Summit hint of Anglo-French defence accord

Britain and France yesterday threw their weight behind the consolidatio n of their defence and aerospace industries in a move which will give new hope to GEC and British Aerospace. However, the Anglo-French summit made less progress on a deal to secure Eurotunnel's future. Michael Harrison reports.

Speaking after the summit meeting in London's Canary Wharf with the French president Jacques Chirac and Prime Minister Lionel Jospin, the Prime Minister, Tony Blair, said the three leaders had agreed that restructuring had to take place in the British and French defence industries.

The statement gave renewed hope to BAe and GEC that they may at last make some headway in their efforts to create pan-European groupings to challenge the might of the giant American military and aerospace suppliers.

The issue was one of the key topics of discussion at the summit. Whitehall sources said afterwards that there was common agreement that restructuring had to take place. "There have been massive changes in the US defence industry that have created enormous groups. Unless we restructure we will be swamped."

Historically, collaboration with the French has faltered over the issue of who leads. France, for instance, pulled out of the Eurofighter project to develop its own jet, the Rafale.

But both BAe and GEC have been also been frustrated in their attempts to forge an alliance with Thomson CSF, the giant state owned French defence electronics business. The French Socialist government under Mr Jospin has decided instead to opt for a French solution involving Alcatel Alsthom joining forces.

But there is now a growing recognition in London and Paris that there must be some form of cross-border consolidation if Europe is to compete with the likes of Raytheon, Lockheed-Martin and Boeing-McDonnell Douglas.

The political leaders also discussed the extension the British and French governments intend to give Eurotunnel to operate the Channel tunnel but it appears they are still some way apart on the deal.

The two countries have agreed to extend the concession by 34 years until 2086 in return for a share of the profits, and a commitment to handle more freight trains through the tunnel.

France wants to limit the two governments' profit share to 25 per cent because the vast bulk of Eurotunnel's shareholders are French. But Britain would like to see a large slice of the revenues come to taxpayers. Britain also wants the agreement to include provisions allowing UK rail freight operators more access to the French rail network.

M Jospin said yesterday that the two governments could not risk an agreement that would "endanger" the position of shareholders.