The pounds 15bn weapon that Europe no longer needs

COMMENT

At first sight, Michael Portillo's announcement of the go-ahead for the hugely ambitious Eurofighter programme is a big shot in the arm for British industry and technology. But as is usually the case with government announcements, it is not all it seems. For a start, this isn't really the go-ahead at all, since the project still requires the Germans, and to a lesser extent the Italians and the Spanish, to commit. If they don't, it is hard to see how the British can really go it alone. But let's assume that in all likelihood the others will follow our lead; the real puzzle of this enterprise is that seven years after the collapse of the Berlin Wall we are still ploughing ahead with it at all.

Consider first the cost - pounds 15.4bn minimum. For this, Britain gets 230 state-of-the-art fighter aircraft (great toys, Batman) and creates about 15,000 jobs. That's pounds 1m per job. Now let's be charitable about this and make the admittedly heroic assumption that these will be multiplied 10- fold in the field once the spin offs of the project into other industries are taken account of. That's still pounds 100,000 per job, which even for high technology is going it.

This brings us to the third part of the Defence Secretary's justification - that it will keep Britain at the cutting edge of technology. There's something in this argument. The effect of high US defence spending is to turbo-charge American industry and technology; it is the great powerhouse of the US industrial success story. Though too much can be made of the point, it is also America's way of doing something distinctly un-American, providing industry with a Government subsidy. But the point about spending of this sort is that it doesn't necessarily have to be on defence. It could just as easily be on sending a man to the moon, or trying to find a cure for cancer.

The Eurofighter was conceived of at a time when German unification and the end of the cold war were still strictly for dreamers. Like most such projects, it has developed a momentum of its own and is still rolling merrily along in an age and set of circumstances for which it is wholly inappropriate. There will always be a demand for weapons of mass destruction, but we now live in a time which in this respect is much more akin to the Renaissance than the period we have just lived through. This is a time of "weapons for hire". That nations should still be competing with each other to develop the biggest and the best in weaponry, is an idea that's had its time.

The defence industry, in Britain and elsewhere in the world, has yet to reflect this new reality. British Aerospace proposes that the whole of the European aerospace industry be merged into one. This is, at least, a stab at the problem but is it something that anyone would really want? The idea of a single industrial complex to satisfy all Europe's needs is probably as undesirable in aerospace as it would be in any other industry. The only competitors would be the aerospace companies of the US; given that the US on present form wouldn't dream of reciprocal treatment for the Europeans, the upshot would be that both blocs would retreat into protectionism and the old no-win, hugely expensive and largely pointless game of competing to develop the best in weaponry would begin all over again. But then, that's how the defence industry wants it, is it not?

How to make pounds 30m in just eight months

George Simpson of GEC is in the wrong business, if he really wants to make money. He should be in the City, and more specifically at Charterhouse Bank, where a handful of senior executives have made more than pounds 30m in eight months out of Porterbrook, the train-leasing company taken over by Stagecoach last month.

Porterbrook is already notorious for producing a profit of pounds 80m for its directors and staff. The service Charterhouse provided to these winners of the privatisation lottery was to put together the management buyout that enabled them to make their fortunes. Four of Charterhouse's executives, led by the genial Victor Blank, plainly decided the opportunity was too good to miss and helped themselves to a share of the action.

This would not normally raise eyebrows in the venture capital industry, where it is common and accepted practice for executives to invest in the firms they are promoting, sharing the risk with their clients. But this one was different, not least in its exceptionally debt-geared nature. The company, sold by the Government for pounds 534m early this year, had only pounds 2.5m of core equity, which became worth almost pounds 400m at the bid price.

Thus the Charterhouse executives were able to turn an initial investment of just pounds 89,000 into pounds 12.7m. On top, they make a cool pounds 20m from their personal share of the profits made by the Charterhouse venture capital fund, which also invested in Porterbrook. It hardly needs saying that all of them faced negligible risk - for well-paid merchant bankers - of, at worst, pounds 89,000 of their own money. The real downside, if the company had turned out to be a dud, was born by the providers of bank finance and preference shares. Just a question of the luck of being in the right place at the right time? For some reason it doesn't look quite that way.

Unilever tries a brand-new approach

Not so long ago, business schools were holding up Unilever's legion of different margarine brands as a prime example of good marketing. They even had a name for it - "space packing". By offering Flora for the health- conscious, I Can't Believe It's Not Butter for those with sensitive taste- buds, and so on, Unilever simultaneously managed to cater for virtually all consumer groups while at the same time shutting out competitors by occupying all the available supermarket shelf space. That was the theory, anyway.

This approach now seems to be going the way of so many other management theories, and the Anglo-Dutch consumer goods company is setting its faith by the latest fashions - economic value added, core businesses, focus and the aim of concentrating on being number one or two in each of the sectors operated in.

Streamlining a portfolio that now extends to about 1,000 brands around the world (arch-rival Procter & Gamble only has 300) has been on the agenda since Niall Fitzgerald was named as Sir Michael Perry's successor late last year, but the scale of the action now being proposed - cutting out businesses accounting for up to pounds 7bn of annual sales, or a fifth of the total - is much greater than expected.

Given Unilever's recent record, a steady-as-she-goes policy was never going to work for Mr Fitzgerald. The Persil Power fiasco and trouble with the competition authorities over the distribution policies of Wall's ice- cream were clear signs that things need to change at this pounds 30bn-a-year company. Mr Fitzgerald is proposing to move quite slowly on the brand rationalisation; there will be no big bang. All the same, change on this scale is plainly high-risk. Let's hope Mr Fitzgerald knows what he is doing.