THE FRENCH GOVERNMENT has finally declared that it is to consolidate its fragmented aerospace industry. The move is hardly surprising. Tough markets, falling defence budgets and the threat of emerging US giants, have raised the urgency of consolidation throughout Europe.

Neither is it particularly revolutionary. The UK rationalised and privatised its aerospace industry nearly two decades ago and Germany followed suit at the end of the 1980s.

The move is nevertheless welcome, but with two qualifications. Firstly, that it actually happens (and there is still no guarantee that it will) and secondly, that the move is a precursor to involving France in broader European consolidation, rather than simply a retrenchment within French borders.

The fact is that the French Government has left this restructuring perilously late. Having held on for too long to the credo that state control, and support of loss-making concerns is an unavoidable component of a successful industrial policy, France now finds itself with a series of state-owned companies seriously short of funds and lacking a clear sense of direction.

Now, Jacques Chirac wants to do what two other French presidents have failed to do: force a merger between privately owned Dassault and state-owned Aerospatiale. This, he says, will solve two problems. Aerospatiale requires Fr10 billion ($2 billion) of fresh funds, presumably from its Government owner, and Dassault lacks the critical size which would allow it to compete alongside its larger UK and US military aircraft rivals.

In reality, there is little evidence to suggest that this marriage will be a easy one. Serge Dassault has repeatedly said that he wants nothing to do with Aerospatiale and has no desire to sink his company's money into a perennial loss-making giant. Since he is not only head of the company, but also of the founding Dassault family, still with a major shareholding interest, his wishes will not be easy to ignore.

Aerospatiale can argue that its performance has been improving. Over the past two years, under president Louis Gallois, the group has succeeded in reversing its downward slide, with increases in sales and significantly reductions in both the workforce and financial losses.

Dassault, despite the fact that it is profitable, also faces some problems of its own. Budget cuts are forcing further delays on the company's flagship Rafale fighter-aircraft programme and, as a result, Dassault now faces a significant gap in earnings until production ramps up early the next century.

More fundamentally, while Dassault is still unchallenged as supplier of front-line fighters to the French air force, that is no longer enough to guarantee the future in an increasingly global defence business.

The French Government's thinking appears to be that the future of the country's fighter-aircraft capability would be more secure if Dassault were to be incorporated into a larger, broader-based, group. Dassault, already with its corporate-aircraft interests, could sit neatly alongside Aerospatiale's primarily civil-aircraft operations.

As a French solution to a French problem, this thinking holds some logic. This is not simply a French issue, however, and the Government has to look outside its borders for some potentially more promising solutions on a European scale.

Dassault has already edged closer to British Aerospace, linking up on early research into the next generation of fighter aircraft to follow the Rafale and the Eurofighter. A tie-up between those two companies would create a European tactical-aircraft operation to rival any in the USA. It would also have the added benefit of ensuring that Dassault is not cut out of any future UK-German alliance on military aircraft.

Aerospatiale, too, has its own European alliances to pursue. Airbus and the new Aero International (Region) consortia already have their own identities, and will one day presumably graduate towards being true European companies in their own right. Aerospatiale is also closely allied with Daimler-Benz Aerospace in missiles, helicopters and space.

If internal French consolidation, were to jeopardise the progress of any of these budding examples, of European co-operation, it will have done more harm than good in the long run.

Source: Flight International