BAE Systems was at the centre of continuing speculation about industry consolidation

BAE Systems chief executive Mike Turner may have sweated uncomfortably at the podium as he briefed the press at Paris, but it was due to the chalet's broken air conditioning rather than the intensity of questioning about BAE's merger intentions. Fielding a question about the likelihood of a tie-up with Thales, Turner reeled off a list of other companies the UK contractor has been linked with, including Boeing, Finmeccanica and General Dynamics. "Which one do you want to go with?" he retorted, before joking that he would rather discuss the real big story of that week: footballer David Beckham's future.

Although takeover rumours have fuelled a rebound in BAE's share price, Turner is almost certain to wait until a recovery in the company's value before leading BAE to the altar. Shares plummeted after what Turner acknowledged as its "crisis" over two UK programmes, the Nimrod maritime patrol aircraft and Astute-class submarine. Both the company's board and the UK government would rather that BAE ended up as an equal rather than junior partner in any future alliance. Now, Turner says, his focus is on improving its European joint ventures. However, news that broke just after the show of a memorandum of understanding with Lockheed Martin to explore opportunities on US missile defence programmes further hints that BAE sees transatlantic consolidation, rather than with its fellow Europeans, as more likely.

Italian industrial giant Finmeccanica was keen to emphasise its eagerness to expand its aerospace portfolio, but through partnerships rather than mergers. Completing a sale of its 18% stake in ST Microelectronics in early 2004 should give it a €3 billion ($3.6 billion) warchest to "implement our aerospace growth strategy", says chief executive Pierfrancesco Guarguaglini.

The company, which recently completed a co-operation deal with Boeing, is eyeing "major alliances" with Lockheed Martin or Bell in the USA, says Guarguaglini, who is also "convinced we will reach an [alliance] agreement with BAE" within six months. The deal would probably centre on expanding the AMS joint venture (Flight International, 20-27 May). He adds that the next step will be "alliances between [Finmeccanica-owned] Alenia Spazio and Telespazio and either Astrium or Alcatel".

Finmeccanica's most recent move, the takeover of engine builder FiatAvio with the USA's Carlyle Group, could be a model for the future, he adds. "What has taken place is a perfect marriage of convenience between Finmeccanica, the industrial partner, and Carlyle, the financial partner," he says. While the deal will see 70% of FiatAvio, which is valued at around €1.6 billion, go to Carlyle and only 30% to Finmeccanica, the Italian government's desire to maintain Italian control over a strategic asset has given Finmeccanica more influence over FiatAvio than would normally be the case, he says.

That aerospace stocks have held up well in the recession is discouraging takeovers in the lower industry tiers, says Smiths Group chief executive Keith Butler-Wheelhouse. At the show he said that as most suppliers were able to switch resources to the more lucrative military sector fairly quickly, there were "no bargain basement deals around". However, he noted that a longer than expected downturn in the civil market could lead to increasing numbers of companies with a dependence on airlines becoming more vulnerable to takeover.

Source: Flight International