Wings and a prayer for Europe's defence

As the world's aerospace executives flock to Paris for the biennial air show extravaganza next weekend, the mood is largely upbeat as orders for new passenger aircraft flow in.

But the Europeans are uneasy. Airbus Industrie, still struggling to restructure, watches fearfully as arch-rival Boeing forges a merger with McDonnell Douglas that could plunge it - and Europe's defence industry - into deep trouble.

It's not Boeing alone that worries Europe. US aerospace companies have been through a series of mergers that reshaped the sector, creating arms and aircraft behemoths that dwarf European rivals. They are plundering military markets in regions such as South-east Asia and the Middle East where Europeans once dominated.

European industry leaders know they must respond. Scarcely a week passes without British Aerospace chairman Sir Richard Evans or Daimler-Benz Aerospace's Manfred Bischof stressing the need to build similar giants in Europe.

But political jealousies have made progress tortuous. No nation wants its defence companies controlled by another's, and governments have done little to co-ordinate procurement.

The key to reshaping Europe's industry is the four-member Airbus consortium. These companies - Aerospatiale, Daimler-Benz Aerospace, British Aerospace and Casa of Spain - have until now combined forces only for commercial aircraft. But industry officials say that transforming the partnership into a free-standing corporation will also be crucial in redefining Europe's military industry.

In January Airbus said they would transform their partnership into a free-standing corporation by 1999. By introducing a single management structure the group would cut costs and improve efficiency.

On Friday in Nice, France, Aerospatiale chairman Yves Michot said the group scrapped a key feature of the revamp by ending plans to transfer factories and other assets into the new group. That will water down the ability to control costs.

Even so, the restructuring is no longer limited to civil planes. Mr Michot said Aerospatiale persuaded its British and German partners that the talks should include work on a separate arm to manage both military and civil programmes.

Aerospatiale's "crown jewel" is its commercial aircraft design facilities, says the company's treasurer, Francois Auque. And the French company is loathe to separate that from its core operations, moving it into the new Airbus, unless the British place their "crown jewel - their combat planes," into the new grouping as well, said Mr Auque.

Any regrouping will be made more difficult by the Socialist election victory in France, which threatens both a planned merger between Aerospatiale and Dassault Aviation and the privatisation of Thomson-CSF.

In the past, the Socialists have opposed privatising defence companies. That may mean that the long-awaited sale of the government's majority stake in Thomson-CSF, Europe's largest defence electronics maker, is again put off. The sale was to be the keystone for a consolidation of Europe's defence electronics and missiles sector.

The merger of Aerospatiale, maker of civil planes, helicopters, rocket launchers, satellites and missiles, with Dassault, which makes military fighters, appears threatened as well.

The new Socialist government will make its intentions known when Prime Minister Lionel Jospin delivers a speech on his government's aerospace policy platform on 21 June at the end of the Paris show.

Many in the industry believe that Europe's aerospace industry is now so clearly threatened by its rivals from the United States that matters will have to move quickly.

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