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Aviation History
2000
2000 - 0026.PDF
~ 3 w, *- %&• . i- AEROSPACE The shape of the industry is changing radically CHRIS JASPER/LONDON THE FACE OF aerospace manufacturing has been transformed over the past few years by rampant merger activity, but in 2 000, the industry may at last be prepared to take a breather as companies concentrate on extracting value from the consolidation that has already taken place. Although further "mega-mergers" will be difficult to pull off at prime level, the activity that will take place - from die reorganisation of Airbus to the internal restructuring inevitable within newly expanded companies - will do much to determine die shape and focus of the industry for years to come. Towards die end of 1998, the biggest project around aimed to create a single European aero space and defence company (EADC) as the continent sought to attain the critical mass to compete with US giants Lockheed Martin and the merged Boeing/McDonnell Douglas. The European plan centred on a British Aerospace/DaimlerChrysler Aerospace (Dasa) merger but, when the deal fell through and was superseded by a BAe takeover of GEC's Marconi Electronic Systems (MES), the scheme seemed to have been derailed. Despite this move and the all-French merger of Aerospatiale and Lagardere's Matra Hautes Technologies, Flight International suggested "national" consolidation was an important pre cursor to bigger deals. That theory was proved correct by the announced mergers first of Dasa and Spain's CASA, and then of Dasa with Aerospatiale Matra. The three companies together will cre ate the new European Aeronautic, Defense and Space (EADS) company, so that Europe goes into 2000 with two huge multinational players - the new BAE Systems having a stake in Swe den's Saab, parts of Italy's Alenia secured via the MES takeover and a major foodiold in die USA. So are furtiier mergers likely over the next 12 months? The big target for primes in Europe and die USAis a deal securing a true global pres ence and giving access to key markets on either «.„*. rirf*" -z*i-.* Projected top 10 aerospace & defence companies - 2000 Source: Companies/Flighl International Notes: Assumes all announced mergers will go through Based on combined sales lor respective financial years ending 1999. EADS sales calculated according to domestic currency exchange rates Weakness of Euro means its 2000 sales will be lower in dollar terms. 'European Aeronaulic, Defense and Space company. "Lockheed Martin and Raytheon are planning to shed some businesses as they restructure. •the new Honeywell will dispose of some components to gain approval for the AlliedSignal-Honeywell lie-up. Boeing Lockheed Martin" EADS* BAE Systems Raytheon" United Technologies General Electric Honeywell+ Northrop Grumman TRW FLJGHT GA'RE'TH'B'URGES'S A GRAHAM PARRISH 99 55,424 10 20 30 40 Aerospace & defence revenue (Sbillion) 50 side of the Atlantic. But, while transatlantic deals may look attractive, diey will be difficult to pull off in the near future, with US regulatory constraints presenting a major barrier. Major mergers spanning the Atlantic may have to wait until after November's US presi dential election. A delay may be valued by some US players; at present, die market capitalisation of some European companies outstrips that of potential US partners, so that mergers could effectively amount to (unacceptable) takeovers. Struggling Lockheed Martin and Raytheon are committed to restructuring and face uphill tasks. The pair may shed certain businesses which could become merger material, although hardly on a strategic level. In 2000, the big US players must also face the key question of whether to retreat to core activities as they bid to rescue profits, or look to the future and expand into new and potentially profitable sectors. Space and telecommunications, for example, promise huge returns, but will require enor mous short-term expenditure to secure market position. Failure to follow the right path could' mean the difference between aerospace giants evolving into major players in new sectors and themselves becoming targets for ambitious upstarts. Analyst Kevin Lynch of Roland Berger & Partners says Boeing "hasn't hit the pain direshold" and may to continue to stall on key decisions. Debby Hopkins' appointment as chief financial officer in 1999 promised a new broom, but little has been swept away - and some projects, like the 717, may not yet be safe. In Europe, merger speculation will continue, with the future of Finmeccanica Alenia to be determined. The resurrection of the EADC ideal dirough an EADS/BAE Systems merger seems unlikely, however, with both groups keener to secure the elusive US tie-up - and otherwise focused on internal housekeeping. Europe's industry is doing well, but began from a weaker base than diat of die USA and is only drawing level in terms of key indicators, so that the extraction of maximum value from die recent round of mergers will be a vital concern. EADS will struggle to match BAE and the US majors for competitiveness, so that cost- cutting will be important over the next year, widi French and German job losses - and per haps industrial unrest - a distinct possibility. In Europe and the USA, the processes of post-merger restructuring will make one fact increasingly clear by the year ahead: diat the 24 FLIGHT INTERNATIONAL 22 December - 3 January 2000
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