Mark Milner in London
British Aerospace (BAe) and Lagardere are no doubt right to claim that their decision to combine missile businesses reflects the changing nature of defence procurement in Europe. Nor is Europe the only place where the defence industry is being redefined.
Look no further than the emergence, through merger, of United States company Lockheed Marietta. The need to compete with such powerful players is helping to drive Europe’s arm-makers into combinations.
The BAe/Lagardere deal could get a boost if the French are successful in buying Thomson-CSF’s defence business when the latter is privatised. This is where problems emerge. BAe and Lagardere will have equal shares in the combined missile business. But what will happen if and when Lagardere buys the Thomson business?
BAe is silent on the issue. It could be that it will provide funding for the Thomson acquisition, allowing the position of equally shared ownership to be maintained — although UK involvement in a French defence privatisation might touch national sensitivities. BAe may also be reluctant to find itself in a situation where it would have to fund part of the rationalisation of France’s defence industry.
But if BAe does not put extra funds into the deal and Lagardere becomes the majority owner, that, too, will raise nationally sensitive issues.
Such problems will multiply if the restructuring of Europe’s defence industry is to make strides. Other companies and areas will be involved. It is not just the question of ownership, although that will be thorny enough.
If the process of restructuring is to work it will mean rationalisation, which will bring job losses.
It might be argued that the process could be conducted on a rather less formal basis, with companies co-operating on a project-by-project basis.
The signs are, however, that the industry is preparing to take the formal route. France is pushing Aerospatiale and Dassault together. BAe and Lagardere are linking up on missiles. In civil jetliners, some of the players are converting their partnership into a more traditional corporate structure. In Europe’s defence industry there seems to be a growing realisation that this is no time to be defensive.