Aerospatiele-Dassault shotgun wedding

From:         rna@gsb-birr.Stanford.EDU (Robert Ashcroft)
Date:         21 Feb 1996 14:45:29 -0800
Organization: Graduate School of Business, Stanford University
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News (paraphrased from wire reports)

The rumors of an impending Dassault-Aerospatiele merger, enforced by
the French government, have been proven correct.  The French govt
today announced today that they would seek to force a merger of
Dassault and Aerospatiele in order it said, to create a French
defense/aerospace capable of competing with the US firms.

The Dassault family currently owns 49.9% of Dassault, and is
strongly in favor of keeping the company independent.  The French
govt owns 45.75% of Dassault, with the rest publically traded.
Dassault is only a fourth the size of Aerospatiele, but is
profitable, has has almost no debt, and 10 billion francs in cash.
1995 sales amounted to 11.59 billion francs, with a profit of
some 198 million francs.

Interestingly enough, Aerospatiele, which had 1995 sales of
49 billion francs and is operating at a loss, needs a 10 billion
franc "capital injection" immediately.

*****

Opinion

The interesting thing about this is that even the combined firm
won't be remotely close to a match for the US aerospace/defense
giants like Boeing, or Lockheed-Martin.  The only way Europe could
remotely produce such a firm would be a cross-border merger.
That, of course, is something no European nation is yet prepared
to consider in a serious way.  And this is even without considering
the tremendous gains the US firms have made in costcutting in recent
years, something the French have yet to begin.

(49 billion francs is about $10 billion---Lockheed-Martin does in
excess of twice that in business a year, and Boeing does close to
twice, and probably more this year).

I can well understand the Dassault family's feeling about this.
The fact that Aerospatiele needs FFR 10 billion in additional
capital, and Dassault happens to have that amount in cash seems
more than a coincidence.  The French govt is strapped for cash---
plundering Dassault to prop up Aerospatiele must seem like an
attractive option to the government.  It allows France to give
Aerospatiele $2 billion without an explicit bailout, by forcing
the Dassaults to do it instead.

The Dassaults must be angry as hell about the prospect.  It will
be interesting to see how well they can fight this (perhaps through
the European courts?)

It's reminiscent of the way that the French govt created
a "national champion" by merging Air France with UTA and Air
Inter.  That didn't fix anything either, and you have to wonder
if this will.  More likely it will just create a larger, sicker
firm, which because of its position as the _sole French aerospace
company will be even more sacrosanct during the next crisis,
just as Air France was sacrosanct during its past crisis.

It's sad to see France making the same mistakes again and again:
first Air France, then Credit Lyonais, now Aerospatiele.  SNECMA
next?

RNA