Winning the World Cup may have been a dream come true, but bringing a vision for a combined European defence and aerospace super-company centred on French soil to fruition must be seen in French circles as a mix of miracle and pure genius.

This week's surprise announcement by the French Government that in just five months the country's two biggest rival defence groups - state-owned Aerospatiale and private sector Matra Hautes Technologies (part of Lagardère) - would merge to create Europe's largest aerospace and defence company took most by surprise. Not least for Europe's other prime defence powerhouses in the UK and Germany with which France has ostensibly been engaged in cross-border defence and aerospace industrial consolidation talks for the most part of this year.

What the French merger plan achieves in a single blow is a group encompassing Europe's largest guided weapons, satellites and helicopter companies, a substantial software engineering and communications business, plus significant shareholdings in Europe's prime commercial aircraft group, Airbus, regional aircraft group ATR and combat aircraft company Dassault Aviation. The list will not end there once further space and electronics strategic tie-ups are finalised with other French and European groups.

Notwithstanding concerns expressed by British Aerospace and Dasa that the continued stronghold by the French Government on the share capital of the merged French group restricts their room for manoeuvre in joining the mega merger fray, they expressed relief that France was finally making a move towards privatising Aerospatiale, if only partially. They nonetheless recognise that with or without full privatisation France's coup has really been to make sure it retains a prime strategic role in shaping the outcome of European defence, space and aerospace industry consolidation. Lagardère is the ace card in the equation as it is France's best chance of going some way to meeting BAe and Dasa's demands for any combined European group to be privately owned and run and, therefore, bring the UK and German groups into the fold. The two companies had made no secret of their intention to press ahead with their own merger plans without France. Matra is already closely allied to BAe and Dasa. The Aerospatiale/ Matra mix, the French Government stresses, will facilitate the development of strategic partnerships with Alenia in Italy, BAe and GEC in the UK, CASA in Spain, Germany's Dasa and France's Dassault Aviation and Thomson-CSF. It will be the core around which Europe's so-called industrial priorities will crystallise, an official statement said. These are to turn Airbus into an integrated company; to create one leader for Europe in the missiles, space and electronics sectors and to develop a single centre of excellence for combat aircraft, regional aircraft and helicopters.

As common European projects go, this one, which has been spurred on by the pace of defence and aerospace industrial consolidation in the USA, finally appears achievable. There are still plenty of hurdles to clear, with the Aerospatiale/ Matra merger alone promising not to be an easy ride. Most, including BAe and Dasa, will wait and watch the outcome with a mixture of relief and concern. Relief that the French Government has finally made a decisive move towards privatisation, but concern that the state continues as the largest single shareholder in the new grouping by some margin. Further negotiation will be required to bring the various parties together within sight of their goal of a cohesive European aerospace and defence industry run by economic realities rather than for political advantage.

Then what happens? Consolidation is not the end game, only the beginning. The real challenge lies in Europe's ability to build a strong, efficient and competitive force to compete on global aerospace and defence markets and become a credible partner with US industry and other industrialised nations. Strategic industries such as aerospace for technological innovation and high quality employment are at the heart of a prosperous and secure Europe. Short-term thinking today will result in a heavy price being paid later.

Source: Flight International