Airbus Takes a Hard Look in the Mirror

The Boeing Company's announced mega-takeover of McDonnell Douglas Corp. is posing the biggest air-industry challenge the European Union has yet had to face.

Since 1969, European governments have backed Airbus Industrie, a commercial-jet consortium spanning four countries. Now they are asking: Can we get our act together in time to meet the challenge?

The planemakers, too, are wondering whether the politicians will to lend them the muscle they say they need to help them compete with the Americans.

Airbus executives have reacted to the news of the $14 billion deal with a mix of apprehension and determination.

While Airbus has captured more than 30 percent of the world market for civilian aircraft, to hold its place and grow it would "have to become a coherent company, and stop being a club," says one executive at member firm British Aerospace.

The Airbus "club" currently consists of Daimler-Benz Aerospace (DASA), British Aerospace, France's Aerospatiale and Dassault companies, and Spain's Casa. From its headquarters in Toulouse, France, it has fought its way into world passenger-plane markets with high-quality jets that sell to carriers around the world.

As it is currently structured, Airbus is incapable of the kind of concerted effort needed to compete successfully with the combined resources of Boeing and McDonnell Douglas - including the worldwide marketing effort that will be part of the operation, says DASA chief Manfred Bischoff. Airbus, he says, must move quickly to turn itself into "a streamlined, integrated company with a broad product range."

Member-nation rift

What it has not done, critics argue, is consolidate the member nations' efforts into a single, tightly managed commercial entity owned by investors. At present Airbus designs and sells aircraft that partner companies cooperate to build.

Earlier this year, the Airbus partners agreed in principle that a profit making company would operate better in world markets, but they ran into trouble when they tried to decide what shape the company should take. France is holding out for partner companies continuing to own their factories. Britain and Germany argue that Airbus Industrie should take over the manufacturing base.

By taking over McDonnell Douglas, which is strong in defense manufacturing, Boeing, whose main clout is in passenger planes, will pose a double threat to Europe's aerospace industry.

Defense spinoffs

Commercial aircraft manufacturing often benefits from defense spending, because the government defense spending defrays research and development costs. A merger with McDonnell would triple Boeing's defense business, increase its access to public funding, and strengthen Boeing's ability to cross-subsidize civilian aircraft.

Signaling that political alarm bells were already beginning to ring in Brussels, a spokesman for the European Commission said it was vital for US regulators to take the impact on Europe into account when scrutinizing the Boeing-McDonnell deal.

There are clear indications, too, that the US will be taking a close interest in how Europe responds to the takeover.

For some years, American planemakers, with government backing, have complained that Airbus enjoys state subsidies that have been the basis of its rapid rise. More such handouts would be bound to raise American hackles still further and heighten political tensions between Brussels and Washington.

For now, what's clear is that one competitor is plenty for Airbus to deal with.

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