COMMENT : Airbus begins a painful and necessary process

There are not many examples of successful pan-European co-operation these days, but Airbus is one of them. Scarcely noticed, this consortium of British, French, German and Spanish aerospace companies has grown to be getting on for the largest single enterprise in Europe. Most of its aircraft are superior to those of its chief rival, Boeing, and from a standing start it has managed to carve itself out a formidable position in world markets. But there is one important gap in its armoury: it doesn't have anything to compare with Boeing's jumbo. Boeing's monopoly position in this market enables it to cross-subsidise into the rest of its range, giving it a very considerable competitive advantage over its European counterpart.

Airbus wants to change that. These plans don't come cheap, however. Development of the A3XX, Europe's answer to the jumbo, is going to cost $10bn or more. Only part of that will be met by government aid. The rest is going to have to come from the capital markets and or, bringing in other partners - including, heresy of heresies, perhaps those from outside Europe.

Which is why Airbus must soon begin the slow and painful process of incorporation. What makes this doubly tortuous is that the British Aerospace part of Airbus is a good sight more profitable than the French and German parts. On Anglo-Saxon measures, therefore, it should be worth a good deal more. Unfortunately the profitability of the various parts doesn't tally with the present structure of ownership. The French and Germans have nearly 38 per cent apiece, with BAe at only 20 per cent.

It can readily be seen that this is not going to be an easy negotiation. The French, even more than the Germans, do not believe short-term profitability is any guide to value or worth. The fact that Aerospatiale makes big losses on its Airbus interests is not regarded by the French as relevant. Plainly, there is a big conceptual gulf here. With the potential opportunities and rewards so great, however, it is one that deserves to be overcome.

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