Kevin O'Toole/LONDON
While the US aerospace/defence industry will spend 1998 largely preoccupied with consolidating on its mammoth restructuring effort, the real will be focused across the Atlantic, on how Europe plans to respond.
Boeing's mid-1997 acquisition of McDonnell Douglas, and the political furore it raised from the European Commission, helped give a badly needed new sense of urgency to the region's restructuring effort.
Since then there has been an outpouring of strategy papers from the European Commission, pledges of support from national Governments (including the tri-governmental statement from France, Germany and the UK) and urges to action from the industry itself. The key questions for 1998 are: how much of this will be turned into positive action and how quickly; and will this new impetus, created by the genuinely frightening prospect of a US giant with annual sales of more than $50 billion, be enough to overcome lingering national differences?
The good news is that France's strategy has become clearer (if only slightly) since the mid-year change of government. The Thomson-CSF issue is finally resolved, with the group now at the heart of a new French defence-electronics/space grouping together with businesses from Alcatel, Aerospatiale and Dassault Electronique.
More importantly, France has given its support to speeding the transformation of Airbus Industrie into a Single Corporate Entity(SCE). The Airbus partners have pledged to have that in place by the start of 1999, but that will mean some fast and furious work early in 1998 if the timetable is to be met.
Reports are that the groundwork on issues such as asset valuation and corporate structure are well advanced, while the four partners in the consortium appear to be signed up to the idea of a genuine merger of assets.
Some institutional blocks still remain, however, not least being the need to settle the issue of different national rules on matters such as tax and employment. Perhaps of more concern, however, there is still intense debate over the extent to which Airbus restructuring should be linked to the creation of wider aerospace/defence groupings in Europe.
While governments and national industries are all agreed publicly that Europe needs to work towards such a giant if it is to stay in the race started by the US corporations, differences appear to remain over how to get there.
German and UK opinion is that formation of the Airbus SCE must come first, and the EC also appears to agree that it would be dangerous to slow this process by bringing in a wider restructuring. France, however, has something to gain from using its powerful leverage on the Airbus negotiations to seal a more wide-ranging deal covering defence.
In part, the French-initiated tri-governmental agreement seems to give a nod in the direction of this "grand" solution, while at the same time buying some time from Germany and the UK as France completes its belated internal restructuring.
There are signs, however, that British Aerospace and Daimler-Benz Aerospace (Dasa)are nevertheless keen to push ahead with their own budding European grouping being built around France's major privately owned player, Lagardère/Matra.
Dasa is in the process of integrating its missiles and space businesses into the existing Matra BAe Dynamics and Matra Marconi Space joint ventures - both major rivals to the budding Thomson-CSF coalition. Hints from the UK are that it may go further still in defence integration if Dasa is willing.
Some of the politics should become clearer at the end of March. That is when the three governments have asked for reports from industry about the way ahead. By then, the rival French defence-electronics/space groupings will also be complete. In a further twist, Lagardère/Matra president Noel Forgeard is scheduled to take up the reins of Airbus around the end of March when Jean Pierson steps down as chief executive.
UKdefence-electronics giant GEC is also beginning to stir. The joint ventures with Italy's Finmeccanica around the Alenia Difesa defence-electronics business are due for completion before the end of March, while talks are also taking place with Alcatel, its long-time partner in the GEC-Alsthom power and engineering joint venture.
GEC's long-overdue restructuring, which includes the flotation of Alsthom, will help build the group's already healthy warchest for acquisitions, as well as freeing the conglomerate to concentrate more on defence - and, if European restructuring does not fall kindly, there is always the possibility of a US deal.
Abest forecast amid this mixture of industrial and governmental politics is, as a minimum, for the signing of firm plans for an Airbus SCE which contains broad agreement over its future role as part of a bigger European defence/aerospace grouping.
The creation of only one or two major defence-electronics alliances also seems certain, although Europe could surprise even itself with a much more dramatic consolidation.
Source: Flight International