IT IS, AS WINSTON Churchill might have put it, not so much the beginning of the end, as the end of the beginning. Aerospatiale is to merge with Dassault, and now Thomson is to be sold to Lagardere. The French Government has made the two biggest decisions in privatising its state-owned aerospace and defence companies, leaving Snecma's as the only major fate to be decided. The French industry will emerge looking very different, but it is not certain that it will be a difference welcomed in the rest of Europe - yet.
The French Government seems still to be pursuing the concept of building "national champions" in a world which can no longer afford them. The aerospace and defence markets are now truly international, and can only afford commercial champions. Only nations which can afford to underwrite the development and acquisition of purely national products can afford to promote champions.
That is not to say that nations within a fragmented geographical market such as Europe should not be encouraging strength within their aerospace and defence industries - but they should be doing it only so that those industries become strong enough to tackle consolidation.
The immediate reactions to the proposed Lagardere-Thomson deal have centred on how possible strategic alliances between European companies will be affected. The real emphasis should, however, be on how the next structural move is to be made, and which company will be strong enough to make it - or allowed to by a French Government which has shown few signs of being prepared to let go of its influence over any part of the nation's aerospace industry.
Lagardere's Matra subsidiary is much smaller than the complicated and diversified Thomson business which it is on course to absorb. Yet Matra itself is also a highly diversified grouping - Lagardere even more so. It is almost inconceivable that a combined Matra-Thomson will want to retain for ever all the many business sectors it will be left holding, after a bout of vertical integration and a few more alliances. The management at Lagardere/Matra has been industrious in establishing majority stakes in alliances with other companies around Europe, and is now to acquire even more such positions through Thomson.
In pure business terms, it seems likely that the enlarged group will simply not be able to sustain the necessary investments in maintaining leading positions in so many technologies and markets - even despite the enthusiastic support of politicians to keep technology within a single French group. There are enough European groups which could be considered candidates to buy parts of this enlarged empire, to allow the new company to concentrate on whatever it decides are its core businesses.
The same criteria will arise through the merging of Aerospatiale and Dassault, which will also create a company with more areas of interest than it will be able to sustain.
The crucial thing is, however, that somebody buy something in Europe, instead of trying to consolidate the European industry by creating partnerships, alliances or joint ventures.
The next great growth and development in aerospace will not take place in Europe, but in Asia. The emerging Asian manufacturers will not want to buy complete systems from European manufacturers, any more than Asian customers want to complete aircraft without achieving manufacturing offsets for their national industries. The greater the stake which these new participants want in any project, the smaller the share there will be for European companies. If the European end of any project is itself made up of multiple European companies in alliance or partnership, the individual stakes will become individually untenable. The only route for the survival of a European aerospace industry must therefore be for more European companies to take out or take over their competitors, not to accommodate them.
Source: Flight International
