Industry on both sides of the Atlantic would be happier if politicians played less of a role in its affairs

The French have a phrase for it: laissez faire, which literally means to "let do", but which also describes the doctrine that government should not interfere in commercial affairs - or "leave it alone", in other words. European industrialists would probably prefer it if French politicians would leave it alone, and stop their efforts to arrange a marriage between EADS and Thales. And both Boeing executives and US Air Force officials probably wish US politicians had left things alone in the wake of the 11 September 2001 terrorist attacks.

Three years ago, when a group of US senators prodded the US Air Force to look at leasing 100 Boeing 767s to serve as aerial-refuelling tankers, who could have guessed the result? What was intended as a post-9/11 lifeline to Boeing now ranks among the Pentagon's most disastrously botched acquisition efforts, not only failing to produce a deal after three years, but also raining personal ruin on nearly everyone connected to it.

What other programme can lay claim to toppling Boeing's chief executive and chief financial officer and three of the US Air Force's most senior civilian officials, including, finally, the deal's architect and most ardent apologist - secretary of the air force James Roche?

There can be no more graphic illustration of the dangers of unintended consequences when politicians interfere in commercial affairs. While French finance minister Nicolas Sarkozy's dream of engineering a merger between Thales and EADS would create the industry's biggest player, and be a quick fix for the European aerospace giant's anaemic defence portfolio, it is almost certain to have unintended consequences.

First and foremost it promises to upset the careful balance of French, German and Spanish interests on which EADS is built, with Germany already concerned at the prospect of France holding more than half of the merged company. Secondly, combining Europe's biggest and third-biggest aerospace players would reduce competition. This would be unpopular in the UK, particularly if BAE Systems responds by merging with one of the big three US primes, further reducing competition in this most open of defence markets.

Thirdly, consummating a marriage with Thales would draw EADS's focus back into Europe just as it is poised to realise its dream of penetrating the US defence market, thanks to the US Air Force tanker debacle. However unlikely the USA buying Airbus A330 tankers may appear, if a competition is held EADS will almost certainly be invited to bid and the transatlantic competitive landscape could be changed forever.

This may not be the best time to divert the attention of EADS's leadership, or from a US viewpoint to increase the French government's shareholding in the company through a merger with Thales. But perhaps the biggest concern about an EADS/Thales merger is that the companies will fare little better together than apart if the European defence marketplace is not consolidated at the same time. Creating a heavier gorilla is pointless unless its cage is made bigger. And that is a job for the politicians. But in doing so, they should take a wary look at the US experience of allowing a mega-company to gain dominance within a monolithic procurement system.

The Druyun scandal has its roots in the tight US military-industry symbiosis: politicians wielding their power over military funding to help commercial companies; and defence officials using their power over procurement to secure civilian jobs. There is no end yet to the consequences, the scandal having touched off continuing investigations and lawsuits covering almost every major acquisition made by the US Air Force since 1992.

More than a year after the first conflict-of-interest charges, it is possible the scope of the scandal has only just begun to unfold. Roche's departure could be a sign the USAF is ready to co-operate with the US Senate's demands for full disclosure and full accountability. Publicly, Boeing maintains the matter has been settled with the guilty plea of former CFO Mike Sears. But the last casualty of this affair is unlikely to be known for months, if not years.

What is clear is that Boeing, the global aerospace industry's biggest player, has been damaged by the unintended consequences of the political interference in commercial affairs that started this chain of events. French finance minister Sarkozy may want to boost his chances of becoming France's next president by forging EADS and Thales into the industry's number one company, but he would to well to heed his own language and say laissez faire.


Source: Flight International