Russian capital acquires large stake in EADS

Posted in Other | 10-Sep-06 | Author: Ioannis Michaletos

Ioannis Michaletos is WSN Editor South East Europe.

The international capital market becomes every day more and more complicated and globalized; yet a few would guess just a few years ago that a Russian company would be able to invest in a major European defense company. This is already a fact since the Russian Bank Vneshtorgbanki has acquired more than 4% stake in EADS, an investment more than 1 billion USD. This particular transaction took place during the past few weeks, in a period that EADS has already lost 25% of its stock value due to serious delays for the new “Jumbo Jet” A380. Thus Moscow was able to invest a part of its petrodollars in one of the key corporations of today’s Europe and a symbol of the European economic integration process. Moreover the European enterprise is a European champion in the very crucial and strategic sector of airspace and satellite industry and it already constructs the Eurofighter type aircraftii, it is also the parent company of Eurocopter a helicopter industryiii and has a large stake in the missile company MBDAiv. In essence a large portion of NATO’s high technology in the defense procurements is being produced by the EADS conglomerate with all political implications that a Russian stake might imply.

Furthermore since EADS has extensive commercial activities in the American market it is reasonable to assume that there would some sort of a USA reaction, even a suspension of American procurements, as it was recently stated in the London “Times”. Currently the stakeholder composition of EADS is: 22.5% (DaimlerChrysler), 15% (French State), 7.5% (Lagardere a French company) and 5.5% (Sepi a Spanish company). Under the current ownership it seems unlikely that the Russians could achieve control of the company and it is more likely that they won’t be able to sit in the Governing Board as a minority representative. The real concern for the Americans and NATO officials is more likely to be the possibility of “Leakages” of confidential industry secrets to the Russian side as well as the expansion of the Russian arms trade into new markets, such as the profitable ones of Western Europe and the Middle East.

Already the Russian company, Russian United Aircraft Corporation-RUACv- collaborates with EADS and both companies are eager to take joint projects regarding the displacement of the ageing Russian civil aircraft fleet. Last February RUAC bought a 10% stake of Irkut a company that employs over 14,000 people and has order contracts of around 4 billion USD. The Russian policy as it has been unfolding creates a new momentum for Russian- European relations, whereby both sides tend to create mega companies and begin to indulge in cooperative tactics that would ultimately create benefits for both as well as strategic partnerships. The reason for such a coalition could well be the success enjoyed by the American defense corporations since the end of the Cold War. In 2005 out of the 100 largest defense companies 38 were American and they accounted for more than 60% of the total sales by the top 100.vii Actually the Europeans and Russians all together managed less than a third which results in a diminishing role in the competitive and highly technological arms industry. In the near future similar Russian-European partnerships could be more of a norm, since the international business competition poses a great angst amongst the European business world and the Russian capital resurrected with the upward oil price index; is an interesting partner. Nevertheless all the above would most certainly lead to political complications within the transatlantic relations that have already been strained by the war in Iraq and to a lesser extent by the Iranian crisis. The new international environment of the renewed Russian dynamism and the undisputed supremacy of USA will create the necessary framework on which the European economic interests should be viewed from now on.