At EADS, Paris-Berlin rivalry seen

Posted in Other | 18-Dec-04 | Author: Mark Landler| Source: International Herald Tribune

Noel Forgeard, chief executive of European Aeronautic Defence and Space Company's unit Airbus.
FRANKFURT Europe has stolen a march on the United States in the global aerospace race, winning a flurry of contracts for Airbus planes and developing a new midsize jet to compete with Boeing.

But back home, the parent of Airbus, European Aeronautic Defense & Space, is scrambling to quash an internal squabble over its leadership that could deepen tensions between the French and German shareholders who control this hydra-headed entity.

The maneuvering at EADS is only the latest power struggle between France and Germany since the French government adopted a more aggressive industrial policy under Nicolas Sarkozy, the hard-charging former finance minister and possible successor to President Jacques Chirac.

On Friday, the French shareholders of EADS confirmed that they would name the chief executive of Airbus, Noël Forgeard, to become the co-chief executive of the parent company next summer.

The Germans put forward Thomas Enders, the head of EADS's defense unit, as his counterpart.

On paper, this will preserve the balance of power at EADS, a conglomerate that was cobbled together five years ago from the aerospace and defense assets of France, Germany, and Spain. But in reality, people inside and outside EADS say, it could actually aggravate long-time strains over who should call the shots.

Forgeard favors scrapping EADS's dual management structure, saying it is inefficient. He has left little doubt he views himself as the right man to be the sole boss.

"I have a background in aerospace and defense," he remarked to reporters last month in Toulouse, where Airbus is based.

That would not sit well with DaimlerChrysler, which owns 30 percent of EADS. The company's chairman, Jürgen Schrempp, is opposed to any change in the dual management structure.

Complicating matters, Forgeard has close ties to Chirac. Some analysts in Germany said they feared that France would use any expanded role for Forgeard as a way to tilt the balance of EADS and Airbus toward Paris.

"There's a French strategy to build national champions, and this could be part of that," said Ulrich Horstmann, an analyst at Bayerische Landesbank in Munich, where the German offices of EADS are based.

In truth, EADS has always been political. The French state owns 15 percent of the company (the balance of France's 30 percent stake is owned by the publishing company Lagardère). And EADS obtains much of its military contracts from European defense ministries.

But as EADS vies for a chunk of the huge American military market, it is trying to project a less overtly Franco-German image. It got a lift last month when the Pentagon said it would seek competition for a $200 billion-plus contract to supply aerial-refueling planes to the U.S. Air Force.

While EADS's French accent is hardly a selling point with Congress, analysts in Washington said it probably mattered little whether France or Germany got the upper hand in their parlor game.

"The close alignment of the French and Germans makes them equal in terms of American enmity," said Loren Thompson, a military analyst at the Lexington Institute, a nonprofit research group in northern Virginia.

What looks like close alignment from Washington, however, can look more like a family rivalry in Paris or Berlin.

The French government raised hackles in Germany last month when it considered merging EADS with a French military electronics maker, Thales. The German government and DaimlerChrysler balked at the idea, which would have shifted the balance of power to France. Forgeard is known to favor a Thales deal, and analysts say it could now be back on the table.

Germany has appeared to get the short end of several other such encounters with France. Earlier this year, while he was still finance minister, Sarkozy exerted influence to push through a takeover of the drug giant Aventis by a much smaller French rival, Sanofi-Synthelabo. That turned what had been a French-German hybrid into a French national powerhouse.

"When things reach a critical point, there's a fatal urge on the part of French politicians to show they can intervene," said Daniel Gros, director of the Center for European Policy Studies in Brussels.

On the merits, analysts agree, Forgeard probably deserves his promotion. Under his direction, Airbus has overtaken Boeing in the delivery of planes.

"EADS is basically 80 percent Airbus," said Nick Fothergill, an analyst with Bank of America in London. "To have Noël Forgeard as joint CEO is a good thing because he's got the experience at Airbus."

But clouds are gathering around Airbus's flagship project, the superjumbo A380. Forgeard said last week that the 555-seat plane had run over budget by between €500 million and €1.5 billion, or $664 million and $2 billion. This week, EADS's departing German co-chief executive, Rainer Hertrich, said the exact figure was €1.45 billion.