Airbus the key as Europe takes on US defence giants

A bouncy, ruddy-faced Frenchman hopped on to a podium at Britain's Farnborough Air Show three years ago and tossed out a warning: the planned merger of US aerospace giants Lockheed and Martin Marietta was a "huge event" that would decimate European competitors unless they forged strong links.

Then Noel Forgeard went home to Paris and did something about it. Chief executive of Lagardere Matra defence unit, he merged the company's missile business with that of British Aerospace. Now he's engineering a merger with Daimler-Benz Aerospace. Forgeard has made his company a model for cross-border teamwork, in a country noted for resisting such efforts.

Soon Mr Forgeard may get the chance to tighten Europe's aerospace links on a grander scale. He is France's candidate to run Airbus Industrie after the planemaker's French managing director, Jean Pierson, retires on 31 March. And while executives at Airbus's UK partner, British Aerospace, have grumbled about the tradition of letting the French fill the top job, analysts say Mr Forgeard constitutes a palatable compromise for all.

"He's established strong ties with the British and the Germans," says Doug McVitie, senior analyst with aviation consultancy Teal Group in London. "He hasn't made any enemies at any of the partner companies."

Barring objections by any of the partners, Mr Forgeard's appointment is expected on 15 January, according to France's Aerospatiale. The other partners won't say whether they'll approve the nomination or not.

A diminutive ball of energy, Mr Forgeard, 51, faces a tough challenge at Airbus if he gets the job. Its government backers are eager to see it converted from a loose marketing alliance into an efficient stand-alone company that owns plants and builds planes.

The partners signed an agreement to do that last January, aiming to carry it out by 1999. But they're struggling to reach agreement on how to merge assets of the companies that manufacture for Airbus - mainly British Aerospace, France's Aerospatiale, and Germany's Daimler-Benz.

The urge to transform Airbus is building steam. Government leaders said that should constitute merely "the first step" in a broader realignment of Europe's aerospace/defence industry.

Last week Prime Minister Tony Blair, French President Jacques Chirac and German Chancellor Helmut Kohl in a joint statement virtually ordered their aerospace companies to come up with a plan by 31 March to form a bigger company to compete with US rivals. Those companies are to use Airbus as a model for a European aerospace giant of the future.

Since Mr Forgeard first issued his warning in 1994, Boeing has gone on to swallow McDonnell Douglas Corporation, Raytheon is acquiring Hughes, and Lockheed Martin is buying Northrop Grumman - putting in place the final piece of consolidation in the US. But in Europe, relatively little consolidation has happened, and government leaders seem to believe judgement day is near.

"The message is to rationalise or die: it's as blunt as that," the British Secretary of State for Defence, George Robertson, said. "The US has shown us the future and our industry must respond or, at best, stagnate."

Mr Forgeard seems an ideal choice to unjam the Airbus gridlock. Former technology adviser to Jacques Chirac - when Chirac was prime minister in the 1980s - Mr Forgeard has strong political connections.

But he's a free-marketer with independent ways, rather than the establishment technocrat so common among top French managers. Industry analysts credit him with the strong financial performance of Matra's

defence businesses, and say the links he's made with the British have built strong businesses.

Matra Marconi Space, 51 percent owned by Lagardere and 49 per cent by the UK's GEC Marconi, is the biggest builder of satellites in Europe and number three globally after Lockheed Martin and Boeing. Mr Forgeard has made the company's missiles business number one in Europe.

"It's encouraging that they've selected someone experienced in managing a commercial enterprise as well as someone who's built links with other industrial partners outside France," says Byron Callan, aerospace analyst at Merrill Lynch in New York. He is highly ambitious - a prerequisite for anyone going head-to-head with Boeing in the commercial aircraft business.

Industry insiders say that Mr Forgeard previously had his sights fixed on the top job at Thomson-CSF, Europe's biggest defence electronics company. Marcel Roulet, chief executive of Thomson-CSF, is set to retire early next year, and Mr Forgeard figured that if Lagardere acquired a big stake in that company, he'd be the choice to run it when Mr Roulet left.

That possibility evaporated when Lagardere lost out to Alcatel-Alsthom, which with Dassault Industries won a piece of Thomson-CSF from the French government for assets they're moving in Thomson-CSF.

But with revenues of more than $9bn (pounds 5.3bn), Airbus is the bigger venture. And even with the challenges ahead in creating a new structure, the group has plenty to boast about. Since its inception 28 years ago, Airbus has grabbed 30 per cent of the market for commercial aircraft.

It's not yet clear whether Mr Forgeard, as managing director of Airbus, would preside over an expanded Airbus, or whether a holding company would be created above the Airbus level.

Emmanuel Dubois-Pellerin, an analyst with Standard & Poor's, says Mr Forgeard's appointment to run Airbus is encouraging. "He's the right person at the right time, and one of the few people who could speed up the process of restructuring."

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