BAe tightens grip on Europe

BRITISH AEROSPACE came closer last week to emerging as the dominant player in the restructured European defence industry.

BAe is in talks with Spain's Casa, an Airbus partner, with a view to buying the Spanish aerospace group. It could also move in on Dassault, the French aircraft maker. Serge Dassault, head of the French company, hinted last week at a new alliance with BAe. He said: "We do not exclude anything."

BAe's chief executive, John Weston, described European consolidation as "a key element of our strategy" and underlined the company's commitment to mergers with other European defence companies.

Dassault already has a joint venture with BAe on new technology for the Eurofighter and Dassault's competing Rafale fighter. The family-controlled firm is currently separating its fighter and its civilian aircraft operations to pave the way for a future alliance.

"This will enable us to see our businesses more clearly," a Dassault spokesman said. He added that while this did not necessarily mean it would sell the fighter arm, no options were being ruled out.

Last year, the French government transferred its 46 per cent stake in Dassault to Aerospatiale. A flotation of the Dassault fighter business, with BAe taking a controlling - or at least an influential - minority stake, would be a further step in unifying the European fighter aircraft business. Last year, BAe acquired a 35 per cent holding in Saab, the Swedish defence and fighter aircraft group, which felt unable to survive without a stronger partner.

BAe's pounds 7.7bn purchase of Marconi from GEC on 17 January has alarmed its potential partners in Europe. It will turn BAe into the largest defence and aerospace contractor in Europe and the third largest in the world.

Nevertheless, Mr Weston insisted last week that this should not stop further alliances. He stated: "The proposed merger with Marconi Electronic Systems is an important step in that consolidation."

BAe's size makes it hard to construct a pan-European defence and aerospace group that reflects the national interests of all partners. France's Aerospatiale, Germany's DaimlerChrysler Aerospace and Italy's Finmeccanica each have sales of about pounds 6bn, making each around half the size of the British defence group.

Manfred Bischoff, chairman of DaimlerChrysler Aerospace, broke off merger talks when the Marconi deal was announced and claimed that BAe was over- paying. However, he did not exclude the possibility of talks restarting. They have yet to recommence.

A DaimlerChrysler spokesman said: "We have had our best year ever. All our divisions made money. We see no immediate necessity to merge with British Aerospace or any other company."