Business World

Sunday 17 December 2017

Tables turned on British as airline merger grounded

BRITAIN has long been the fly in the ointment when it comes to Europe, so it must have caused a few wry chuckles in Berlin and Paris when the tables were turned and the continentals pulled the plug on the EADS and BAE Systems merger -- apparently ending hopes of the world's biggest ever defence industries merger.

BAE Systems has always needed this merger more than EADS and it is the British company that will struggle following the collapse. Shares in BAE fell yesterday and most analysts expects EADS to begin rising in the days ahead.

Still, investors might be advised to wait a few days. Brinkmanship is common in European negotiations and EADS was itself only created after talks about its structure collapsed and were then resurrected weeks later. There are good long-term reasons for creating a defence company that can work together to sell weapons at a time when defence spending almost everywhere is declining.

The merger was always a risky project and there was always a danger that a mega-merger would poison relations between the three countries for some time just as disputes over EADS poisoned Franco-German relations for many years.

While short-term political expediency brought down the deal in the end, there was certainly an industrial logic; it is many years since Europe produced a first-class weapons system. A bigger company could have helped to turn around Europe but it could also have met Michael O'Leary's description of the British Airways tie-up with Iberia: "Two drunks propping one another up at the bar."

Britain is so used to pushing Europe around inside the EU that there seems to be universal surprise in London that the Germans and French did not even bother to extend the deadline for the talks, but the Germans and French are changing. There is a ruthlessness in Berlin these days that suggests the Germans are tired of being pushed around by almost everybody. It seems that Michael Noonan is not the only one learning the hard way that Germany's patience is running out.

Indo Business

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business