WI: Dassault-Aerospatiale Merger in 1997?

[TheKutKu]

In the second half of the 20th century, successive French governments had repeatedly tried to acquire control of Dassault. Notably, in 1981, following Mitterand's election, the socialist government attempted it, but effective lobbying, fears of disrupting the company's effectiveness and Marcel Dassault's preemptive offer of 26% of his own shares to the French state allowed the company to get off lightly, indeed, despite the state having a plurality of shares (46%) and a majority of voting power (54%), an oral contract had been passed that gave private shareholders a controlling majority of the board of director, and so of the company, no matter the State's ownership of the company. Another tough time for the company was in 1992, when discussions of an Aerospatiale merger were held, but Dassault avoided it thanks to the sale of 60 Mirage 2000 to Taiwan, a renewal of said oral contract, and the predictable victory of the French Right in 1993, which was against it.

Things were different in 1996-1997, by then the french military ~five-years-plans had fully caught up to Peace Dividends,conscription was ending, and the trend worldwide was for great defence and aerospace consolidations.
French president Chirac went on TV in february 1996 announcing his desire to create a "great aircraft manufacturer" by merging Aerospatiale and Dassault, with an eventual goal of a privatisation of the consolidated company, the public announcement gave additional weight to this deal, and for most of the next year, the merger was widely believed to be inevitable. Nevertheless negociations were hard with the entirety of Dassault's management and unions against the merger, a well timed belgian arrest warrant against Serge dassault preventing him from leaving France made his position weaker. Despite the familly's immense ressources, by early 1997 a decree had been passed to proceed with the merger, and Alain juppé had made his goal to have it finished, and the resulting company privatised before the planned 1998 legislative election; The signatures of the first accords for the merger were even set for late April
However the April 1997 French parliament dissolution and the slim victory of Socialist Lionel Jospin in the following snap elections threw a wrench in the whole process, postponing the merger and more importantly, Jospin was against the "eventual privatisation" and was not satisfied with the terms of the merger.

Indeed, just like how the Boeing-McDonnelDouglas merger favoured the later, or more relevant to this AH, the later case of Aerospatiale's merger with Matra in 1999 which favoured the later and its Lagardere group, it was widely reported that the Dassault-Aerospatiale merger could have been very beneficial to Dassault.

Spoiler: Some quotes about the deal

"At the time, we unions were against it, as was Serge Dassault. Looking back, it's likely that with only 25% of the capital, he would have had control of the group. He didn't understand this at the time: for him, control meant 51%. Jean-Luc Lagardère, on the other hand, saw the point." Vincent Lamigeon in Challenger, 2013

"Juppé and Dassault had agreed, orally, on an incredible deal: it valued Dassault in very advantageous proportions compared to Aérospatiale [25%-33%, vs an expected 15% based on valuation alone], exempted the aircraft manufacturer from wealth tax [very important for Dassault familly..;], gave guarantees on the rents paid by the company to the Dassault family on the premises, assured him of the future privatization of Aérospatiale.... In short, it was unthinkable for us to take over this agreement." quoted from PS-era Defence ministry, Alexandra Schwartzbrod in Liberation, 1998

"As Serge Dassault requested, Dassault Aviation's integrity has been preserved. The manufacturer will retain a significant proportion of its design offices. Above all, the "military aircraft" and "business aircraft" operating centers will remain within Dassault Aviation, an autonomous operating center in the same way as Eurocopter SA within the defense-space-helicopter branch. Dassault Aviation will be 100% controlled by Dassault-Aerospatiale.
From a legal point of view, a group with a supervisory board and management board has been chosen. Serge Dassault will head the Supervisory Board - at least until his 75th birthday - and two of his close relations will be among the five members of the Management Board. The eventual privatization of Aerospatiale is a guiding principle, but not the prerequisite desired by Serge Dassault." JEAN-PIERRE NEU in Les echos, 1996

"Michot boss of Aérospatiale? What good news for the Dassault clan! At a time when the government is attempting to create Europe's leading aerospace group by marrying the Airbus and Rafale manufacturers, the "family" has renewed hopes of placing its representatives in key positions in a group destined to generate sales of 60 billion francs. But with Louis Gallois, there was no real hope. Charismatic, a tough negotiator and not very friendly to the Dassaults, the enarque would have done anything to thwart their ambitions. But Michot, a discreet weapons engineer, placed for nine years in the shadow of two successive chairmen, Henri Martre and Louis Gallois, and unknown to the industrial gotha... Here was a man Serge felt capable of winning over.
What's more, he's known him for so long! Their first meeting dates back to 1975. Michot, a 34-year-old polytechnician and technical advisor to the French Ministerial Delegation for Armaments, had come one day to ask about the on-board computer for the Mirage 2000. He gave Serge Dassault, then head of the Group's electronics division, a "Mr. President". Since then, the two men have been on first-name terms. This is normal. Throughout his career, Yves Michot has never ceased to rub shoulders with the famous tribe. It was he who defended the launch of the Rafale in 1978, when he was working in the office of Yvon Bourges, Minister of Defense. Two years later, he was in charge of the Mirage 2000 program at the technical department for aeronautical programs. And for the past four months, he has been working on the merger of the two groups with Charles Edelstenne and Bruno Revellin-Falcoz, the two vice-presidents of Dassault. Pressed to put an end to the merger, the government could hardly have found a better expert on the family business.
But what next? Will Yves Michot be the "Monsieur Personne" the Dassault family seem to be counting on? Some believe so." Marc Nexon in l'Express, 1996.

Eventually negociations floundered under the Jospin government, the pressure of the larger european aeronautical consolidation made the government give up, and instead gave its 46% share in Dassault to Aerospatiale ( a share Airbus would then have until 2016).

So let's say the 1997 Parliament dissolution isn't called, or the Right wins it as polls predicted, how do you think this merger (and if it's the later, the absence of Jospin, although he'd probably still come to power if the elections happen as anticipated in 1998) would affect the French and european aeronautical industry at such an important time of consolidations?
Would that earlier privatisation of Aerospatiale make the then-planned integration with DASA easier? Or could the weight of Dassault make the german write Aerospatiale off for the time being and focus on the BAe merger in "EADC" (the first iteration of EADS)? What would be the effect on the A3XX and FLA (A400M projects?) There are lots of potential effects.


Thanks for your answers.

 

[H_K]

Nice post. It’s been so long that I’ve forgotten a lot of the context… what was the rationale for the merger? Was it just a backdoor way to privatise Aérospatiale?

 

[TheKutKu]

Nice post. It’s been so long that I’ve forgotten a lot of the context… what was the rationale for the merger? Was it just a backdoor way to privatise Aérospatiale?

Among other things, yes, the earlier 1993 attempt at privatising Aérospatiale (shortly after Balladur's election) had not gonethrough due to a failure to recapitalise the company enough, the company having consistently poor balance sheet, a merger with Dassault, which had a positive one was considered attractive.

For other reasons: A stronger company to defend against american investments; having a stronger French industry leader ahead of what was seen as inevitable European aerospace merger (and Dassault wasn't seen as an exception, most people then agreed it'd eventually be absorbed too), especially at a time where negociations with Daimler/DASA (1995-1996) were not going well.

France was relatively late at its post cold war MIC reorganisations. Chirac quickly cut down procurement budget as soon as he was elected, aggravating a crisis in the defense industry, there were much reasons to consolidate the industry at a national level in a shorter term than the european consolidation.

I imagine that the interim period after the merger and before the privatisation would have allowed some ministries and state agencies to finally reorganise Dassault like they wanted but couldn't because of the agreements giving up their voting power on Dassault, the familly's lobbying and connection having worked hard to keep their independence.

 

[Hood]

An interesting scenario and one that reminds us how turbulent the late 1990s/early 2000s were for the aviation industry across Europe.

Part One - Matra
One change would probably be that the 1999 Matra merger doesn't happen (which I assume was a Plan B to the Dassault merger not coming off?).
Matra had already formed 50% of Matra BAe Dynamics in 1996 . Matra BAe Dynamics took a 30% share in German company (and Airbus subsidiary) LFK in 1997 and in 2002 merged with the remaining half of what became Aerospatiale Matra Missiles and the missiles division of Alenia Marconi Systems to create MBDA.
Matra had also formed a 51% share of Matra Marconi Space in 1989. In 2000, it was merged with the space division of DASA to form Astrium (later EADS Astrium). GEC had wanted to merge with the space divisions of Aerospatiale and DASA as early as 1995 and talks with DASA again in 1998.

Possible paths if Dassault-Aerospatiale merge (what I'll call DA-AE for brevity): Matra throws in its lot with MBAe Dynamics and MBDA forms as historical but possibly earlier, by 2000. GEC makes an offer to DA-AE to buy its space division in 1998 following the merger. Perhaps with the privatisation plan the French government sell up to form a tri-national Astrium with GEC/Matra/DASA. After all in 1999 Aerospatiale had divested its satellite business into Alcatel Space. This then would leave DA-AE as a purely aviation business.

Part Two - BAe & DASA
The BAe-DASA merger. Talks were going well in 1998 and indeed both companies split the UK and German assets of Siemens Plessey Systems the same year. But BAe had always had a close eye on GEC and when they put Marconi Electronic Systems up for sale in December 1998 they switched targets - partly to deny US buyers.

Had BAe set up with DASA it would have left MES outside their orbit. Matra BAe Dynamics may never have been able to partner with Alenia Marconi Systems (which itself was only formed by Marconi and Alenia shortly before GEC sold Marconi) to create MBDA in the form we know it. It may have stalled at being Matra-BAe-LFK.
Matra Marconi Space merged with DASA - its possible that depending on who brought MES that it may have merged MMS with the DASA's space interests (BAe having divested its space activities to MMS in 1994) and thus forming Astrium via a roundabout route.
Of course had MES gone to a US buyer then it would have knocked out any chance of Astrium being formed. Perhaps DA-AE would have cooperated with BAe-DASA to form a different Astrium which would have been much more rocket-focused with DASA providing any satellite expertise, perhaps DA-AE would not have followed the Alcatel Space deal and instead kept its satellite division in-house and merging it with DASA's activities. Certainly any Astrium in this scenario would be an Franco-German affair (BAe having little skin left in this game).

For profitability though, I think BAe made the right choice in going for MES. BAE Systems has never looked back. DASA couldn't offer as many opportunities and were weaker financially. Yes there was potential for closer Eurofighter development but DASA's commercial aircraft sales were as ropey as BAe's and their helicopter programmes were much closer aligned to Aerospatiale's given that both companies had already formed Eurocopter in 1992. Had BAe-DASA merged then its possible that Eurocopter would have brought Westland Helicopters in 2000 instead of Agusta (although Westland was always closer to Agusta given their shared Sikorsky licencee history).
It's equally possible that Eurocopter may have formed a bridge between DA-AE and BAe-DASA to come together as EADS.

Part Three - EADS
The formation of EADS would have been different. BAe and DASA were keen. Aerospatiale always seemed less keen to merge and not until it merged with Matra did it really consider doing so. Perhaps it felt it lacked enough breadth/depth to compete directly without additional sectors under its belt. DASA having been snubbed by BAe in 1998 talked with Aerospatiale and then CASA came on board in 1999 and EADS was on the cards.

I still feel that if Dassault and Aerospatiale had merged that BAe would follow the MES prize over DASA - BAE Systems became the largest European defence contractor, and it was good for Europe in denying US penetration, if MES had gone American then a large slice of European system and space technology would have been beyond European integration. On the other hand Dassault was barely keen to merge with a fellow national company let alone a foreign one. I feel that Dassault would be a brake on the DASA talks. Certainly Dassault/BAe/DASA are likely to clash on military aviation - letting Rafale become an in-house sister programme to Eurofighter would be unthinkable to them. A lot of French political sweeteners might have been required. The other path is that DASA getting fed up with Dassault leads CASA back to BAE Systems and EADS is formed on a BAE-DASA-CASA basis with Matra providing the missile/space links. Of course an EADS built around BAE Systems probably means forgoing its historical North American penetration to the same extent so the result today would be a slightly different set up.

This could open the way for a Dassault-Aerospatiale-Thales link up circa 2000 to rival BAE Systems (EADS) which with the Thales/DCN Armaris collaboration includes shipbuilding too. (Presumably if BAE Systems formed EADS then it would in time have divested its shipbuilding arm perhaps?)

Lots to ponder in what is a very complicated period.

 

[Archibald]

How did I missed this thread, I have no clue. Not much to add, except Dassault would resist it to the very end. Never growing too big, never surrender control to a bigger fish, keep on with the closely knit family driven structure, plus a few trusted key people like Charles Eldestenne and a few others. That's how Dassault always worked, and still work.

 

[uk 75]

Dassault survived in a way which similar UK companies like Hawkers and Handley Page did not.
Even McDonnell Douglas finally got absorbed by Boeing.
This thread is very instructive.

 

[alertken]

We today have successful cross-border Aero-business entities, but in late-90s, fewer. A pioneer had been VFW-Fokker, which failed. Project-specific JVs abounded; the logic of their extension (say, Panavia to become Aeritalia/BAC/MBB Co) lapsed against...personalities, in business and in Govts. Todays actual outcome was not crafted by some genius Consultant, but was much the way most of us team up with the life-partner...as the first to say Yes. I think Hood, #4 is right: I think BAe made the right choice in going for MES. By sheer luck.

In 1998 DASA and BAe. were talking. DaimlerChrysler really did not want to be in Aero; BAe. did not want to be only in Aero.
The Management Academic/Consultancy fad of the day was that touch labour was dull, money was in Integration..Systems, not boxes.
Defence was passe, the future was in volume - BAe. had already embraced the Future is Orange in mobile (cell) phones. They had tried to buy/merge with GD, MDC, Boeing, all abortive (Boeing publicly seeing BAe. as "not an attractive proposition")*. Then McKinsey persuaded GEC that the way to re-run success under L Weinstock was to move from screen to content, so to ditch Defence boxes.

GEC's boss L Simpson till then had been tilting head-on at BAe., where he had worked with its boss Sir Dick Evans. They sorted a deal.
Look now at BAES Annual Report,2021: Sales:£21.310Bn.; Revenue: £19.521Bn.
Sales by Domain: Air 55%; Maritime 24%; Land 16%; Cyber 5%.
Sales by Destination: US 43%; UK 20%; KSA 12%; Australia 4%; Other 21%.
Sales by Line of Business: US Govt 48%; UK et al Govts 39%; Commercial 13%.
Air Sales by Line of Business: Typhoon 27%; F-35 14%; Tornado (RAF £0) 13%; Hawk 2%;
Defence Electronics 24%; Commercial Avionics 4%; Weapon Systems 12%; Other 4%.

Minorities inc GW: MBDA is spectacular: no one of its National Units had successfully developed a multiple of concurrent products. Now behold the benefits of modularity...and of specialisation. No-one there has any sense of B-Team...as was norm when Dynamics was also-ran to Magnificent Flying Machines. So BAES is doing fine, thank you.

So are Airbus SE, Leonardo S.p.A. And because they are still Independent, so is Dassault. French Ministers may choose to review whether National Interest is served by such duplication as in FCAS/SCAF/NGAD..but the way we are right now is of unprecedented profitability.

(*amended 1800 8/6: the Boeing merger contacts ended 6/2003; BAES/GD ended 22/10/03; a later effort was BAES/EADS, ended 10/10/12.
BAe. had tried to buy/merge with MDC, ended 1/8/97, and with N.American Div/Rockwell, ended 12/96 - Boeing bought both).

 

[TheKutKu]

Thanks a lot for these answers, it’s a really complicated period with lots of shady deals, almost overwhelmingly so.

Part One - Matra
One change would probably be that the 1999 Matra merger doesn't happen (which I assume was a Plan B to the Dassault merger not coming off?).
Matra had already formed 50% of Matra BAe Dynamics in 1996 . Matra BAe Dynamics took a 30% share in German company (and Airbus subsidiary) LFK in 1997 and in 2002 merged with the remaining half of what became Aerospatiale Matra Missiles and the missiles division of Alenia Marconi Systems to create MBDA.
Matra had also formed a 51% share of Matra Marconi Space in 1989. In 2000, it was merged with the space division of DASA to form Astrium (later EADS Astrium). GEC had wanted to merge with the space divisions of Aerospatiale and DASA as early as 1995 and talks with DASA again in 1998.

Possible paths if Dassault-Aerospatiale merge (what I'll call DA-AE for brevity): Matra throws in its lot with MBAe Dynamics and MBDA forms as historical but possibly earlier, by 2000. GEC makes an offer to DA-AE to buy its space division in 1998 following the merger. Perhaps with the privatisation plan the French government sell up to form a tri-national Astrium with GEC/Matra/DASA. After all in 1999 Aerospatiale had divested its satellite business into Alcatel Space. This then would leave DA-AE as a purely aviation business.

Not exactly Plan B
-Jospin government tried first a Aero. merger with DASA in mid 97, then a second attempt at rapprochement (but not merger) with Dassault in early 98;
-Aérospatiale direction was more against the Matra merger than with Dassault a year before ;
-At Matra by 1998, Lagardere’s ambitions were weakened by his failure to buy Thomson, and, at least according to T. galdaut’s EADS book; were limited to buying Aerospatiale’s missile business before continuing integration with BAe (and finnmecanica) on Missiles. At least until the government (particularly socialist defence minister Alain Richard’s Cabinet) gave him his support for his quasi-acquisition of Aerospatiale through a merger.

But I yes I don’t see Matra merging with this Aérospatiale, they’d be one of the loser of the A-D merger, since they were already in a difficult period at the time IRL by that point with few major contract since the 1992 Taiwan deal. Their weight in a "MBDA" would be lesser than IRL

—
One other thing that would change is that Noel Forgeard, being from Matra and well supported by the company and its connections, would be very unlikely to become Administrator of Airbus (then CEO) after Jean Pierson’s retirement.


According to the book I mentioned before, Alternatives that were considered for the french (and traditionally Aérospatiale-) held seat of Administrator was Jean Francois Bigay, "founder" and director of Eurocopter who was favoured, but Yves michot disliked him for having competed for Aérospatiale CEO in 1996, if Michot has been effectively sidelined by dassault (like he would later have been by Lagardere) this could be the "default” alternative.

Yves michot was also interested in the seat himself, but lacked support. Maybe Serge Dassault could support his Airbus bid to be able to put a Dassault loyalist in place of his seat back in Aero-Dassault?

Other names included Alain gomez (former Thomson CEO) and Jean Peyrelevade (Crédit Lyonnais ceo with background in Aérospatiale), neither were at Aérospatiale but they had some political supports (and DASA at the time favoured a non-Aérospatiale director)

Certainly Dassault/BAe/DASA are likely to clash on military aviation - letting Rafale become an in-house sister programme to Eurofighter would be unthinkable to them. A lot of French political sweeteners might have been required.

Wouldn’t these roadblocks result in an agreement to proceed with Civilian aviation integration in priority and put off military aviation European integration to later? Dassault would have to loosen its grip on its Falcon business but D-A would have a larger weight in the resulting european civilian aviation venture. Such a deal would probably not be appreciated by the Germans. This may also significantly delay the A-400M and A330 MRTT.

The BAe-DASA merger. Talks were going well in 1998 and indeed both companies split the UK and German assets of Siemens Plessey Systems the same year. But BAe had always had a close eye on GEC and when they put Marconi Electronic Systems up for sale in December 1998 they switched targets - partly to deny US buyers.

Beside BAe and the Americans (lockheed and Northrop), Thomson was also interested in MES, and it seems the Thomson-MES purchase was preferred by some in the Blair government.

Then Thomson undervalued MES by more than £1 billion compared to BAe (6 vs 7.7 billion), and it seems it was because the Jospin government (French state had plurality share in Thomson) had prevented Thomson from bidding over that price, correctly predicting that BAe purchasing MES instead would ruin the merger talks with DASA.

There would still be a preference for a british buyer of course, but if the French government (maybe under someone else) had not weighted in (maybe if A-D/DASA merger talks are much worse off) BAe May have had to Purchase Marconi at a higher price or under different circumstances.

I’ll keep thinking more about it

 

[Archibald]

Forgeard and Peyrelevade are familiar names to my ears. Forgeard career took a (very) bad turn a decade ago but I can't remember the circumstances (either A350 or A400M having very bad times, or Clearstream political shitstorm)