ALEXANDER CAMPBELL / LONDON

German political opposition to DaimlerChrysler's sale of engine subsidiary MTU is growing, with a government minister announcing his intention to protect the engine maker from foreign ownership.

"It is of course in our interest that responsibility for MTU remains with a German company," says economics minister Wolfgang Clement. But the deadline for a proposed law limiting foreign ownership of defence companies has slipped by a month as other arms of the German federal government become involved. The bill was originally planned to reach the German cabinet by the end of August (Flight International, 12-18 August) but is now locked in discussions between the economics, defence and foreign ministries, and will not reach the cabinet until the end of September, moving to parliament for debate some time after that.

DaimlerChrysler says it is talking to five bidders, believed to include US private equity companies Blackstone Group, Carlyle Group and Kohlberg Kravis &Roberts, and the UK equity house Doughty Hanson, and is expected to choose a shortlist of two bidders in the next few weeks. The fifth bidder is unknown, but DaimlerChrysler says that none are German, and that it would prefer "a European solution", but it does not rule out a US buyer. Bids are believed to be pitched at around €1.5 billion ($2 billion).

Even if the law does not pass through parliament in time, the German government could still put pressure on MTU to prevent a sale by threatening to withhold product development funding, says ABNAMRO analyst Sandy Morris.

He adds that the motive behind the law may be to prevent financial buyers rather than foreign buyers per se: "The easiest way for equity buyers to turn the companies around is to cut research spending and investment - that will give a return on the short term but do nothing for the real worth in the long term. Even a European buyer [outside Germany] might be preferable to a financial buyer."

An aerospace industry source adds that "the entire industry is furious about this. The wording of the law is very vague - it's a sign that this is a symbolic policy."

Source: Flight International