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Aviation History
2003
2003 - 1416.PDF
1 European consolidation space Services, believes Europe's politicians want to see European companies match or surpass US manufacturers, as Airbus has outdone Boeing. He predicts this will force market discipline - including politically painful mergers and takeovers - even on partly state-owned or state-influenced manufacturers. The next wave of European consolida tions is likely to take place among medium-sized enterprises. "There has been no major consolidation in the aerostruc- tures sector," says Chisnall. "It is still quite a fragmented business. Over the next four to six years, it should consolidate into a small handful of larger structures compa nies, with turnover of $2-4 billion." One reason is that new aerospace pro jects are now rare. "The 1990s was an unprecedented period of development," says Rolls-Royce's president of civil aero space, Mike Terrett. "Rolls-Royce devel oped one new programme every year for 10 years. Now the pace has changed to one every three years." Close Brothers industry specialist Andrew Cunningham says: "The lumpy revenue stream will inevitably stimulate more consolidation," adding that only large companies will be able to survive the blow of losing one of these rare opportuni ties. Larger projects also make risk-sharing necessary. Programmes such as the Airbus A380 required subcontractors to invest up Mike Terret believes further engine consoli dation is "unlikely" to 40% of the development costs Flight International, 20-26 May). One way round this is for subcontractors to merge, grow ing until they can take a significant share of risk without endangering their balance sheets. Stephane Albernhe, partner at Roland Berger Strategy Consultants, says small companies that are expected to make a large outlay on research, creating a cash flow problem, "should go and find venture capitalists willing to invest in their com pany" - although this may lead them to look outside Europe, as in the case of the US Carlyle Group's interest in buying into FiatAvio. Despite these pressures, not all compa nies are keen to acquire. John Hughes, chief operating officer of Thales' aerospace arm, says the group is not in a "feeding frenzy" looking to acquire more compa nies, although "if the opportunity were to come along, we'd take a look". He says nei ther this year nor next is likely to be easy, and Thales's business has to reflect the situ ation of the airframe man ufacturers Airbus and Boeing. Terrett says further con solidation is unlikely at the ^ top level of the engine 6 industry. "We partner with a virtually everyone, and § partnerships have a ten dency to be long-term. Corporations that compete also collaborate in other areas. This complicates matters when you are considering how to merge." There are also government barriers to further mergers, even within Europe. Despite repeated commitments to a strong industry, "golden share" arrangements are almost universal in the military aerospace industry, and remain outside the purview of competition regulators. US prospects The world's largest aerospace market - the USA - is naturally attracting interest from European players, and while a big transat lantic merger such as Boeing/BAE "gets emotional and difficult", says Chisnall, "there is a constant churn of smaller acqui sitions in the USA that is below most peo ple's radar". Almost all US defence spend ing stays in the USA, so only European companies with a presence in the USA have a real chance of cashing in on recent increases in US defence spending (see chart). While taking over other companies in Europe is a possibility, says BAE Systems chief executive Mike Turner, "we will have to acquire in the USA". He points to Finmeccanica's planned broad alliance with Boeing announced earlier this year (Flight International, 28 January-3 February). "The Italians see the future as transatlantic, as we do." 50 10-16 JUNE 2003 FLIGHT INTERNATIONAL www.fliqhtinternational.com
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