UK, Germany and France back defence consolidation

The British, French and German governments will today throw their weight behind a three-way consolidation of their defence industries to enable Europe to compete with the handful of giant military suppliers emerging in the US.

Industry and defence ministers from the three countries will urge their arms manufacturers to restructure in what could be the prelude to the creation of a pan-European defence grouping.

Although there will be no announcements of any mergers between the main players in each country, the governments are expected to say that they would be fully supportive of any such moves to rationalise and strengthen Europe's defence sector.

Ministers are also expected to point to the progress the civil aircraft manufacturer Airbus Industrie is making in restructuring itself as a possible model for what could happen in defence.

Margaret Beckett, President of the Board of Trade, and George Robertson, Secretary of State for Defence, will issue a joint statement in London supporting further cross-border defence mergers, but stressing that the onus is very much on the industries themselves to put together deals. Mr Robertson recently told a seminar of defence manufacturers at the MoD that the choice was "consolidate or die".

British Aerospace (BAe), the country's leading defence company, has long been pressing for the creation of a pan-European defence and aerospace group encompassing everything from civil aircraft and helicopters to missiles, weapon systems and fighter aircraft. Last month it acquired Siemens Defence Electronics in partnership with Daimler-Benz of Germany. It also has a joint missiles venture in France with Matra, part of the Lagardere group.

GEC, which owns the defence electronics business Marconi, has also been in the forefront of companies pressing for further rationalisation. Both BAe and GEC were unsuccessful in bidding for Thomson CSF, prompting speculation that the French were reluctant to take part in a European-wide restructuring.

However, the French Defence Minister, Alain Richard, said in Paris yesterday that the three main Airbus partners - Britain, France and Germany - could put their defence interests together in the next two to three years. This could then form the focal point for a second phase of consolidation involving Spain, Italy and Sweden.

The four Airbus partners are BAe, Aerospatiale, Daimler-Benz and Casa of Spain. They are already collaborating on the Future Large Aircraft programme, a military transporter, while BAe and Daimler are partners in the Eurofighter project.

Analysts have speculated that BAe may ultimately take over Daimler's defence interests and then bring other manufacturers such as Saab into a wider alliance. There remains uncertainty as to what form a combined Europe-wide defence group would take. There might be friction over its ownership, with Mr Richard suggesting that the French government would retain a stake of up to 40 per cent should BAe, Aerospatiale and Daimler merge.

Outlook, page 21