FT: Aerospatiale on Airbus

From:         Alain.Deckers@man.ac.uk (Alain Deckers)
Organization: PREST, University of Manchester
Date:         30 Mar 96 16:01:04 
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The Financial Times today (21 March 1996) publishes a report stating
that the Aerospatiale, the French partner in Airbus Industrie (AI),
has welcomed the German government's call to incorporate AI "into a
regular company this summer and launch the 550-seat A3XX as a
challenge to Boeing." According to the report, Norbert Lammert, the
German government's coorddinator for aerospace affairs, earlier in the
year appeared to make the incorporation of AI a precondition for the
launch of the A3XX programme. The report also states that the French
transport minister, Bernard Pons, "had urged such a move in February."

This report follows others which stated British Aerospace (BAe) was
also pushing for such a move [a long standing objective for BAe - AD],
and wanted to increase its participation in AI if and wheen the move
was made.

- --


>From _my_point_of_view_ there are two interesting issues here, both of
which relate to the peculiarities of AI's current legal structure and
the impact of any change on AI's ability to effectively compete in the
world commercial aircraft market:

1. Financial Transparency: AI's legal structure as a Groupement
d'Interet Economique (GIE), a legal structure created under French law
in 1967, had the considerable advantage of not being under any
obligation to publish a meaningfull set of accounts. Though AI always
claimed that the information was available in its partner companies'
accounts (Aerospatiale, BAe, CASA and DASA), such information has in
fact, with very few exceptions, been almost completely obscured
(having recently trawled through their annual reports, I can confirm
this from personal experience). It thus became very difficult to make
any assessment of AI's commercial performance (costs, profits, etc.)
As a "regular company", in the words of the FT report, AI will have to
face up to public scrutiny by investors. In addition, the flow of
"launch aid" (subsidies) received by AI will be exposed to scrutiny to
a much greater extent than it is today. Exactly what benefits this
conveys upon Airbus is unclear to me (but see below).

2. A peculiarity of the GIE structure is that each partner is jointly
and severally liable for the _whole_ consortium's liabilities. I sem
to remember that during Conferences coinciding with the Paris Airshow
in 1993, senior Airbus managers claimed this significantly enhanced
the consortium's crediblity with customers, since it decreased the
likelyhood of AI defaulting on its commitments (there was also a
widespread perception that AI was essentially a 'sovereign risk', i.e.
it would ultimately always be bailed out by the partner governments).
As a "regular company", persumably wih limited liability, AI forgoes
at least part of this advantage.

Anyway, if all the major Airbus partners (France, Germany and the
United Kingdom) no longer seem worried about these issues, they must
obviously be satisfied that the advantages of incorporation outweigh
the benefits.

That still leaves the most important question of all: why incorporate
at all? In my opinion, an important contributory factor in this has
been the long held belief of the German and UK governments that they
needed to impose some discipline on AI (read "on the French") to force
it into a realistic attitute towards its costs, and the two
governments' desire to limit their financial exposure to the
consortium. The current French government was bound to be more
receptive towards these arguments than its predecessors, and it was
perhaps a case of seizing the opportunity (remember, the French have
also recently announced a major rationalisation of their defence
industry -- civil aviation falls under the purview of the Direction
Generale de l'Armement (DGA) and the French have traditionally
considered civil aviation an adjunct to the defence industry).




Alain Deckers				Tel: +44 (0)161 275 5943
PREST, The Universiy of Manchester	Fax: +44 (0)161 273 1123
Manchester M13 9PL			Email: Alain.Deckers@man.ac.uk
United Kingdom				<URL:http://www.man.ac.uk/%7Embzalgd/>