Economic, Political Hurdles Stand in Way of Consummating Merger

Article excerpt

MUNICH - European aerospace companies face huge problems in their efforts to merge and create a viable rival to America's corporate giants.

"The realignment and consolidation in Europe is going to be much more difficult than it was in the United States," Vance D. Coffman, the chief executive officer and vice chairman of Lockheed Martin Corp., told a security policy conference of top NATO officials in early February.

Mr. Coffman listed a number of factors that, he said, make the merger and consolidation of small defense companies into larger, more efficient ones far more difficult in European Union nations than in the United States:

* "American defense companies were wholly private. Many European defense companies are partly or wholly owned by governments."

* U.S. corporations "were working within the borders of a single nation, while the European consolidation will have to cross national borders, each with its own legal or regulatory system."

* "A cross-border consolidation will arouse nationalistic sentiments and sensitivities within individual countries."

* "The work force reductions that will result from such consolidations will be more challenging in a European social context than they were in [the U.S.] situation."

Even in the United States, where workers are far more flexible than Europeans in traveling across the entire continent to change jobs or search for new ones, the cost is extremely high for a defense company to downsize and reorganize to avoid duplication of efforts, Mr. Coffman said.

"The process was painful, especially for the 125,000 employees who lost their jobs at our companies as a result of the downsizing," Mr. Coffman said. "We shut down three major headquarters and four major research labs, sold 13 subordinate companies [and] closed 16 million square feet of excess capacity in 16 states."

So far, governments in Europe, especially in Britain, Germany and France, have proved unwilling to incur the widespread unpopularity and localized fury that would accompany such cutbacks.

Manfred Bischoff, chief executive officer of Daimler-Benz Aerospace S.A. (DASA), Germany's leading aerospace company, described Europe's main defense corporations as "a collection of partners who all make considerable demands but who, for the most part, are relatively small, unorganized, often contradictory in their interests and structurally incapable of making quick decisions. …