INTERVIEW-BAE sees just two or three global defence firms
By Bradley Perrett, European aerospace & defence correspondent
LONDON, Jan 30 (Reuters) - BAE Systems Plc <BA.L>, the world's biggest defence contractor, forecast on Tuesday that the industry could consolidate to just two or three transatlantic companies by the end of the decade.
Pressure to share diminishing defence budgets meant that consolidation in the industry was not over, despite recent waves of mergers in the United States and Europe, said Charles Masefield, the British company's group marketing director.
"We now have four mega US companies: Lockheed Martin <LMT.N>, Boeing <BA.N>, Raytheon <RTNa.N> and now, coming up, Northrop Grumman <NOC.N>," Masefield told Reuters.
"And we have three mega European companies -- BAE, EADS <EAD.DE><EAD.PA> and Thales <TCFP.PA>.
"A lot of people say we have arrived at a plateau. I say no, we haven't."
"But there will not be mergers of any of those four in the United States. And there will not be mergers of any of the three megas in Europe. The only way ahead is for transatlantic alliances and partnerships."
Transatlantic mergers between the seven companies might leave just two or three major groups within 10 years, he said, repeating remarks he had made to a defence industry conference here.
Not all of the seven companies need be involved, he said on the sidelines of the conference. Some might stand aside as the big transatlantic groups emerged.
TRANSATLANTIC CONSOLIDATION
The end of the Cold War 11 years ago led the U.S. government to encourage consolidation among its many defence suppliers.
Four really big groups -- the ones named by Masefield -- have emerged.
The process continues with Northrop Grumman's current deal to buy Litton Industries Inc <LIT.N>, a warship builder, but an earlier attempt by Lockheed to buy Northrop was blocked, suggesting that consolidation between the U.S. majors is over.
Europe's fragmented and nationalist defence and aerospace companies finally began consolidating in 1998, creating BAE, France's Thales SA and civil-oriented European Aeronautic Defence & Space Co NV (EADS), a pan-European firm.
"There are (still) too many companies chasing the available market," Masefield said.
European firms needed transatlantic mergers to gain access to U.S. defence spending, which far exceeded that of Western Europe, he said.
"The only real way to access that (the U.S. market) is onshore in the United States. America is not going to spend its defence budget by buying overseas."
BAE has already gained extensive access to the U.S. market, having recently built on its traditional role as a minor Pentagon supplier by buying businesses in the United States.
OBSTACLES
The mergers that Masefield described may not be straightforward, however.
Most countries are nationalistic about their military sectors, and the United States and France, in particular, have historically distrusted each other's defence firms.
The U.S. government blocked a 1992 attempt by Thales, then known as Thomson-CSF, to buy a U.S. missile business. More recently, Thales has sought U.S. market access through a joint venture with Raytheon on air-defence systems.
EADS is developing a relationship with Northrop Grumman while BAE and Boeing are already habitual partners, working with each other on many projects, especially for the Pentagon.
Masefield pointed to the precedent of civil aerospace consolidation, which has produced a market dominated by Boeing and Airbus [ARBU.UL].
"We believe at BAE Systems there will be fewer defence companies at the end of the decade than started it," the executive said.
"If you look at the way the civil market has gone, there used to be lots of commercial aircraft manufacturers. Now there are two.
"That shows the way." |
