Euro defence firms unite

THE MERGER of British Aerospace and its continental European counterparts moves a significant step closer this week when BAe and its prospective partners tell their governments how such a merger should work. A report prepared by the companies will reach George Robertson, the Secretary of State for Defence, and Peter Mandelson, Secretary of State for Trade and Industry, on Tuesday.

The report is important because it finally confirms agreement in principle among the main players - Casa of Spain, Finmeccania-Alenia of Italy, and Saab of Sweden, as well as BAe and DaimlerChrysler Aerospace. And it brings into the fold Aerospatiale of France.

"We will confirm that the companies are fully behind government [wishes for a consolidation of the European aerospace and defence industries]," said a source close to the companies.

Governmental pressure to unite Europe's fragmented aerospace and defence industries stems from fears that the Americans have responded to the end of the Cold War with a rash of mergers led by Boeing and Lockheed Martin while Europe has stood still.

A year ago, European governments called on industry leaders to overcome their differences and create a pan-European aerospace and defence company (EADC). BAe and Daimler indicated their willingness. But France, whose aerospace and defence companies are a tangle of privately controlled and state-owned businesses, balked.

To the annoyance of the Germans and the British, the French government has insisted until recently on retaining a key stake in EADC, thereby undermining the principle that it should be a private company with a wide shareholder base competing freely on the world market.

Manfred Bischoff, head of DaimlerChrysler Aerospace, recently denounced the French, demanding "a foreseeable and irreversible withdrawal of the state from all businesses aiming to merge". Mr Bischoff said: "If we want to be competitive on world markets we must make major strides forward in creating a European industry."

Last week, it was announced that France had taken the first step in a move to create "France Aerospace", combining France's aerospace and defence interests. This is clearly intended to lead to a further merger, the creation of EADC.