Outlook: France risks being left grounded

BRITISH AEROSPACE and Daimler-Benz Aerospace have been talking publicly for the past three months about the possibility of merging. So to that extent there was precious little new in yesterday's reports saying they were seeking to tie the knot sometime early next year.

Nonetheless, there is nothing like a good wedding to lift the spirits and the market was not going to be deterred from starting the celebrations early - hence the 10 per cent climb in the BAe share price.

As for the timing of the story, this was undoubtedly designed to send a message to the party-poopers in the great European defence shake-up, the French. On present indications, the French defence and aerospace industry will not make it onto the guest list when the grand rationalisation of the sector takes place. The French have yet to make the leap of faith and embrace privatisation with sufficient enthusiasm to make them suitable partners in a three-way liaison with the British and the Germans.

Yesterday's pincer movement was therefore designed to help shock the French into moving forward with more alacrity than they have so far shown.

For BAe and Dasa a merger would allow the management to start asking some difficult questions, such as why does it cost so much to produce a Eurofighter. But cost control alone is not a sufficient driving force. In order to stand toe-to-toe with the American military machine, the Europeans also require scale and only a deal which embraces the French can deliver this.

The Gallic temperament might not yet be ready for a full-blooded European defence company run on purely commercial lines. But being frozen out of the celebrations altogether might prove a worse fate than that. It's a tough one for the French, but in the end, it's also a bit of a no brainer. Stubbornness may be a national characteristic, but so too is pragmatism.