Europe Seeks to Rival US Defense Giants

The leaders of Britain, Germany, and France are urging their defense and aerospace industries to join together to challenge America's dominance.

Last week British Prime Minister Tony Blair, German Chancellor Helmut Kohl, and French Prime Minister Lionel Jospin called for an effort to provide an alternative to companies such as Boeing, Lockheed Martin, and Raytheon, which are poised to dominate Europe's defense market.

The joint statement received a swift, but conditional, welcome from major European weapons and aircraft manufacturers. The strategy, analysts say, will depend heavily on a plan to make Airbus Industrie, which builds highly successful long-haul civil airliners, the basis of a centrally managed European conglomerate producing military aircraft.

Airbus is jointly owned by four national companies: British Aerospace, Germany's Daimler-Benz Aerospace, France's Aerospatiale, and Spain's Casa. Past attempts to bring them more closely together have failed because they see each other as rivals.

Welcoming the initiative, Sir Richard Evans, the chief executive of British Aerospace, said the joint statement "confirms and reinforces the urgent need for a restructuring."

A statement by Daimler-Benz was more cautious, noting that much would depend on measures to assist integration. "The politicians need to support us by harmonizing tax policies, social policies, and military-procurement policies across Europe," the German corporation said.

Air industry analyst Adam Jones says integration across national frontiers will be "crucial" to meet the challenge posed by American aerospace companies. A change in the ownership and management structure of Airbus Industrie is essential, he says.

"The merger of Boeing and McDonnell Douglas is a sign of the scale of the American challenge," Mr. Jones says. "As post-cold-war defense budgets continue to shrink, the European industry absolutely must work closely together."

European governments are also likely to pool national resources in building the Eurofighter, the military jet that will equip European air forces in the early 21st century. Plans call for the Eurofighter to be built by a consortium of British Aerospace, Daimler-Benz, and firms in Italy and Spain. Jones says the consortium should be turned into a single corporation under a central management.

American companies currently enjoy economies of scale because of their huge size. They have enormous resources to spend on research and development.

European companies have been reluctant to undertake large-scale joint research and development.

The London-based Economist magazine recently called the European industry "a fragmented jumble of national champions."

France, for example, is well ahead in production of its own Rafale fighter-bomber, produced by Dassault Aviation. Sweden's Saab, which has produced military aircraft for decades, is building its own new warplane, the Gripen. As well as equipping their own air forces, both countries hope to sell these planes abroad.

An indication of the size of the problem European companies will have to overcome can be seen in the global market shares of their American rivals. According to the publication Defense News, last year Lockheed Martin, Boeing, and Raytheon together accounted for about 47 percent of global defense revenues.