Aerospatiale is positioning itself for merger with Dassaultand a central role in European consolidation.

Kevin O'Toole/LONDON

THE STATE-owned industrial giants of France are not renowned for their financial openness, and Louis Gallois, outgoing chairman of the country's aerospace flagship, Aerospatiale, admits that his company has been no exception. Yet things appear to be changing. Aerospatiale recently held its first-ever briefings for financial analysts.

The company is even pondering whether to announce a breakdown of profits for its divisions. That would include Aerospatiale's Airbus division. Gallois , who is leaving to take over as chairman of French state-owned railway company SNCF, promises that the Airbus division is earning "substantial amounts".

So why this new-found candour? The most obvious reason is the long-awaited merger with privately controlled Dassault Aviation, which the French Government has decreed will now take place by the end of the year.

The full details of the fusion have yet to be thrashed out, but what is certain is that the Dassault family will take an important stake, rumoured to be in the region of 27%, for finally relinquishing control of the business.

In short, Aerospatiale will need to prepare for the disciplines of a private owner, albeit a minority one. There is nothing to stop the interest being sold on to outsiders, or to prevent other investors being invited in, says Gallois. "It's a way to begin the privatisation of Aerospatiale," he adds.

There is a still more fundamental reason for Aerospatiale to be brushing up its international image. The Airbus Industrie partners, Aerospatiale included, are preparing to start talks on how the consortium can move towards becoming a fully fledged company. Gallois hints that those talks may be the launch point to settle much else in Europe.

"The short-term issue is Airbus, but we will look at it with a long-term perspective," he says, suggesting that the talks will provide the "framework for a wider look at aeronautics in Europe".

This is where the French aerospace strategy begins to fall into place. Despite its alliances in space and helicopters, there is no escaping the fact that Aerospatiale is dominated by Airbus. It accounts for more than 40% of the company's sales and 11,000 of its workforce. Add in the ATR business, which is almost certain to eventually be merged into Airbus, and airliners already make up close to half of Aerospatiale's sales.

This reliance has raised some potentially thorny questions about Aerospatiale's future in the event of an Airbus restructuring. It has also, arguably, put France at a disadvantage in negotiating its place within a consolidated Europe.

Gallois points out that Daimler-Benz Aerospace (DASA) and British Aerospace have more rounded businesses, covering civil and military aeronautics. So will the new company which emerges from the Dassault/Aerospatiale merger. Roughly 30% of its operations will be military.

"If we want to look at the future of the European industry we need to have a similar basket of activities," Gallois says. "When we think about the transformation of Airbus into a true company, we're obliged to be sure that the partners have a common interest and, therefore, a common strategy."

BAe and DASA seem largely to appreciate the point. Both have made clear in the run-up to the Airbus talks that they see the restructuring in France as a necessary first step for progress,

Just how much of Aerospatiale will end up in the new Airbus company is up for discussion. The only certainty seems to be that customer support must be dragged back from the partners to the centre. Gallois says that this is already desirable and is becoming a necessity as Airbus grows. A centralised design authority and component-purchasing strategy would then seem a logical next step.

Although reluctant to reveal his hand ahead of the negotiations, Gallois also highlights the need to open up suppliers to greater competition and benchmarking, so as to take a firmer grip on costs.

Gallois admits that the key driver is to keep pace with the transformation taking place in Seattle. "The only useful comparison is with the USA," he says. While he argues that Airbus is so far keeping pace, his "main fear" is that the US giant could emerge with bigger gains on cost and lead times.

This neatly comes full circle to Aerospatiale's financial charm offensive. Going into European talks, Aerospatiale is keen to demonstrate that, contrary to "Anglo-Saxon" prejudice, it is not just another badly managed, debt-burdened, state-owned dinosaur.

Gallois has a point. Aerospatiale arguably has one of the highest productivity rates in Europe, measured by either sales or added-value per employee. That has been achieved despite recession through job cuts, although Gallois has preferred not to parade the fact. Over the past four years, the workforce has been slimmed by 17%, to around 38,500, and provision was made in 1995 for another 10% to go.

The four-year restructuring has cost Aerospatiale dear, with charges averaging more than Fr1 billion ($200 million) each year, but, behind the headline figures, the profits are now steadily improving. The charges swamped what would have been a modest pre-tax profit over the past two years. Debt, too, has been trimmed dramatically.

Gallois does not deny that Aerospatiale still has its problems. French wage costs are some 40% above those in the UK or USA and, because of its lack of military programmes, the company's self-funded research-and-development bill is massive.

"We have a lot of progress to make, but we're not alone in that," says Gallois. It will be interesting to see whether others agree.

Source: Flight International