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MEGA-MERGER: BOEING, MCDONNELL DOUGLAS

Europeans See Deal as Competitive Peril to Airbus Industrie

December 16, 1996|JOHN-THOR DAHLBURG | TIMES STAFF WRITER

PARIS — A month after popping champagne corks to toast a mega-deal with an American airline, Airbus Industrie, the world's No. 2 builder of civilian airliners, suddenly finds the skies over the United States a little less friendly.

The merger deal announced Sunday by two of its U.S. rivals, Boeing and McDonnell Douglas, seems certain to create a gigantic, multitalented competitor that the Europe-based Airbus may find tough to go head-to-head with.

Uniting Boeing, already the world's leading aircraft manufacturer, with McDonnell Douglas will give it 200,000 employees, or five times as many as Airbus, and make it the world's largest aviation and aerospace company by far.

"Airbus will be dwarfed," Paul Beaver, a spokesman for Jane's Group, the London-based aviation industry publishing firm, told Associated Press.

Industry analysts said it is likely that Airbus, which had been talking about reforming its organizational structure and widening its product line to compete with the Boeing 747, would be forced to react quickly to avoid being swamped by the mammoth new American company.

On the merger itself, Airbus had no official comment. Spokeswoman Barbara Kracht called Boeing's $13.3-billion offer for McDonnell Douglas, which has yet to be approved by U.S. antitrust regulators, "something happening between two American companies."

In the quarter-century since its creation, the four-nation European consortium--looking like an Old World David challenging the American aerospace Goliath--has managed to carve out a 30% share of the world's airliner market.

At the beginning, Airbus had a single product to sell, the A-300, but it expanded to offer seven aircraft types.

The onetime upstart became such a potent commercial force that, during the first nine months of this year, Airbus sold 255 jetliners to Boeing's 316 and McDonnell Douglas' 25.

Last month, Airbus officials toasted a firm order from USAir to buy 120 single-aisle airliners, a deal worth about $5 billion, with options on 280 more aircraft. The French press enthusiastically reported the "historic order" from "a traditional Boeing client."

Throughout the year, however, there were repeated warnings from European aviation and government officials that Airbus had to change or risk being caught in the jet wash of its competitors and the realities of an increasingly cutthroat market.

In May, ministers from the Airbus consortium countries--France, Germany, Britain and Spain--agreed on the need to modernize the company, perhaps by privatizing it, and to develop a "super-jumbo" jet to compete with the planned successor to the 747.

"We have a common political interest in a competitive European aeronautics industry," said Norbert Lammert, coordinator for aviation in the German Economics Ministry.

Critics say Airbus' structure prevents it from being as competitive as it could be. Airbus was set up as an "economic interests group" by the European governments, with the major aircraft industries in the four member countries pooling talents while remaining independent. Airbus itself is responsible for the final assembly, sales and service.

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The partners are allocated work in accordance with their share in Airbus: 37.9% each for Aerospatiale of France and Daimler-Benz Aerospace of Germany; 20% for British Aerospace; and 4.2% for Casa of Spain. But opponents of this setup say it prevents Airbus from being as cost-effective as it could be because the principle of "fair return" bars the consortium from contracting work out to cheaper suppliers.

This fall, Airbus officials said they were planning to transform the consortium into a private company by the end of the century, and the Boeing-McDonnell merger seems certain to intensify the pressures to do so. As a private company, proponents of the change say, Airbus could drive down costs and compete more effectively.

Airbus produces planes ranging from 125-seaters, the A-320 and its A-319 and A-321 derivatives up to the four-engine A-340. It has been mulling over a project to build a 550-passenger "super-jumbo" jet.

U.S. officials and business leaders often charge that Airbus' success has come in part because of government subsidies. Airbus officials retort that they are repaying government loans at the rate of more than $700 million a year and that Pentagon contracts are a form of state support to U.S. rivals like Boeing and McDonnell Douglas.

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