Tuesday, September 06, 2011

Solution sought to ‘German problem’ of EADS (European Aeronautic Defence and Space)

September 6, 2011 8:26 pm
By Gerrit Wiesmann in Berlin, Chris Bryant in Frankfurt and James Boxell in Paris
Financial TImes

The German government’s relationship with European aerospace group and Airbus parent EADS at times seems comically vexed. This spring it took delivery of a second-hand A340 as an official aircraft, only to have its proud ownership marred by a burst tire and other teething problems.

Such troubles pale beside the frustrations of Berlin’s so far fruitless hunt for a German investor willing to take over a 7.5 per cent stake in EADS from Daimler. The carmaker controls 22.5 per cent as the counterweight to a similarly sized stake held by the French government and media group Lagardère – a bulwark against French statism and a guarantee that jobs will not wander from Germany to France.

One way to preserve the prized “Franco-German balance” will be for Paris, which owns 15 per cent, or Lagardère, which owns 7.5 per cent, to match Daimler’s move. But German and EADS officials say neither want to sell now for fear of injuring national pride, or stirring unions – especially with a French presidential election next spring. “We have been told very clearly this is a German problem,” says a German government official.

But the political nature of EADS is discouraging German investors from stepping up. Another government official calls the trawl “hopeless” and adds that Berlin is preparing its “fall-back option” of state-owned bank KfW buying the stake. That would also put KfW first in line next year to buy another 7.5 per cent, owned by a group of banks, although voting rights are still with Daimler.

Part-nationalisation is viewed with distaste by Angela Merkel’s coalition of conservative Christian Democrats and free-market Free Democrats. But as Daimler can simply sell its stake to France instead, Ms Merkel’s Christian Democrats see the “KfW-option” as the lesser of two evils.

While some Free Democrats concede that this is the most likely option, they insist that a search for a German private investor continues – for the company’s good as much as the party’s liberal mantra.

EADS officials have long said that state involvement in EADS has held back their efforts to make a big acquisition in the US.

Purported government influence was also a factor in the successful lobbying by US rival Boeing to win a recent multibillion-dollar contract to supply the US with tanker-aircraft.

As the German official says, direct Franco-German government stakes totalling 22.5 per cent – and possibly even 30 per cent before the end of 2012 – will “not make EADS’ marketing job any easier”.

Also, KfW can spend up to €2.5bn ($3.5bn) for 15 per cent of EADS only to be stuck with the stake. “If there are no German buyers now, why should there be any German buyers later?” the official asks.

In answer, Berlin is dusting off plans to create what it calls a “more sustainable” shareholder structure, which will allow Germany and France freely to sell stakes into the open market if they so wish.

Ms Merkel and Nicolas Sarkozy, French president, four years ago looked at “golden shares” for both governments. All sides could have cut stakes while keeping a say over strategic assets. But the plan failed, so all involved claim, as the Netherlands, where EADS is incorporated, bans golden shares.

The call to turn EADS into a “normal company” has since been taken up by Louis Gallois, its chief executive. This summer he publicly said it was high time to reform EADS’ shareholder structure. The company needs “a solution that is sustainable in the long term”, possibly including a bigger free float.

Mr Gallois and his senior advisers are looking at ways of securing the interest of France, Germany and Spain, which owns 5.5 per cent of EADS, without recourse to golden shares. A company official says alternatives are being explored, though these are “thinkable but complex”.

But the German and EADS officials see no chance that the French government or Lagardère will commit to a scheme before the presidential election – “and beyond that, it’s anybody’s guess”, one says.

Mr Sarkozy backed the golden share initiative, but some German observers believe France’s inclination to retain a strong influence over industrial policy remains as firm as ever.

If a Socialist were to succeed the conservative Mr Sarkozy, the chance of Paris paring its stake would be slimmer still.

Lagardère, on the other hand, is long believed to want to sell its 7.5 per cent stake quite quickly after the election, a move that would allow Daimler to shed its remaining 7.5 per cent, too. But chairman Arnaud Lagardère recently told a French newspaper his company would keep its EADS stake until the success of the new A350 was “totally assured” – a certitude that could take until 2014 to appear.

Berlin’s vexations with EADS look set to last some years yet – even if its A340 is now getting fixed.

http://www.ft.com

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