It seems that the French Government is finally getting the message about privatising its aerospace industry. Aerospatiale management have been told to draw up proposals for a stock market listing and for good measure to prepare for a series of alliances. The merger with Dassault Aviation at last also appears to be moving.

The news should cheer the hearts of Aerospatiale's erstwhile partners elsewhere in Europe, who have increasingly come to see French state ownership as a potentially fatal block to the next step in the region's aerospace consolidation. They will be happier still if France actually sees through this latest attempt at restructuring.

This is, after all, not the first time that a French Government has tried to get the process moving. Before being voted out of office, the previous right wing Government of Alain Juppé set about activating the merger of privately run Dassault Aviation with Aerospatiale as the first step in a two-pronged strategy to then privatise the whole group.

But this plan was thrown back into the melting pot following the election of a left wing Government opposed (at least ideologically) to any form of privatisation. Nevertheless, the pressure of developments outside France are forcing the pace to such an extent that painful reversals in traditional socialist policy are now virtually unavoidable. The recent creation of a new, commercially run defence electronics grouping around Thomson-CSF was a first step - albeit a uniquely French one.

The Government's decision to hand over its 45% share in Dassault Aviation to Aerospatiale, coupled with the hiring of a new management team and the first steps towards privatisation, displays its growing concern that if it does not take the privatisation process further, France risks being left out of the European restructuring process altogether.

At first glance, the latest move does not change much. Without a majority equity sell-off, the French state will retain overall control in Aerospatiale. As far as British Aerospace in the UK and Germany's Daimler-Benz Aerospace are concerned, that would leave the company as incapable as it was before of joining a combined European grouping facing a dominant US industry. Jospin's statement nevertheless reveals that Aerospatiale president Yves Michot has been given a free hand to propose opening the capital of the company "as far as is needed". This quiet opening of the door to a majority sell-off means there will be little surprise in financial quarters if Michot's proposals to that end are made during August, when the French depart en masse for the beaches.

This does not reduce the danger inherent in the Jospin move. Aerospatiale's unions have already threatened to blockade Airbus Industrie if the future of the French aircraft-to-missiles group is not assured. The power of the French union movement continues to be such that it is capable of holding the government hostage to the soccer World Cup over pay demands at Air France.

In the case of Aerospatiale, however, any further delay in the privatisation process could spell long term isolation and the end of French hopes to take a lead role in the creation of a pan-European aerospace company.

BAe and Dasa have made clear that their strategies for wider consolidation need not include the French industry - to the extent that they are looking at alternatives in both Europe and the USA. Their responsibility is to shareholders and the quest for long term growth and market flexibility cannot be subject to any kind of veto from a state-controlled partner.

In the last five years, Aerospatiale has undergone a thorough reorganisation that has seen its financial performance transformed from a loss making concern to a profitable company with a portfolio that, when combined with Dassault Aviation, stands to be the broadest in Europe.

If the French Government holds firm, there is a strong possibility that Aerospatiale will continue to be a major player in the restructuring process now taking place. It is, however, the last chance for it to do so. The other actors in the European restructuring drama have little time left in which to answer the consolidation challenge set by the USA.

Source: Flight International