Aerospace in Europe Could Change Course
The proposed mega-merger of Lockheed Martin Corp. and Northrop Grumman Corp., seen as completing a consolidation of U.S. aerospace-defense giants, may finally spur a similar round of European aerospace mergers.
Europe’s five top aerospace companies combined would barely rival the $37 billion a year in sales that Lockheed Martin will command if it completes the $11.6-billion acquisition of Northrop Grumman, announced Thursday.
That is particularly distressing for European defense firms, because a European consolidation has yet to start in earnest.
Lockheed’s move--following Boeing Co.’s bid for McDonnell Douglas Corp. and Raytheon Co.’s purchase of the defense operations of Texas Instruments--has renewed Europeans’ calls to overcome the nationalist concerns that have hampered efforts to build companies big enough to rival new American giants.
“The latest mega-fusion underlines the urgency for a restructuring of Europe’s defense and space industry,” said Manfred Bischoff, chief executive of Daimler-Benz’s Dasa aerospace unit. “We must act as quickly as possible.”
For Europe, the latest battleground is a small but agile warplane, the Eurofighter. This $60-billion procurement is the single-biggest manufacturing project on the continent, and the focus of Europe’s national defense contractors’ ability to work together.
Conceived in 1983 as a single solution to replace aging Tornado and Jaguar jets in Italy, Germany, Britain and Spain, Eurofighter is ready to enter the manufacturing stage, during which 629 planes will be made for the nations’ air forces.
Germany is the last of the four partners to signal political support needed for production to begin at British Aerospace, Daimler-Benz Aerospace, Alenia of Italy and Casa of Spain. And Chancellor Helmut Kohl’s cabinet is likely to approve funding for the aircraft Friday, when the current year’s budget is reviewed, analysts and politicians have said.
Should the defense ministry win its $27-million budget request, the political path through the parliament to final approval would be clear. Manufacturing could begin next year.
And so the pressure is on. Executives, political leaders across Europe and even unions are calling on Germany to move forward with this project, calling it critical for the consolidation of the region’s defense industry.
“The whole aerospace program is at stake,” said Ingrid Lullmann, who represents the unions Daimler-Benz in Germany. “If this project is not carried out successfully, we will no longer have any aerospace business to take seriously.”
The project is so important that Dasa has offered early repayment of about $575 million in loans it received from the government for its unrelated Airbus Industrie manufacturing businesses. Talks are still in progress, though this measure may be the one that allows a cash-strapped German treasury to pay for Eurofighter even as it trims spending to meet criteria for a single regional currency.
Outside Germany, the Eurofighter is seen as more important to the future of the region’s aerospace industry. It’s one of the few key projects in which rival defense contractors work together.
At British Aerospace and Dasa especially, executives so fear the likes of Boeing and Lockheed Martin that they’re eager to press ahead with mergers of national defense businesses. For all the companies of the region, scarce defense funds are chasing too few projects.
Where the U.S. has only two major warplane procurements underway, Europe has three, including Eurofighter, the Saab Aircraft-made Gripen and Dassault Aviation’s Rafale.
Europe has four tank programs against one in the U.S. and 11 missile makers competing with four in the U.S. All those programs in Europe share a total defense spending of about $130 billion a year, less than half the U.S. budget. Executives see this can’t continue.
“What we need are true European joint ventures,” Bischoff at Dasa said. “We have no time to indulge in the favorite game of Europeans, which is who dominates whom.”
Eurofighter is an obvious solution, the companies say. It combines the resources of four nations’ defense budgets and defense industries into a single plane that each of them needs. However, European governments have frustrated industry with a sluggish pace of approving such reforms.
At Airbus Industrie, the most successful joint European program to date, for example, French, German and British officials are quibbling over how to reform the commercial jetliner maker into a single entity.
If it’s not the Eurofighter that European nations buy, the alternative will probably be one made in the U.S.. That threat alone is perhaps the most potent incentive to push the project forward, especially for union leaders like John Deans of British Aerospace.
“If we are not careful, we’ll be handing over the defense of European skies to the United States,” Deans said.
* EUROPEAN WORRIES
EU panel urges blocking Boeing-McDonnell merger. A1
