Merger Furthers European Defense Industry Union; Boeing Wants A Fair Fight

The consolidation of Europe's defense and aerospace industry took a big step forward Oct. 14 as German auto maker DaimlerChrysler AG unveiled a merger between its DaimlerChrysler Aerospace AG (DASA) unit and France's Aerospatiale Matra SA. Both companies were already members of Airbus Industrie, a marketing consortium of European aerospace and defense companies. The merged company -- to be known as European Aeronautic, Defense and Space Co. (EADS) -- will be Europe's biggest aerospace concern and the world's third-largest. EADS will be registered in the Netherlands, with joint headquarters in Munich and Paris and boast a staff of 89,000. "This was the logical step and the only possible solution for the aerospace industry in Europe," says analyst Pia-Christina Schulze of investment bank Merck Finck. "Together, they have good technological expertise." EADS will be the world's second-largest maker of civilian aircraft, the global market leader in helicopters, a world leader in satellite-launching systems, and a major provider of satellites, military aircraft, and defense systems. "They will be a strong player to offer competition to Boeing Co.," says Martin Hauk, analyst at BfG Bank in Frankfurt. The companies' product ranges complement each other because DASA and Aerospatiale Matra both operate in the satellite, military, and defense areas, he adds. European governments have repeatedly urged their national aerospace and defense firms to consolidate in order to compete more effectively against larger U.S. rivals such as Boeing, the world's largest maker of commercial aircraft and the biggest defense group, and Lockheed Martin Corp. Illustrating the importance attached to the merger, German Chancellor Gerhard Schroeder attended a press briefing in Strasbourg with the board of DaimlerChrysler and Aerospatiale Matra, along with French Prime Minister Lionel Jospin and Finance Minister Dominique Strauss-Kahn when the news was announced. Meanwhile, Boeing has "no problems" with the new company so long as it doesn't entail any debt forgiveness, equity, infusions, or other actions by European governments that would violate international agreements on subsidies, a Boeing spokesman says. "We believe a single corporate entity would provide clearer insight into Airbus' true financial performance and require accountability to public shareholders, all of which would help to level the competitive playing field."

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