BAe is partnered with Lockheed Martin and MES with Boeing, will help determine strategy.
Lockheed Martin, Northrop Grumman and Raytheon are the more obvious targets for BAe, and the UK company would still be Washington's preferred partner for US industry, with the likes of EADS and Thomson-CSF trailing. In the shorter term, a smaller BAe deal with, for example, TRW or Litton Industries, could be possible.
Source: Flight International
