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Aviation History
1999
1999 - 1633.PDF
complementing the merger activity. The Aerospatiale-Lagardere deal has also been accomplished with minimum fuss, allow ing France's industry leader to be moved towards privatisation while retaining an ele ment of state ownership. State involvement in French manufacturers may still be too great for some to swallow, but Paris has nevertheless pulled off a difficult balancing act, leaving Aerospatiale in a far stronger negotiating posi tion should the EADC process be revived. There is also growing feeling that France is now prepared to talk seriously about consolida tion, having been shaken out of its complacen cy by events which finally forced home the point that the rest of Europe would not wait for it to catchup. "In both Europe and the USA, progress has been stalled and one of the chief effects is to give the French a chance to re-evaluate how they are playing the game and what their role should be," says Kevin Lynch, a partner with IPG Consulting. "While the Germans were clearly annoyed at the rebuff from BAe, the French were surprised that anything could happen without them. That has changed the French point of view and their willingness to enter into serious negotiations. There was nothing really on offer from France, but now it seems there is." The fly in the French ointment remains Thomson-CSF. Having failed to pull off the Marconi merger, the company - Europe's fourth-largest aerospace manufacturer lastyear - must plot a careful course. Notwithstanding Thomson's US ATC affiliate, Wilcox, Lynch points out that Thomson is "just not plugged in to the USA". This is considered a major con cern given the market represented by the research and development budget there: some $60 billion compared to Europe's $15 billion. "The issue is where Thomson's technology goes," he says. "It does not fit into America in any shape or form and it's difficult to see it play ing the American game. So how Thomson plays this is the difficult thing." The negative impact of the stalling of European consolidation has also been dimin ished by a period of relative inactivity across the Atlantic. Both Boeing and Lockheed Martin are pre occupied with internal concerns as they attempt to turn around their financial performance, hav ing completed their own mega-mergers a few years ago - Boeing with McDonnell Douglas and Lockheed with Martin Marietta. One ana lyst points out that Lockheed Martin's share price suffered even before its failed bid for Northrop Grumman (thrown out by the US Government), partly as a result of market disap pointment with the integration of Martin Marietta, and he suggests that its ability to do "serious deals" is still in question because of the US Government's refusal to allow any further integration among the major US players. Boeing and Lockheed Martin must also tread carefully because of uncertainty over the Joint Strike Fighter contract, the award of which will in theory bring a huge potential windfall for one and an uncertain future for the other. The ana lyst says: "The two big US players are not in the game at the moment, while Raytheon isn't interested and Northrop is for sale. Which leaves Europe to its own devices." Neither is the SCE picture necessarily bleak. While Airbus should already be a single compa ny according to the original timetable, Lynch suggests the important question is whether or not Europe is agreed on the SCE's ability to deliver value - and he believes that that una nimity already exists. "It's not just a question of cost synergies but strategic synergies," he says. "Cost is only part of the rationale. It's worth money, but all merg ers are really about strategic position and mar ket position. I don't know any chief executives who look at a deal and think only that they can make 'x' amount." Lynch believes Airbus is potentially healthy enough to act as a vehicle for wider European integration. Airbus' $525 million profit for the business as a whole in 1998, as disclosed by man aging director Noel Forgeard, made it more profitable than Boeing, and from a lower turnover, not withstanding the loss taken by BAe, Aerospatiale, Dasa and Spain's CASA via the consortium's central legal construct, which sets aircraft prices. Airbus can really only be transformed in two ways: through the planned spin-off of its indi vidual elements into an SCE, or through a BAe- Dasa, BAe-Aerospatiale or Aerospatiale-Dasa merger, which Lynch contends would "focus the mind of the other player, causing the whole thing to happen" via a round-about route. One of these roads, he adds, is likely to be fol lowed over the next couple of years, with the first - and more conventional path - not neces sarily the more difficult to follow. Rank UK 1 5 6 12 14 15 22 24 France 3 4 7 8 10 11 14 21 Germany 2 Italy 9 13 Sweden 16 18 19 Spain 20 Switzerland 23 Group BAe Marconi Rolls-Royce GKN LucasVarity Hunting Tl Group Smiths Inds Aerospatiale Thomson-CSF Alcatel Snecma Dassault Av Lagardere-Mati Arianespace Labinal Dasa Finmeccanica FiatAvio Celsius*** Volvo SAAB SEPI Oerlikon- Buhrle Aerospace sales (Sml 1998 1997 13,789 6,400* 5,566 1,452 1,147 1,143 863 741 8,834 6,517** ' 4,522 3,400 a 3,375 1,240 940 9,257 3,650 1,437 1,120 971 1,100 647 13,685 5,900 4,940 1,456 1,038 1,350 761 662 9,060 6,195 5,257 3,720 3,387 3,332 1,135 787 8,250 3,632 1,333 958 880 1,021 917 682 Change % 0.8 8.5 12.7 -0.3 10.5 -15.3 13.4 11.9 -2.5 5.2 21.6 0.4 1.3 9.3 19.4 12.2 0.5 7.8 16.9 14.8 -4.9 20.0 5.1 Op prof (aero) 1998 1997 966 592 159 152 45 110 77 66 374 - - 658 334 62 44 62 103 - 836 669 405 167 120 34 99 59 173 351 1.47C 195 555 367 41 174 300 218 59 16 56 -626 46 Change % 15.6 46.2 -4.8 26.7 32.4 11.1 30.5 -61.8 6.6 - 119.3 53.2 5.1 175 10.7 - Notes: *Estimate. Result to be published in June. **lncludes some non-aerospace interests. ***lncludes all defence division businesses. LucasVarity has been taken over by TRW, while British Aerospace (BAe) announced its plans to acquire Marconi Electronic Systems in January. The consolidated figures for the Aerospatiale Matra and Thomson-CSF, Alcatel, Dassault Industries merger, are not available. FLIGHT INTERNATIONAL 9 - 15 June 1999 45
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