Industry consolidation claimed its most famous victims yet in 1996. The year started with the demise of Fokker and ended with McDonnell Douglas (MDC)on the way to Boeing, as was already looking inevitable in 1996's prediction. This year may not produce the same drama, but should hold plenty to keep boardroom strategists busy.
The fall-out from the MDC acquisition, which is still months away from being finalised, will occupy centre stage for much of the year. Boeing must decide which non-core parts of the business it will build up, and which, if any, are for disposal. The combined Boeing/MDC helicopter operations provide a case in point, with both Textron and United Technologies, owners of Bell and Sikorsky, having given signs over the past couple of years that they could be participants if consolidation is on the cards.
The MDC missiles business could emerge as a candidate for disposal, given that it is unlikely to reach critical mass in competition with the existing big three US missiles houses of Hughes, Lockheed Martin and Raytheon.
Although the MDC acquisition probably marks the beginning of the end of US defence consolidation, there may be other deals yet to come as further tidying up of the supplier base occurs. Anticipation is mounting over an announcement on the fate of the Texas Instruments business and General Motors' intentions towards its now-restructured Hughes subsidiary. There is perhaps room for another big merger among companies such as Hughes, Northrop Grumman and Raytheon, to form a third giant to stand alongside Boeing and Lockheed Martin, each of which now has sales in the $30-40 billion range.
The more pressing issue in 1997, however, is how Europe reacts to this latest piece of US strategy, and much of that remains in the hands of France. The Boeing/MDC deal has made it more imperative than ever for Airbus to restructure into a stand-alone company with full control of manufacturing and product decisions, as well as the cost implications which go with them. British Aerospace and Daimler-Benz Aerospace(DASA), together with their respective governments, are pushing hard for the change, and threaten not to back the key A3XX programme unless it is forthcoming.
For Aerospatiale, which has around 40%of its workforce and sales tied up with Airbus work, there are dangers in going too far in pooling assets into a new company. That would be relieved a little if the French Government is able to push through the Aerospatiale/Dassault merger, but that is by no means a done deal.
Therefore, it may be safer not to hope for too much from the Airbus restructuring in 1997, although it seems that it will have to make at least a modest start if the A3XX is to be launched. One compromise would be to launch the programme with outside partners as a separate venture, providing a longer-term model for Airbus to develop a holding-company structure overseeing assorted ventures and alliances.
More positive news is due from the privatisation of Thomson-CSF, which will finally go through in 1997 after its recent false start. Acquisition by the Lagardère group remains the favoured solution, allowing its Matra unit to become the focus for new European groupings in avionics, defence electronics and missiles, as well as satellites. The greater interest will come from which other European companies throw in their lot.
The missiles joint venture between BAe and Matra was already Europe's biggest, and with Thomson it will safely emerge as the region's undisputed champion. That should be enough to persuade DASA to drop any last doubts about abandoning plans for a tie-up with Aerospatiale in favour of the new consortium. Its space business would also be welcome.
Thomson and its controlling share of Sextant is another potential prize which is attracting attention from across Europe. A tie-up with GEC-Marconi would create at a stroke Europe's answer to the US giants.
Some more fundamental European defence restructuring could begin in 1997, but it is probably still too early to expect a major move to kick off the dash for consolidation. Speculation may continue about where BAe now goes to give its otherwise world-class military-aircraft business the scale to match that of the US industry.
Finally, 1997 could be a crucial year for Europe's regional-aircraft business. The Aero International (Regional) (AI(R)) venture has been courting Saab to shore up a turboprop arm with a weakening order book. The year will also be make or break for the AE100 regional jet project with China. In 1996 Airbus, which is overseeing the project, welcomed in AI(R) partner Alenia - now it is a question of pinning down China. Success there would provide a lead-in for AI(R) to complete its longstanding goal of taking up a place within Airbus.
Source: Flight International