Europe's bid to be arms giant: Is UK going own way?

A merger Tuesday created world's third-largest arms group. Boostfor US- chasing Europe - or another snub?

Europe's weapons companies are taking a bumpy road to creating an integrated industry able to challenge United States world dominance in arms sales.

As usual, the United Kingdom is marching out of step with its neighbors, who are angry at what they see as a British bid to seize a position of built-in superiority in the evolution of a pan-European defense industry.

Triggering the tension is an 8 billion ($13 billion) merger announced Jan. 19, between the UK's two largest arms manufacturers: plane and missilemaker British Aerospace (BAe) and guidance-systems specialists Marconi Electronics (until now part of Britain's General Electric Co.).

The deal will create the world's third-largest arms group, in terms of sales, after America's Boeing and Lockheed Martin. The merged company will employ 100,000 workers worldwide.

BAe and Marconi claim the merger is the first step in progress toward a much larger industrial coalition eventually to include major arms manufacturers in Germany, France, Spain, Italy, and Sweden. But the Europeans see it differently.

Until late last year it was thought within the industry that, as a first step, BAe would choose a continental partner rather than a British one.

It seemed likely, for example, that BAe would join forces with Germany's Daimler-Chrysler Aerospace (Dasa), and that Marconi would try to merge with France's defense electronics group Thomson-CSF.

Instead, after lengthy negotiations with its continental rivals, BAe opted to hook up with its smaller British sister company.

BAe chairman Sir Richard Evans, who will head the merged consortium, said Tuesday: "This deal represents an important step in the restructuring of the aerospace and defense industry in Europe. The combination of these businesses creates a company with unrivaled global reach, world-leading technology, and the strength to compete at all levels in the world market."

But Sir Richard's apparent belief that Europe's armsmakers would go along quietly with the merger was swiftly dashed. BAe-Marconi jolted European sensibilities on the need for cross-frontier cooperation.

Dasa said the deal made a merger between BAe and its own organization "impossible." A spokesman said: "This is not a European merger and it is likely to make the process of European integration more difficult."

Apart from Dasa and Thomson-CSF, the big continental European armsmakers are France's Aerospatiale, which built the Concorde supersonic airliner, Sweden's Saab company, which makes fighter jets, and the Spanish company Casa, a partner in the European Airbus project.

According to figures supplied by the US journal Defense News, the BAe-Marconi deal promises to give the merged British company global annual sales of about $32 billion, compared with $9.38 billion for Aerospatiale, $8.54 billion for Dasa, and $6.42 billion for Thomson-CSF.

BAe-Marconi appears to be calculating that its position will be so strong that continental rivals in the end will have no choice but to join in as comparatively junior partners.

Franois Heisbourg, a respected Paris-based military analyst, says the British linkup is "likely to prove a setback to European defense integration."

But officials at BAe-Marconi say they are counting on solid backing from the British government, which was in close touch with BAe and Marconi throughout their talks and seems unlikely to try to block or modify the deal.

Prime Minister Tony Blair and his ministers have made it clear that they are determined that Britain will play a leading role in the future defense of Europe, including arms manufacture and sales.

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