Known as the "Father of
Airbus", co-founder Roger Beteille reminded his audience, gathered in a
vast new plane factory in Toulouse, how an industry once "devoted to
destruction" had become a symbol of European unity in the decades after
World War Two.
Only by "working hard together, hand
in hand", Beteille said, had the European firm's employees realised their
dream to create "the largest and best airliner manufacturer in the
world".
The meaning of the revered engineer's
message to Europe's feuding politicians and industry barons was plain:
cooperate with each other or lose what you have built.
Just two weeks before the ceremony - to
mark the start of production of the new Airbus A350 jet - talks between France, Germany and Britain to create a European
aerospace and defence giant bigger than Boeing (BA.N) had collapsed in acrimony.
Chancellor Angela Merkel, Europe's most powerful leader, had refused to back
the $45 billion merger between Airbus parent EADS (
EAD.PA) and British defence group BAE
Systems (
BAES.L), effectively dooming the deal.
Top officials in the German government
deflected blame, alleging discord between Paris and London over the size of the
French government's stake in the combined group.
But two confidential sets of demands sent
by the German government before and during the talks and described to Reuters,
as well as conversations with senior officials in Germany and France, confirm that the roots of
the failure lay far deeper.
The mega-deal fell apart because of
Berlin's growing resentment of what it saw as its loss of influence within
EADS, wariness about France - sometime rival, sometime partner - and suspicion
about the motives of the firm's German CEO Tom Enders.
"We already have an imbalance on
technology within EADS, to the benefit of the French. We didn't want to make
this situation even worse by hooking up with BAE," a senior German
official said.
For Enders, who in the months before the
BAE talks had come under acute pressure from Berlin to move prized Airbus
research work to Germany from France, the proposed deal with BAE was a
last-ditch attempt to free EADS from the yoke of government influence.
The deal's failure is likely to bring the
opposite result. Germany, emboldened by its growing stature in Europe, looks
set to push ever more aggressively for jobs, technological know-how and
management influence - as the French did to detrimental effect in the early
years of the firm.
Insiders say this could have disastrous
consequences for the company. Some fear it will also tarnish ties between
Berlin and Paris at a time when Merkel and French President Francois Hollande
must find common ground to solve the crippling euro zone debt crisis.
"The fight that is happening now over
Airbus is a grave threat," said an industry veteran with close ties to
EADS. "Going back to a situation where you have to argue at the board over
every industrial decision would be a disaster. That could really kill the company."
In the aftermath of the deal's collapse,
deep-seated tensions between Paris and Berlin have been exposed. The two are
already squabbling over Merkel's plans to centralise control over European
budgets. Germany is also increasingly sceptical about Hollande's readiness to
reform the French welfare state.
Enders declined to be interviewed for this
story. The German government, Airbus and EADS also declined comment.
POWERFUL SYMBOL
EADS was formed in 2000 through a merger of
France's Aerospatiale-Matra and Germany's Dasa, together with Spanish aerospace
assets.
The deal, unveiled by French Prime Minister
Lionel Jospin and German Chancellor Gerhard Schroeder in the border city of
Strasbourg, was hailed as a breakthrough for the fragmented European aerospace
and defence sector.
It gave Toulouse-based Airbus, the hugely
successful civil jet-making joint venture between France, Germany, Britain and Spain,
a dominant parent. And it was a powerful symbol, just a year after the birth of
the euro, of Europe's potential for industrial cooperation.
Its first decade brought major successes:
Airbus outsold arch-rival Boeing and launched the double-decker A380
superjumbo, the world's largest passenger plane.
But the company was also dogged by
infighting, as executives like Noel Forgeard, backed by President Jacques
Chirac, pushed for French domination and an end to the awkward dual
Franco-German management structure.
It wasn't until Enders was put at the top
of Airbus and Louis Gallois became CEO of parent EADS in 2007 that the healing
between the Germans and French could begin. By June this year, when Enders took
the top EADS post, the days of national strife finally seemed at an end.
Behind the scenes, however, German
politicians led by Peter Hintze, a theologian and close party ally of Merkel,
were deeply unhappy. Merkel's aerospace tsar believed the balance of power
within Airbus had been tilting toward France for some time.
First, the main A380 factory had been
placed in Toulouse. Then the planemaker's next-generation jet, the A350, was to
be built there in a plant named after Beteille. This would give French workers
many more jobs in the $15 billion project - up to 42 percent of the total work
when top suppliers were included.
In return, Germany negotiated the right to
build a successor to the best-selling A320 exclusively in Hamburg. But as
struggling airlines looked for fuel savings, Airbus decided instead on a quick,
modest revamp of the existing A320 with new engines. The so-called A320neo, to
be built in both Toulouse and Hamburg, proved a huge success and boosted EADS
stock. But in Berlin the triumph was bitter.
LIST OF DEMANDS
In November last year, Merkel's government
decided that it would purchase a 7.5 percent stake in EADS held by Daimler.
For years, the carmaker had held a 22.5
percent share in the aerospace group to counter-balance 15 percent held by the
French government and 7.5 percent owned by French media firm Lagardere. But
Daimler was eager to reduce its holding, seen as peripheral to its main auto
business, and asked for Berlin's help.
After failing to convince German firms to
take a look at EADS, the government agreed to buy the stake itself. With that
came a new determination in Berlin to rebalance power within the company in its
favour.
In late February, months before Enders
began merger talks with BAE, Hintze wrote to him with a list of demands that
threw Berlin's newfound assertiveness into stark relief.
In the letter, according to people familiar
with its contents, Merkel's ally noted that an imbalance had developed within
Airbus to the disadvantage of the German plants.
"This development is unacceptable to
the German federal government," wrote Hintze. "What is required,
therefore, is a reversal of the trend, and a restoration of the Franco-German
balance, particularly in research and development."
For Germany, this was a not just a battle
for jobs, but for know-how and control.
Among Hintze's demands was the relocation
of one of aviation's crown jewels, Airbus "Flight Physics", from
Toulouse to Bremen. The work carried out by scientists in the department -
located in "M-01", an iconic design office shaped like an upside-down
pyramid - dates back to Concorde. Its recruitment ads seek experts in
disciplines like aeroelastics, the science of how flags fly and wings flutter.
Hintze also insisted that a German be
appointed to the prestigious chief engineering post, and that the group responsible
for plane "structure" be relocated east of the Rhine. Hamburg, he
declared, must have full control over the A320's successor.
The icing on the cake was Hintze's request
for a one-for-one "balancing" of French and German Airbus staff from
the top down through the first five levels of hierarchy. Horrified EADS
executives said this would reverse a half-decade drive to rid the company of
national rivalries.
Enders fired back a toughly worded
rejection of Hintze's demands with the backing of the company's board, a person
familiar with the matter said.
"The division of labour should be
dictated by economics, not politics," Francois Heisbourg, special adviser
at the Paris-based Foundation for Strategic Research and a former aerospace
executive, told Reuters last month.
"Toulouse is a high-tech aerospace
cluster, the largest and most competent in Europe. You don't simply decree that
it all has to move to Germany."
AVENTIS ANGER
It was against this tense backdrop that
Enders took the reins of EADS and began serious merger planning in June.
One of his first acts was to move the
company's headquarters to Toulouse, ending the awkward split between Paris and
Munich that had existed for more than a decade.
The step was symbolic - a sign to investors
that EADS had overcome national divisions and was operating like a normal
company. Apart from his L-shaped office, strewn with souvenirs of Airbus's
global market conquests, the spartan white premises where Enders set up shop
remain mostly empty.
But in Berlin it was seen by many as
confirmation that France was bent on taking de facto control of EADS, aided and
abetted by a CEO who was placing the company above national loyalties.
Also gnawing at the Germans was the fact
they had been outmanoeuvred by France in previous cross-border endeavours.
Back in 1999, the merger of Hoechst and
Rhone-Poulenc to form Franco-German drugs giant Aventis was hailed as a model
of European cooperation. Underlining the point, some of the firm's top managers
were the children of French and German officers who had fought during World War
Two.
Just five years later, the French
government worked to help a smaller domestic firm, Sanofi-Synthelabo, take over
Aventis, as the shocked Germans looked on.
In 2011, after years of shifting former
Hoechst jobs from Germany to France, the company dropped all pretence, ditching
the dual name Sanofi-Aventis in favour of Sanofi, which it called "simpler
and easier to pronounce". A Franco-German project was now officially
French.
This was not the only example. Over the
years, Germany had watched in dismay as France intervened with industrial firms
like Areva and Alstom. Officials in Berlin vowed it would not happen again.
RADIO SILENCE
On July 25, 45 years to the day after
France, Germany and Britain authorized Beteille to start planning "the
airbus", Enders won the support of the EADS board to pursue the idea of an
audacious merger with BAE Systems of the UK.
The would-be deal was never given more than
a 50 percent chance of success, according to people on both sides. But
political hurdles were thought to be highest in France or Britain - two
long-term, fiercely patriotic rivals - or in the United States, where BAE's
status as a privileged foreign contractor might be questioned. Few expected
Germany to object.
The merger would create an integrated
aerospace and defence firm bigger than Boeing, and an undisputed European
champion with a strong presence in the lucrative U.S. market to boot.
Enders believed the ambitious nature of the
deal alone would help overcome any government opposition. By giving Germany,
France and Britain a "golden share" that allowed them to block future
takeovers, he also hoped they would agree to pare back their day-to-day
involvement in the firm - a dream that was dashed when the French insisted on
retaining their stake in EADS.
But the Germans, suspicious of Enders, wary
of French motives and already seething over waning influence within EADS,
smelled a rat.
Hintze was against the deal from the start
and wasn't shy about letting his bosses know. The 62-year-old Protestant pastor
from a small town on the Rhine river had got to know Merkel - herself the
daughter of a Lutheran clergyman - in the years after German reunification.
Their ties ran deep. He was among the first people she named to her team after
becoming minister for youth and family under Chancellor Helmut Kohl in 1991.
Seven years later she succeeded Hintze as general secretary of the Christian
Democratic Union CDU.L.
While the French and British quickly
appointed senior officials to oversee the talks and formulate a list of
"red line" demands, Berlin stayed silent.
In late August, Enders was due to accompany
Merkel on a trip to China - the perfect opportunity to talk the
deal through in person. But the thrill-seeking 53-year-old, a former
paratrooper who studied at UCLA in California, tore ligaments in his arm in a
hang-gliding accident and had to cancel at the last minute.
"Tom is good on strategy but not so
good on psychology," said a former colleague. "One very important
mistake was to miss the trip with Merkel."
Two weeks later, during the Berlin air
show, Bloomberg News reported that merger talks were underway, forcing EADS
into a mad one-month scramble to convince governments to back the deal.
Berlin finally delivered its own list of
seven conditions at the end of September.
Obtained by Reuters, it picked up where
Hintze's demands from late-February had left off. It called for key EADS radar
assets and Atlas Elektronik, an affiliated maker of submarine sonars, to be
ringfenced inside a new German company, two of whose directors must be
government-approved; it demanded balance between French, British and Germans on
the board and executive committee; no job losses for Germany; special voting
rules for strategic decisions; a German group headquarters and, crucially, full
research-and-development control over all single-aisle jets - the cash cow of
Airbus.
Enders wanted the deal badly and agreed to
all points but one: the German demand that he shift the operational command
centre of the combined firm from the freshly painted EADS headquarters in
Toulouse to Ottobrunn, outside Munich.
Still, Berlin would not budge. In the weeks
that followed, Merkel became convinced that if she let the deal go through, the
new company would run roughshod over German interests. She sealed the deal's
fate in a call to French President Hollande on the morning of October 9.
The unborn giant was buried with no name -
"Airbus" had been rejected by BAE - and unpublished plans to save 850
million euros were placed back in the drawer. In a final call, say witnesses,
Enders told BAE counterpart Ian King, "Let's stay friends".
BATTLE ROYALE
Almost a month later, EADS has moved to
contain any damage from its summer dalliance with BAE, touting business as
usual.
But the tremors sent by the failed deal
will be felt in Toulouse, Paris and Berlin for some time.
The relationship between Enders and the
German government, already strained by earlier feuds over a costly bailout for
the delayed Airbus A400M army plane, will be hard to repair.
The EADS chief is unlikely to ease off his
drive to rid the company of state pressure. Meanwhile, Germany is pressing to
buy even more shares.
In a paper sent to members of the German
parliament's budget committee last month, theeconomy ministry urged lawmakers to free up
2.65 billion euros to take Germany's stake in EADS up to 15 percent - on par
with France.
This could set the stage for a battle over
seats and influence on the EADS board. Already, Berlin is threatening to
withhold hundreds of millions of euros in loans for the A350. A shareholder
pact designed to balance French and German interests within the group poses a
legal minefield and could be another source of tension. .
"I don't know how the firm is going to
be able to manage given the tensions between the various shareholders,"
said Heisbourg of the Foundation for Strategic Research. "The Germans have
made quite clear that they are prepared to exercise their shareholder rights
quite aggressively."
Some in the industry believe Germany's goal
is to push Enders out to make room for someone more focused on German interests,
though aides to Merkel vigorously deny this. Others say the bigger risk is that
Enders becomes fed up and chooses to leave himself.
Regardless, many in the industry say that a
return to the uneasy status quo that existed before the BAE deal was floated
will be next to impossible.
With the dream of a European defence giant
dashed, the French could take another look at consolidating their own
fragmented sector, which includes combat-to-business jetmaker Dassault, and
Thales, Europe's leading defence electronics group.
Keen for a bigger slice of the massive U.S.
defence budget, EADS management may feel compelled to look outside Europe for
deals, although politics could get in the way again.
"I don't think we've seen the end of
this. We may have only seen the first stage," said Alexandra
Ashbourne-Walmsley, who runs a defence consultancy in London.
Most worrying of all, say European industry
sources, is the spectre of a political fight over the crown jewels of Airbus
that stokes dormant national rivalries and scares off investors. With no major
new projects on the horizon soon, the opportunities for redistributing jobs are
limited for now. But that seems unlikely to keep the Germans at bay.
By blocking the BAE deal, Berlin sent a
signal to its partners. It may be open to closer European cooperation, but only
on its own terms.
That has implications not just for the bold
planemaking project launched by Beteille and others in the decades after World
War Two, but also for the crisis-hit bloc as a whole. (Additional reporting by
Andreas Rinke, Gernot Heller, Jason Neely, Christiaan Hetzner, Arno Schuetze,
Sophie Sassard, Cyril Altmeyer, Emmanuel Jarry, Jean-Michel Belot, Andrea
Shalal-Esa, Alwyn Scott; Editing by Sophie Walker and Simon Robinson)
http://www.reuters.com/article/2012/11/08/uk-eads-airbus-idUSLNE8A700G20121108
