Airbus shrugs off jet merger threat

Airbus Industrie, the European aircraft manufacturer, yesterday conceded that the Boeing takeover of McDonnell Douglas had increased the urgency for it to push ahead with its own restructuring into a fully commercial organisation.

But the four-nation consortium, in which British Aerospace has a 20 per cent stake, shrugged off suggestions that the merger of its two US rivals would seriously undermine its position in the civil jet market.

A source close to Airbus in Toulouse said: "This deal makes the need for Airbus to become a single corporate entity that much more acute. The four partners need to stop bickering among themselves and face up squarely to the enemy on the other side of the pond."

Claims that the $45bn merger between the world's number one and number three aircraft manufacturers might overwhelm Airbus were, however, dismissed. "People tend to forget that McDonnell Douglas is now an also-ran in the commercial aircraft market. It only accounts for 5 to 6 per cent of orders so I don't see how a merger with Boeing threatens us or makes life more difficult," said Bob Alizart, Airbus vice-president of corporate communications.

Strong backing for this view came from Sir Colin Marshall, chairman of British Airways, who said that, if anything, the Boeing deal would strengthen the hand of Airbus. Sir Colin, whose airline has never bought any Airbus aircraft, said the merger would remove from the market a bit player tempted to cause price distortions by undercutting its two bigger rivals.

Second, it would distract Boeing's attentions for at least 12 months while it was putting the merged company together.

Third, said Sir Colin, it meant that airlines would insist on shortlisting Airbus for most new aircraft orders to ensure that there remained healthy competition between two strong manufacturers.

BAe and the three other Airbus partners - Aerospatiale of France, Germany's Daimler Benz and Casa of Spain - are due to sign a binding memorandum of understanding (MOU) by the end of this year setting out how the consortium will convert into a limited commercial company by 1999.

Edzard Reuter, the Airbus chairman and former head of Daimler Benz, was quoted as saying that the Boeing merger would accelerate the three-year timetable for transition. But these remarks appeared to be contradicted by Toulouse, which said that any other target date than 1999 would be "unrealistic".

Progress towards signing the binding MOU has been slowed up by a dispute among the Airbus partners over what assets they should put into the new company and who would be responsible for them.

At present the four companies are work-sharing partners who charge Airbus for building aircraft and then take a percentage of any profit made from selling them. When Airbus transfers into a public limited status the partners will become shareholders while Airbus will be able to contract production wherever it wishes.

The deal, meanwhile, was given a strong welcome on Wall Street yesterday with shares in both companies surging in early trading and analysts agreeing that for McDonnell Douglas in particular it was the only sensible long- term option.

Harry Stonecipher, chief executive of McDonnell Douglas, said: "This was what we wanted. This was the only deal we considered. We did not shop the company around." Mr Stonecipher will be chief operating officer of the new company.

Philip Condit, chief executive of Boeing, voiced optimism that the merger would win early approval from US monopoly regulators: "Look at this on a global scale and I believe that the anti-trust issue will not be there."

At the start of New York trading, Boeing stock was up $5.75 at $102.50, increasing the value of its all-share offer to close on $15bn. More impressive was a $12.25 jump in McDonnell Douglas shares to reach $64.25.

Comment, page 15

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