Europe’s Non-Deal of the Century

BRUSSELS – As Europe picks over the ruins of the mega-merger that would have created a world-beating new aerospace and defense giant, questions are being asked about the inglorious role that the European Union played in the fiasco. The European Commission’s failure to champion the $50 billion merger of the Franco-German European Aeronautic Defence and Space Company (EADS), owner of Airbus, and the United Kingdom’s BAE Systems is being seen as a crucial factor in the deal’s collapse.

The integration of the two high-tech aviation and avionics leaders had looked like an EU-inspired blueprint for industrial success. For several years, EU leaders have been urging the consolidation of Europe’s defense industries, so the proposed deal – which originated in the corporate boardrooms of EADS and BAE Systems – looked like an answer to their calls. Yet both the Commission and the European Parliament kept silent and withheld the political support that might have ensured that the deal went through.

A timely reminder by EU leaders of the strategic importance of the aerospace sector would have helped allay many of the misgivings in Berlin, and to a lesser degree in London, that ultimately sank the deal. Aviation, like defense, is the sharpest of the R&D cutting edges available to advanced countries, and regularly produces key technological breakthroughs. Nationalist squabbles over the details of the merger would surely have been attenuated by a statesmanlike intervention from the Commission in Brussels.

It was therefore a bizarre coincidence that the merger’s collapse came on the day that the Commission unveiled its new industrial strategy for regaining Europe’s competitive edge in the face of Asian and North American competition. One of the most powerful arguments for the EADS-BAE marriage had been the expectation of industry analysts that within 20 years China will challenge Airbus and Boeing in the global aviation market, while also creating a powerful new defense industry. That scenario now looks all the more likely.