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EADS: WILL IT SUCCEED?

The consolidation of the European aerospace industry has advanced a significant step ahead. Germany and France are founding a new aviation giant. European Aerospace, Defense and Space Company (EADS) is the name of the construct under which DaimlerChrysler Aerospace and the French Aérospatiale Matra will fly their flags.

DaimlerChrysler AG which brings in Dasa, will hold 50 percent of the new company. The other half consists of a pool of which the Jospin government holds 50 percent, the Lagadère group owns 37 percent and private French institutions contribute 13 percent. Therefore a holding company will be created.

40 percent of the new corporation's funds are to be spread on the stock-market. The rest will remain with DaimlerChrysler as largest single share-holder (30 percent) followed by the French government (15 percent), Lagadère (11,1 percent) and several financial institutions (3,9 percent), the Banque National de Paris being among them.

The company will be based neither in Munich or in Paris, but in the Netherlands. An important reason for this decision was the attempt to find a rather neutral solution. Significant as well is the fact that companies like the EADS have to pay taxes for only 20 percent of their earnings under certain circumstances. The rest of 80 percent is only subject to a taxation rate of ten percent after dissolving reserves later on.

Furthermore, international holding companies in the Netherlands are freed of the corporation income tax on the capital yield as well as on dividends. This transfers into a difference of 30 percent for the stock-holders concerning the relation of gross dividend to net dividend.

Finally, Dasa boss Manfred Bischoff has done it. Together with Jean-Luc Lagadère he will lead the third largest aerospace company of the world after Boeing and Lockheed Martin.

But despite all of Bischoff's original declarations of intent, the French government holds 15 percent of the new European aerospace Goliath combined with decisive veto right concerning capital increase, acquisitions and creation of strategic alliances. And, perfectly being the "Grand Nation", the partner from River Seine is absolutely positive to exercise this right. "In Germany, people hold the opinion that the government should exclude itself from important industry affairs. We have a totally different view", explained France's secretary of finances and industry, Dominique Strauss-Kahn, just one day after the signing of the EADS contract.

Dasa on the other hand claims to have knowledge merely of a proviso of consent which is only valid to the very day in the foreseeable future when France is leaving as EADS share-holder. And because everybody in Munich is 100 percent sure of their partner's behaviour, another proviso, this time a proviso of getting-out, was made to be included in the contract, just for the (naturally exclusive) case that EADS will not be governed by economical aspects ...

Well, everything still appears to be rather unclear to the eye of the critical observer. How true. A large amount of negotiations still lies ahead for the two new partners.

But it should also be noted that Dasa's apparent precautionary measure is not an ignorant sign of distrust but the result of a clever industrial and political calculation.

The Get-out clause is not to be taken in its literal sense. Dasa will not drop out of the EADS in case the demand that the French government leaves before the year 2003 is not met. Instead, France would be obliged to by DaimlerChyrsler's aerospace division. At the current market value of EADS, which is estimated at around 60 billion DM, Monsieur Strauss-Kahn would have to pay 20 billion DM for Dasa's EADS share of 30 percent. Because he will not be able to afford this, the Elysée palace will have to abandon the whole business, exactly as Manfred Bischoff has wanted it all the way.

Not always the direct way leads to the aim. "Putting" is the official name of the game.

According to plan the French government also will not be represented in the board of the EADS management. This way nobody can be accused by voters when Aérospatiale will be shaken by a wave of employment reductions in the course of a necessary rationalising program à la Dolores, initiated by the merger.

While talking of jobs: Another piece of good news has to be made public. The German national aviation support program (LuFo) has been started again.

Life is beautiful.

From page 4 of FLUG REVUE 12/99