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Tuesday, April 6, 1999 Published at 12:45 GMT 13:45 UK

Business: The Economy

European Aerospace on the skids

The future of Europe's defence industry is cloudy

Europe's defence and aerospace companies are having trouble to realise a simple fact: UK firms are top dogs in the industry, says Rodney Smith.

Has the prospect of an integrated European defence manufacturer really disappeared?

[ image: Rodney Smith]
Rodney Smith
London's Independent newspaper tells us that plans to transform Airbus into a public limited company are on hold;. weary British and German negotiators are tired of trying to persuade the French of the freedoms of common ownership.

It has all come about since BAe suddenly and unpopularly bought Marconi from GEC two months ago.

Aerospatiale swiftly saw an opportunity in the BAe Marconi deal to stall the Airbus conversion process. A clearly ruffled DaimlerChrysler chairman Jürgen Schrempp - a tough cookie who in one quick and unexpected move created the first truly transatlantic motor manufacturer - says he can't see European defence manufacturing integration happening.

"The dream is over", he said last week, and admitted that DASA might look for opportunities in the United States as well as Europe.

Britain's European partners are angered by Perfidious Albion again, Britain's apparent ability to say one thing and do another.

[ image: The BAe-Marconi deal shot down plans for the creation of an integrated European aerospace and defence company]
The BAe-Marconi deal shot down plans for the creation of an integrated European aerospace and defence company
But BAe supporters point out that that would probably not have happened if the French government had showed willing, and moved faster to privatise Aerospatiale. They say, too, that French and German terms for a deal with Thomson CSF and DASA were unrealistic; the French wanted control, the Germans wanted too much money.

But there is another dimension that has not been explored. There was little surprise about the BAe Marconi deal; BAe was offered Marconi and on commercial and shareholder grounds alone could hardly have turned it down.

As former BAe chairman Sir Raymond Lygo, now chairman of the TNT mail and courier group, puts it, what else was BAe to do? Shareholders would justly have questioned the board's intentions.

And this is part of the problem, a problem that had looked as though it was easing: The unease with which continental Europeans view Anglo Saxon business culture, and the concept of shareholder value.

Jürgen Schrempp has pronounced himself a champion of Anglo Saxon principles - he told the BBC so just before the German election last year. But he clearly sees himself as the person to steer shareholder value from the top of any European Anglo-Saxon type corporation.

As Sir Raymond said to me last week, do you think Jürgen Schrempp would have hesitated to buy a Marconi if the opportunity had been offered to him? The problem, says Sir Raymond, is that Britain does lead the European defence industry. France and Germany refuse to recognise this.

[ image: Quarrelling among the Airbus partners over the legal status of the consortium blocks the integration of the defence industry]
Quarrelling among the Airbus partners over the legal status of the consortium blocks the integration of the defence industry
They want a partnership of equals, he says, but there is no equality about German dominance of the European car market, or European banking; or French power in the European insurance market.

BAe, he pointed out, only has 20% of the Airbus project. DASA and Aerospatiale own 33% apiece. BAe has never complained about that.

In the background, the rational voice at Aerospatiale, boss Yves Michot, warns that in the long term Airbus will not be viable on its own. He says it needs a bigger supporting partner.

That extends to the various parts of the European defence industry. They and Airbus need to become part of a wider defence and/or aerospace group.

If it is to be European, hard feelings at Aerospatiale and DASA will have to be forgotten sooner or later. Britain's European defence industry partners will have to accept that just as they dominate some markets, Britain may have to have a bigger share of this one.

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