History may gloss over the fine details of how the French Government managed, in less than a year, to completely reverse its public stance that it would never privatise Aerospatiale. Recent events, not least some adroit juggling, have led to a situation in which the government will probably have a stake that is so small as to be insignificant.
Its latest move to consolidate the French aerospace industry has been achieved with an agreement to hand over its 46% stake in family-run fighter to business jet maker, Dassault Aviation, to Aerospatiale. This ends a tortuous process of attempts to bring the two together that previous governments had failed to achieve after more than two decades of trying. With aircraft-to-missiles group Aerospatiale being merged with privately owned Matra Hautes Technologies, Paris appears to have taken seriously the threat from Germany and the UK that they would leave France out of initial consolidation if it did not act. For them, privatising Aerospatiale is the essential precondition for a three-way merger to create a single European aerospace and defence entity.
The French Government should be applauded for achieving the seemingly impossible with such speed. That it has been done by a socialist government only points up the incompetence of the previous right-wing administration, which botched the privatisation of national jewel, electronics group Thomson-CSF, and left the Dassault question unsolved.
Lionel Jospin and defence minister Alain Richard have achieved the three main elements needed to consolidate the French aerospace and defence industry: privatisation of Thomson-CSF, via its merger with Alcatel; privatisation of Aerospatiale, by merging with Matra; and the introduction of Dassault Aviation to the fold. A host of exceptionally contradictory pressures make the achievement all the greater.
Now, the industry awaits the next move. Both Germany's Dasa and British Aerospace may yet decide to go it alone, believing that it would be easier to consolidate first and let the French join later. But pressures of events elsewhere may dictate otherwise. For instance, there is the extreme need, expressed last week by Airbus chief, Noel Forgeard, to press on with the creation of the so-called single corporate entity. The consortium structure has worked well but is outdated and does not yield the efficiency necessary to stand up to a restructured Boeing. The sheer scale of the forthcoming A3XX programme also requires a centralised management that can control costs and run the programme at maximum efficiency.
Forgeard says the SCE can go ahead independently of a "big bang" style merger of Europe's aerospace and defence interests, and should do if the latter risks slowing it down. But it would be better for the SCE to be a part of a larger European grouping where players' synergies could be used to maximum advantage. The added bonus would be that it could end the bickering over consolidation and the political gamesmanship surrounding it, enabling all to face the new century as a unified whole.
But the task facing the consolidators is immense, not least because it also involves the eventual inclusion of Italy's, Spain's and Sweden's aerospace and defence players into the single European grouping. Sorting out the share structures, equity values, even getting individual shareholders to consent to such a plan, is no easy task. Given the recent levelling down of engineering stocks, some may wish to re-evaluate their investment plans. After five years of frenetic merger mania in the USA, there is already concern on Wall Street that the earnings growth achieved through the merger spree will stagnate.
For now, it would perhaps serve the industry well if the UK and Germany accepted that, in making the supreme effort, France has shown that it is putting Europe first. All talk of a two-way merger should now cease - if not for Europe's sake, then for that of their investors. The necessity for Europe's aerospace and defence companies to unite is paramount if competitiveness is the goal; today, the aerospace industry goes way beyond narrow national or regional borders. Its globalisation is a must and the idea of a united Europe and the emotions that this engenders, inside and out, should not get in its way.
Source: Flight International