Kevin O'Toole/Business Editor
LAST YEAR'S FORECAST for the aerospace industry predicted a further round of consolidation in 1995 on both sides of the Atlantic. The prediction for 1996 is disappointingly similar.
If there is a new variation, then it may be that more of the action begins to shift to Europe. The region's industry, with the possible exception of the UK, has made a slow and unconvincing start to restructuring.
There are signs of change. Germany has led off in continental Europe, with Daimler-Benz Aerospace (DASA) unveiling its swinging Dolores (dollar-low rescue) plan, complete with 8,800 job cuts and plant closures. Although officially prompted by the damaging plunge in the US dollar, such a re-ordering of German aerospace interests has been long overdue.
As the plan is put into effect over the next year, alongside a much broader rethink within the Daimler-Benz group, Germany's long-term aerospace vision should start to become clearer. Unfinished business includes the fate of engine-maker MTU, with BMW Rolls Royce still in the wings ready to make an acquisition if and when the unit's relationship with Pratt & Whitney is resolved.
Like British Aerospace before it, DASA will also have to take a hard, pragmatic look at its Fokker/Dornier regional-aircraft business. Fokker has been in a state of re-organisation ever since DASA took control two years ago, but, with the Dutch company sailing perilously close to collapse, the time is right for a more conclusive restructuring.
France, too, appears to be facing up to the need for fundamental change, spurred on by a new resolve within the French Government to push ahead with cuts in state spending, including proposals for severe cuts in the defence budget.
Aerospatiale has made tentative proposals for heavy job cuts and may be forced to produce them if it is to emerge intact from the pending re-organisation of the French industry - not least, to secure a much needed recapitalisation from its increasingly tough-minded state owners. Snecma, too, will complete its slimming back to its core.
If all goes well, 1996 is likely to see Thomson-CSF become the first of the French state-owned defence/aerospace giants to be privatised, a landmark indeed.
The national rationalisation should also ease the way towards consolidation at European level. There has been plenty of talk over the need for new cross-border "structures" to end Europe's famous duplication in research, technology and manufacturing capabilities.
There appears to be a growing pressure at political as well as industrial level to put the talk into action. That means going further than the existing consortium structures, which have too often been used to avoid, rather than resolve, the questions of national duplication.
As so often in Europe, Airbus is likely provide a blueprint. Germany has joined the UK, in pushing for a more conventional corporate structure, to give Airbus a greater ability to raise funding, control costs and manage its expansion.
The lead proposal is for some kind of holding-company structure, with a series of majority-owned subsidiaries covering military, regional and other aircraft projects. Among the benefits would be the ability to bring fresh funds and partners, in particular Italy, into the projects without unsettling the delicate balance of power between the four original partners.
Expect to see greater pressure over the next 12 months for this kind of solution, even if action is typically a little slower in Europe than it is in the USA.
In defence markets, too, there are stirrings. The agreement between BAe and Dassault on combat-aircraft development will get others thinking about their futures.
Meanwhile, in the USA, the message is to continue to expect the unexpected. Corporate America at large, and the aerospace industry in particular, has come out of recession thinking big and bold, with little regard for traditional orthodoxies.
The 1995 Lockheed/Martin Marietta merger made it clear that the US aerospace market is no longer one for the timid. News that Boeing and McDonnell Douglas are holding strategic talks has underlined the point.
Whether these latest talks will actually go as far as merger is hard to say, even for the companies themselves, but the very fact that negotiations have taken place makes some fall-out inevitable.
For example, the prospect of a merger between the Boeing and MDC helicopter divisions has accelerated interest in consolidation within the overcrowded US market. United Technologies has admitted that it is waiting in the wings with a bid to put Sikorsky at the centre of any consolidation, while Bell Helicopter Textron had already held talks with Boeing, its V-22 partner.
Consolidation in the US avionics and defence electronics market has further to run among the country's second tier of suppliers, as the E-Systems purchase by Raytheon showed mid-year. The year now seems certain to begin with the auction of Westinghouse's electronics arm. In short, the world aerospace industry will again continue to get smaller but sharper in 1996.
Source: Flight International