Merger collapse: bad for both BAE and EADS

BAE Systems Typhoon FGR4

BAE Systems Typhoon FGR4. Photo Credit: Flickr/Ian D

By Douglas Barrie, Senior Fellow for Military Aerospace, and Alexander Nicoll, Director of Editorial

National political constraints have caused the collapse of the planned merger of two of Europe’s main aerospace and defence companies, EADS and BAE Systems.

The deal foundered despite what the two companies said was the ‘sound industrial logic’ of the proposed deal. Following negotiations involving the British, French and German governments, the two companies said on 10 October: ‘It has become clear that the interests of the parties’ government stakeholders cannot be adequately reconciled with each other or with the objectives that BAE Systems and EADS had established.’

They had intended to create a company with the size and spread of the US’s Boeing, centred around the Airbus civil aircraft maker but with a strong presence in the global defence manufacturing market. This, indeed, had been the goal of different British, French and German governments as long ago as 1997. On that occasion, an all-British defence merger got in the way of a plan to create a European aerospace and defence champion.

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A defence dream born out of necessity

Copyright Eurofighter/Eurofighter Image Library

Alexander Nicoll, Director of Editorial, wrote an opinion piece in the Financial Times on the possible merger of aerospace companies EADS and BAE Systems.

EADS and BAE Systems are currently in talks to join forces – a deal Nicoll says is driven by a decline in western defence spending. In Europe, future production runs for aircraft are likely to be small. EADS and BAE both have business interests in other defence areas, but they can get a better ‘global market clout’ by making a combined attack on remaining budgets. The US market will remain an important source of business, and the Asia and Middle East will also be key markets in which the merger will help. But as Nicoll points out, there will be challenges for the resulting body – both from declining defence budgets (including potential additional cuts to the US armed forces), and from the merger itself, which will need to meld two different corporate cultures. ‘EADS is itself a case study in how difficult and time-consuming such a process can be,’ says Nicoll.

Read the full article here.

Strategic Survey: The Annual Review of World Affairs 2012

Strategic Survey 2012

The Strategic Survey 2012: The Annual Review of World Affairs

By Alexander Nicoll, Editor of Strategic Survey 2012: The Annual Review of World Affairs

Journalism is said to be the first draft of history. But as an ex-journalist, I know that it’s a pretty imperfect draft. The IISS publication Strategic Survey: The Annual Review of World Affairs may immodestly claim to be a better stab at a first draft – trying, as it does, to impose some order on the events in a 12-month period.

The fruit of this year’s efforts will be published on Thursday. This is the seventh time that I’ve edited the book, rather fewer than the late Sidney Bearman, who was the editor for 24 years until 2001. Each year presents a challenge to the editor: trying to cut through the enormous melange of things that happen all over the world and to present a picture of how they intersect. What is important and what is not? What trends can be discerned?

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Myanmar comes in from the nuclear cold (almost)

Myanmar Defence Minister Hla Min made headlines yesterday with his announcement that the country had abandoned all nuclear activity and suspended military cooperation with North Korea.

‘This is a good news story’ Mark Fitzpatrick, the Director of the IISS Non-Proliferation and Disarmament Programme, told Alexander Nicoll, and he sketched out the background to international concern about possible nuclear proliferation in the country. However, he also cautioned that the General’s comment that was no need for the IAEA to visit Myanmar as there was nothing to inspect was ‘the wrong answer.’

IISS Strategic Dossier: Preventing Nuclear Dangers in Southeast Asia and Australasia

Chicago moves ‘Smart Defence’ forward

US President Barack Obama throws a football during the NATO Chicago summit. White House photo Pete Souza

By Alexander Nicoll, IISS Director of Editorial

As defence budgets are being reduced, the NATO Alliance faces the prospect of a significant weakening of its collective capacity to ensure security for its members. But closer coordination on what to keep and what to cut could significantly mitigate the effect of spending cuts by individual allies. Decisions taken at the just-completed NATO summit in Chicago represented an encouraging step towards improved cooperation.

Leaders pushed forward the Smart Defence initiative of Secretary General Anders Fogh Rasmussen in several ways. They approved a ‘Defence Package’ designed to advance the three strands of Rasmussen’s plan: prioritisation, cooperation and specialisation. The last of these is especially sensitive because it could involve countries deliberately dispensing with particular capabilities and relying on others to provide them on operations – thus raising issues of sovereignty.

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US ‘pivot’: what it is and what it’s not

President Barack Obama and Prime Minister Julia Gillard before soldiers and guests at the Royal Army Air Force Base in Darwin, Australia, Nov.17, 2011. (Official White House Photo by Pete Souza)

By Alexander Nicoll, Director of Editorial

The United States will remain perfectly capable of carrying out its commitments as a member of the NATO alliance as it rebalances its global military posture in line with the ‘pivot to Asia’ announced earlier this year. This was according to Leo G. Michel, from the Institute for National Strategic Studies at the US National Defense University, during a IISS meeting in London yesterday.

Michel said common interpretations of the ‘pivot’ strategy had not done it justice. In fact, the shift to greater attention towards Asia was not new, and changes begun by the George W. Bush administration were being carried through. What was being done was a re-examination of security arrangements with specific countries, such as Japan and South Korea where the US already maintained substantial forces. The outcome would be to move around some military assets, to increase them in some parts of the region and reduce them in others. US Marines would be rotated through Australia, littoral combat ships would move to Singapore, and there would be closer military ties with the Philippines.

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Greece: one more step towards stability

Christine Lagarde, Managing Director of the International Monetary Fund, and Lucas Papademos, Greek Prime Minister (Photo: The Council of the European Union)
By Alexander Nicoll, Director of Editorial

Step by step, the eurozone debt crisis is being dealt with. During the market hysteria of the second half of 2011, the very survival of the euro as a common currency seemed to be in doubt. That is not being questioned today. The €130bn bailout deal reached in all-night talks by Greece, its fellow eurozone members, the International Monetary Fund and private creditors is one more step towards stability.

For months, it seemed that governments were fumbling in the face of the crisis that was engulfing them. If Italy and Spain had been forced to join Greece, Ireland and Portugal in needing rescue finance, then the consequences for the euro and Europe would have been severe. But, as the IISS wrote in a recent Strategic Comment, a combination of measures has eased the tensions:   changes of government in Greece, Italy and Spain; a ‘fiscal compact’ agreed by 25 European Union members, holding the promise of greater harmony in economic policies; and the European Central Bank’s injection of unlimited three-year finance into the banking system.

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Keeping the euro limping along

By Dr Dana Allin, Senior Fellow for US Foreign Policy and Transatlantic Affairs; Editor of Survival

Survival, in my arguably biased view, has offered excellent coverage of the eurozone crisis. Two mainstays of that coverage joined me today for a panel at the IISS London headquarters. The first was Erik Jones, Professor of European Studies at the SAIS Bologna Center of the Johns Hopkins University, founding director of the new Bologna Institute for Policy Research, and a Contributing editor of Survival, whose latest piece on the subject, ‘Italy’s Sovereign Debt Crisis‘, is in the current issue. The second was Alexander Nicoll, IISS Director of Editorial, and a former Financial Times journalist, wrote a piece in the previous issue called ‘Fiscal Union by Force‘. Both speakers argued that Europe’s leaders, while hardly solving the underlying crisis, have done enough to keep the euro limping along. In providing massive liquidity to European banks in particular, the European Central Bank under Mario Draghi has accomplished by the back door at least part of what the eurozone needs in the way of a lender of last resort. None of this is sufficient to restore EU self-confidence and dispel the spectre of a Japanese-style lost decade. But it may head off a kind of sovereign-debt apocalypse. The full discussion is well worth watching.


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