Defence: Merger mania won't go away

The year ahead: What 1999 is going to mean for six crucial stock market sectors
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The Independent Online
FOR BRITAIN'S defence and aerospace industries, D-Day approaches. This year they "consolidate or die", to use the words of George Robertson, the Secretary of Defence.

The big question remains with whom to consolidate. British Aerospace and Germany's Daimler Chrysler Aerospace look to be too far down the runway to pull out of their merger. The unknown quantity is GEC. Lord Simpson, its chief executive, has decided to hive off the Marconi defence electronics business from its industrial electronics and telecoms interests.

But who will Marconi team up with? It could yet become part of a trilateral arrangement with BAe and Dasa, but the more likely outcome remains some form of transatlantic tie-up with Lockheed Martin or Northrop Grumman.

There will also be consolidation in the armoured vehicles business. GKN and Alvis have already agreed to put their land vehicles businesses together, leaving Vickers' Challenger tanks division out in the cold.

Baron Buysse, the new chief executive at Vickers, will grasp the nettle early this year - again the choice is between joining a UK alliance or pairing up with a US partner such as United Defense Industries.

On the civil aircraft front, Airbus Industrie will be lucky to achieve its transformation into a single corporate entity before 1999 is out. The deadline has already slipped by six months. As for the airline industry, watch out for further corporate action among the big flag carriers.

There has been persistent speculation about how much longer Bob Ayling will stay as chief executive of British Airways. A move into politics looked like a natural progression but now that his ally Peter Mandelson is gone and Geoffrey Robinson has given businessmen a bad name in Westminster, this looks a less obvious career change.

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