Airbus Shares in Dassault Aviation

Airbus have confirmed they are now actively looking to divest themselves of their 46% shareholding in Dassault Aviation.

With increasing defence cooperation with the UK and the intent of BAE to merge with EADS now ancient history would it make sense for BAE and Dassault to consider an increasingly closer relationship?

The two are already working on the joint French/UK FCAS unmanned combat aircraft study, the fit there is an obviously good one.

Would there be value in such a closer relationship.

Taranis taxiing at Warton, Lancashire unmanned
Taranis taxiing at Warton, Lancashire unmanned
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Mark
Mark
August 11, 2014 8:06 am

Mentioned that should be a consideration a few weeks ago on another thread. So yes I would think that’s sensible

Simon257
Simon257
August 11, 2014 8:14 am

Who owns the other 54%. And how much does the French Government own?

Rocket Banana
August 11, 2014 8:19 am

No. Not a good idea. Keep them separate. Maintain the competition. Just don’t be too proud to not buy Dassult (and vice versa).

The Other Chris
August 11, 2014 8:22 am

Dassault Group

The Other Chris
August 11, 2014 8:29 am

Don’t think of Dassault and BAE being good competition for each other, think of BAE/D as good competition to Boeing, Northrop Grumman and Lockheed Martin with General Atomics looking as a willing international partner.

Mark
Mark
August 11, 2014 8:34 am

If you want to a European defence aerospace industry continue then there has to be consolidation. If not well be buying US aircraft from here on in. Considering dassualts biz jet markets and the increasing use of those platforms in various special mission fit outs they seem ideal pair.

Simon257
Simon257
August 11, 2014 8:58 am

@ TOC

Thanks for that. As long as the French Government don’t have any shares in the Company. Then these two joining up would be a good idea.

If the F-35 goes south, convert both CVF’s to CTOL, get BAE to buy Dassault, and all of a sudden the Rafale M is a British Fighter!

I’ll get my hat!!

wf
wf
August 11, 2014 8:59 am

Dassault have repeatedly proved themselves unwilling to be in any collaboration in which they are not in charge. Leave them be producing their 12 Rafale a year.

Nick
Nick
August 11, 2014 10:10 am

I’m with ; this just isn’t possible to do.

In theory a merger of the two into a combined business (probably with SAAB as well) to create a large and fairly diverse European military business to complement Airbus would probably make some sense. However, it would only work if the combined business was properly market capitalized to be truly independent like Boeing/LM etc (which Airbus isn’t yet) and the French government was willing to step a long way back.

Its a given that all French governments (of the left or right) are centralist and seek to ensure French national champions exist as a matter of policy (and now has an even stronger focus on maintaining French employment levels – even if it isn’t the best solution for the business as a whole eg Airbus) I can’t see any international business wanting to get involved with Dassault.

The fact that EADS found BAe more interesting merger partner that acquiring the remainder of Dassault shows just how toxic French appears to be. Its probably more likely that the French government will seek to engineer a French national champion by a merger with Nexter group (and DCNS ?). I imagine its the Dassault family stake (and their political association with UMP) that has stopped this from happening.

. Since I can’t see this happening any time soon,

Nick
Nick
August 11, 2014 10:23 am

The FT’s view from earlier this year:

http://www.ft.com/intl/cms/s/0/d31c96b0-4625-11e3-b495-00144feabdc0.html#axzz3A4qXOxaa

They suggest Thales of Safran groups are likely beneficiaries of any Dassault group break-up

– Thales’ major shareholders are the French state (27.0%) and Dassault Aviation (25.9%).[19]
– Safran is c 30 % French government owned

Mark
Mark
August 11, 2014 10:26 am

” combined business was properly market capitalized to be truly independent like Boeing/LM etc (which Airbus isn’t yet) ”

That’s the funniest comment I’ve heard in a long time. Boeing and Lm are up to there neck in American government funding. You must be American nick

Ps TD 8×9 on a Monday morning I’ll need a spreadsht soon.

Nick
Nick
August 11, 2014 10:46 am

Mark

and so is BAe, Cassadian, Dassault, and every other Defence dominated business in the world. The difference is that the UK government doesn’t support BAe regardless and is happy to see UK armoured vehicle industry (and ? soon military ship building) disappear to be replaced by better value for money overseas purchases or let to ownership of UK assets go overseas.

The difference is the French government would find a way to support its industries, through nationalization, providing cheap overseas financing, political lobbying, etc which is something the UK government doesn’t seem to be able to do at all. The Franc/Indian deal around the Rafale contract is a prime example surely ?

The US seems to sit somewhere between these two extremes; there are certainly no US government direct shareholdings or complex intra-business cross holdings like you see in France. Airbus seems to be transitioning from being heavily state owned into a more minority position with Germany, France and Spain retaining national stakes albeit in a minority position. My impression is the Germany government wouldn’t sell its stake in Airbus unless the French did too (and it won’t to maintain French manufacturing sites).

Rocket Banana
August 11, 2014 11:07 am

“If you want to a European defence aerospace industry continue then there has to be consolidation”

Utter rhubarb ;-)

That is a classic self-fulfilling prophecy. It implies that there is no room for smaller companies and leads to the notion of two corrupt (usually) multinational giants. The only way out of the loop is to make sure there is grass roots competition at all levels.

I’m not for one minute suggesting it won’t happen. All things that “Feed the Need for Greed” seem to happen. It’s just that it shouldn’t. HMG should start funding quite the opposite. Only then will they realise just how slow moving (and expensive) these huge corporations are in comparison with a medium sized and relatively agile business.

Hohum
Hohum
August 11, 2014 11:25 am

Dassault, a sinking ship that’s full of shit and someone’s nicked the oars. Don’t touch it with a barge poll.

monkey
monkey
August 11, 2014 11:30 am

BAE wins £1.1bn order for 66 Hawk jets from India (24 built here the rest under liscence in India)
http://www.dailymail.co.uk/news/article-194814/1-billion-order-BAE-jets.html

Nick
Nick
August 11, 2014 12:06 pm

Simon

Isn’t that the quandary at the heart of Defence procurement ? Just how many European 8×8 AFV designs/manufacturers are there (I can think of 5 without trying) verses the total potential Market ?

The trade off between best value for money, local provision, competition in the defence sector gives rise to these quandaries. We are about the enter an era where the only FJ on the western market will be the F35. How much easier would it be if we just had 1 European offer instead of 3 ?

There’s no satisfactory answer to this question, but it would be nice if the UK had another option once the Typhoon assembly lines shut down for good…The European Son of Tarantis (which will probably be a BAE/Dassault/Cassadian co-design) isn’t going to hit the assembly lines before 2030 surely ? How do we maintain European manufacturing competency between 2020 and then ?

Without federal European defence procurement, doesn’t a considerable proportion of national expenditure end up delivering nothing of defence value (except national employment).

The Other Chris
August 11, 2014 12:22 pm

I’d support fewer manufacturers if there was also a return to military research establishments. Feed more innovation from (grant assisted) smaller and self-funded larger companies / individuals into a couple of major production line companies.

Chris
Chris
August 11, 2014 12:26 pm

TOC – see https://www.thinkdefence.co.uk/2014/08/story-fres-summary/comment-page-1/#comment-303163 for a slightly different take on recreating the research establishments.

The Other Chris
August 11, 2014 12:40 pm

Timely. Thank you :)

Nick
Nick
August 11, 2014 12:44 pm

Chris

if only life was that simple…common sense seems to have been eliminated from our government and civil service. Probably needs a McKinsy report recommendation on the back of a $100 million investigation. (mind you I suspect this is mostly due to misunderstanding management consultants reports in the first place).

By the way, isn’t your preferred solution pretty much what the French have been doing (or did I mis-remember somebodies explantion I read somewhere on the site ?)

Chris
Chris
August 11, 2014 12:56 pm

Nick – as I understand it the VBCI project deliberately forced tripartite sign-off of all significant decisions, so that there were no surprises downstream. It also forced decisions to be made at the right time and with the knowledge of all sides. But I assume it was still a supplier/customer business arrangement with all the audits and arguments – generally over who pays – that such arrangements create. That said, the DGA seem to have been pleasantly surprised at the advantages in cost schedule and expectations that even this small step provided. My arrangement goes much deeper; in essence creating a business entity bounding all that work on the project no matter to which organisation they belong.

Observer
Observer
August 11, 2014 12:58 pm

One very interesting idea I had was that the “little man” cannot compete with the big national/multinationals in terms of manufacturing. This puts them at a disadvantage, even if their design is light years ahead of the competition. If the MoD were to establish production facilities “for loan”, especially with new CNC tech providing flexibility, they might have a chance of getting really new innovative designs into service without getting throttled at birth. In essence, this is a bit of a throwback to government owned arsenals like the old American Springfield or the Royal Armoury (?).

In reverse, they can sell the design to the army and leave the army as the sole manufacturer, and let the government do foreign sales if they are interested. This might also provide the army with a supplemental source of income not dependent on budget fluctuations.

Chris
Chris
August 11, 2014 1:00 pm

Obs – ref “sell the design to the army” – my designs are very expensive…

Although the idea of a Government ‘build-to-print’ workshop does have merit.

monkey
monkey
August 11, 2014 1:05 pm

How would a tie up with Dassault effect BAE’s work with American companies? We work on quite a few joint projects which could dry up if the US gov gets the jitters of BAE sharing technology with the French ( someone remind me how the Russians got such a plane as the TU-144)

Nick
Nick
August 11, 2014 1:17 pm

Chris

with a deeper relationship between procurer and supplier, don’t you end up with group think and a narrowing of ideas which has the opposite effect to the one you’re trying to achieve ? (for example in an internal meeting I might well disagree with my boss – much to his annoyance – whereas in a multi-party meeting I would certainly keep my mouth shut even if he was talking complete rubbish).

I appreciate and agree with the thrust of your idea though. In theory a project team needs to be just that and not a collection of individuals representing their own corporate interests.

All major projects ought to be subject to value for money and project audits, although I doubt whether there is actually enough relevant expertise available (in say the NAO) to do this really effectively in reality. I think “lessons learned” exercises are most valuable to the individuals involved rather than the corporate entities themselves. I suspect that key roles are staffed by too many short timers who rotate onto other projects/roles these days (on both sides of the government/commercial fence).

Peter Elliott
August 11, 2014 1:26 pm

Isn’t the ACA a good example of co-operative working? And how about the MBDA / Complex Weapons partnership?

Granted we had to go through a whole pantomime to get to the former situation. But it seems to work. And one imagines Type 26 will be built under a similar arrangement.

Would such an ‘Armoured Vehicle Alliance’ deliver the sort of co-operative approach that we are after?

Chris
Chris
August 11, 2014 1:47 pm

Nick – I would prefer a situation where audits are unnecessary because of real-time project visibility. Audits are necessarily hostile affairs – “we do not believe you have been honest with us” – that build resentment, mistrust and partisan attitudes.

Peter – I am far outside the ACA so cannot determine if it is as cooperative as I think business could be or not. But if MOD decide only to cooperate with the same three or four huge international corporations to which they normally give business, then a huge potential will be passed over. Indeed, my mental picture of the cooperative is much more fluid than a contracted formal alliance.

Nick
Nick
August 11, 2014 2:05 pm

Chris

It wouldn’t surprise me that government audits are hostile affairs, but the Corporate financial audits I spent a large chuck of my career doing were rarely hostile or unfriendly. I fondly recall the few instances where I had cleared everything in my written summaries with the clients staff and their boss only to find that they disagreed with just about everything when both their and my boss was in the room.

I have sat and tried to audit year 1 or 2 of more than one 500 million 10 year PFI projects, where it was completely obvious that the scoping had been royally screwed, the PFI project was going to make a loss, but it wasn’t that clear just how much (as you might expect being an auditor isn’t always a popular place to be). Strangely, no matter how obvious this was, there was a reluctance to accept the facts by management (and usually some form of disagreement between the contractor and HMG on what exactly was supposed to be happening). In my limited experience, this usually ended up with a scope and pricing renegotiation after a couple of years combined with some rearranging of management deck chairs. I have seem quite a few corporate/corporate projects go the same way.

Rocket Banana
August 11, 2014 2:59 pm

A government cannot simply go and buy the most cost-effective capability. It has to think about a number of other factors (e.g. local jobs, production, raw materials, etc). So although I appreciate that at a corporate level it makes sense for BAe and Dassult to combine, it makes no sense at all from a national defence procurement stance.

I’m happy to reconsider if we decide that defence should fall under the EU with everyone submitting 2% GDP and procurement done en masse, but as it stands a European aerospace industry can only be sustained through civilian commerce.

I will however yield to ToC’s idea (which he stole from me) about regenerating the military research establishments ;-)

The Other Chris
August 11, 2014 3:13 pm

No theft of IP from Simon or Chris intended! Must have been subconscious thing :s

Frenchie
Frenchie
August 11, 2014 4:01 pm

Dassault is two years of backlog, and still counting 180 Rafale France which 130 have already been delivered and the last 50, which will be delivered until 2020. The group is in a bad position.
I think Airbus is 6000 aircraft Unfilled or 8 years of production, so we will have to build factories. Eurofighter aircraft from Airbus, it’s still 650 aircraft for 7 countries.
But there is one agreement between Airbus and the French state, which Dassault Aviation is a provider of strategic military equipment, made June 21 2013, provides that the State may exercise, in case of Airbus would consider sell all or part of its Dassault Aviation shares, a right of first refusal and a right of first offer.
The French State will have a say in this potential transaction.

Nick
Nick
August 11, 2014 4:21 pm

Frenchie

isn’t it more like 200 Typhoons (mostly/all ? Tranche 3)

mrg
mrg
August 11, 2014 4:43 pm

@ wf: “Dassault have repeatedly proved themselves…”
Be so kind if you would and define “repeatedly”.

@ hohum: my goodness, what a profound and considered response.
In excess of 2800 fighters (Vmax > Mach 1) delivered. More than 1800 Falcon business jets delivered. They authored CATIA. If you don’t know what that is, just do a web search.
You’re right, somebody is full of shit. But not Dassault.

@ Monkey: “How would a tie up with Dassault effect BAE’s work with American companies?”
The Yanks are more worried about the Taiwanese giving stuff to the Chinese than they are about the French giving stuff to the Russians. France has better AWACS planes than does the RAF- and it’s all American sourced.
With regard to the Tu-144, just go read something……

Mark
Mark
August 11, 2014 4:55 pm

Nick all defence companies or strategic tech firms have government “golden shares” you ain’t gonna see Northrop Grumman bought over by a Chinese firm at market rates now are you. Congress ain’t to happy when overseas aircraft of better capability win contracts it thinks boeing should have so they re-run the competition till they get the right answer.

mrg “They authored CATIA” yep and should shot for enoiva!

If you insist Simon but are totally barking if you thing medium companies will be responsive and develop low observable Ucavs in the future. Europe can afford to develop one next gen tactical aircraft end of story saab are already in bed with Boeing, its merge or were buying american imo

Frenchie
Frenchie
August 11, 2014 5:07 pm

Nick, yes 650 aircraft in total, excuse me.

Rocket Banana
August 11, 2014 5:09 pm

Mark,

Perhaps I’m just trying to turn back time to pre-BAC.

How much do Airbus spend on conceptual design, detailed design, prototypes, testing, and manufacturing/process optimisations respectively? Then look at how much the many, many middle tier management layers consume and waste in salaries. The “do-ers” represent only a small proportion of these huge PLCs…

…the reason I’m happy to back the idea of the defence research establishments again. Pay the do-ers and thinkers and lose the profiteers and shareholders.

Mark
Mark
August 11, 2014 5:23 pm

I’m my experience those company that are government owned or governmental tend to have much more middle managers than private companies. Design Integration, assembly and certification tends to be more and more what the big companies do, much of the work packages post the definition phases are farmed out as design/build packages to a number of medium companies.

Reports on TSR makes grim reading for those that think design by the ministry of aircraft production is the way fwd. right a requirement stick to it and then let a company deliverer to that requirement without interference.

Rocket Banana
August 11, 2014 5:35 pm

write a requirement stick to it and then let a company deliverer to that requirement without interference.

You see, this is where I disagree with the procurement strategy.

Yes, it’s certainly a way of doing it, but I work in software and to button down all the “requirements” means you effectively write the code within the spec. Compare this with agile software development where you work with the customer and can morph the final deliverable as you go.

Much better to work with the customer explaining that they can have 80% of what they want for 20% of the money if they make a concession here and there. So instead of a sub 30 tonne, armored troop carrier with a 40mm gun at 100% cost I deliver a sub 30 tonne armored troop carrier and a sub 30 tonne armored 40mm gun for 40% of the cost. I could pick other examples where jack-of-all-trades simply doesn’t work and/or costs the Earth in the air and sea arenas too.

So that means a close knit union between those that understand the true requirements (including a prioritised list of concessions that can be made) and those that can deliver a solution without always thinking of the shareholder’s pockets.

Mark
Mark
August 11, 2014 6:40 pm

Well you don’t write the requirement without talking to you manufacture to see what is technically possible and visa versa the joint concept definition phase. What you don’t do is say I want an aircraft that can deliver 20tns to stop in 6500ft seating 6 abreast and then decide half way dwn the line now I want it to carry 30tns and land in 4000ft for example. Or say I want turbofans then turn round and say no no I want props.

As for software being agile, well if its agile you need to start doing engineering software because at the minute it utter crap for agility, never does what the engineers want it to without clicking extra button and were I am we are for ever doing workarounds to bluff the system because they made it far to “clever” for its own gd. At one point the system simply wouldn’t release parts because the spaces in the text it was generating was in the wrong font!!

wf
wf
August 11, 2014 6:43 pm

@mrg: sure!

– AFVG (wanted prime for FR)
– Jaguar (accepted 50/50, then did it’s best to kill exports in favour of selling Mirage)
– Lynx (only 30% FR content as part of deal where Puma was 70%, refused to help in exports)
– Eurofighter (successfully delayed for half a decade, then pulled out once Rafale was ready to run)
– A400 (refused to consider US engine, delayed project 5 years)

etc, etc

Pte. James Frazer
Pte. James Frazer
August 11, 2014 6:47 pm

There’re a few business models that might work, not least the motorsports and pharma industries, both of which the UK are rather good at.

Each uses an SME model (ref Desmond Morris about optimal great ape society organisation) employing highly talented & highly driven and rewarded individuals working in small teams with limited internal bureaucracy working to tight deadlines. They either compete directly with each other in the case of motorsport or for capital in the case of biotech.

Both industries use rapid prototyping and live and die on Darwinian principles. The trend in big pharma is now to ‘outsource’ the early stage R&D either literally or in the case of GSK to mimic it. UK defence aerospace used do by like it in the bygone era before consolidation. Maybe small production volumes and rapid evolution is the way to go. Traditionally seen as inefficient, but not if you waste $£€ billions on R&D perfection in a rapidly evolving sector,

So my thesis would be to use these principles at a European level to run SME accessible competitive design & technology demonstrator competitions. The ‘SME’s’ might be the existing teams from the large national champions, cross-over businesses like Ricardo or spinouts from academia.

Government(s) need to facilitate this with a level playing field i.e. no prejudice and equal access to whatever cash is being offered.

Consortia would naturally form to take a prototype through to a production standard. Then the winning fullt developed and tested design gets offered for license production to all national champions i.e. Dassault, BAE or government owned factories etc. thus preserving local jobs and the strategic production base as politically deemed necessary at national level. The decision whether to subsidise that element would rest with national politicians.

Rocket Banana
August 11, 2014 7:33 pm

Mark,

I used to write software for high-speed telemetry and control systems. I suppose in that case the “spec” is simply physics which tends not to be adaptable ;-).

However, the implementation of, for example, a flight control system could start with simple 2nd order control modelling with situational damping coefficients and drift somewhere towards a learning AI system. The latter being more expensive. The interface could be simple overlaid instrumentation (al la HUD) or a 3d retinal projected system allowing a pilot to see through the airframe with augmented reality.

The thing is that there is a yin and yang between both ends of the spectrum which become hurdles only when you come to them. So for example, the problem might be that for particular fields of view there is no way to derive 3D info so we can’t do the stereoscopic imagery.

None of this has required a spec (so far). If simply requires me to work with you and for us both to understand each other’s requirements and budgets (both time and money). My prototypes are actually fully working systems and the solution evolves as it goes. It requires a software engineer that studies aeronautics and the converse within the customer’s organisation.

Sorry to hear that the fonts are messing things up. Caps, spacing and padding are the usual culprits for poorly defined interfaces, which generally have to be well defined, which is why I’m banging on about top-down definitions on the FRES thread.

Mark
Mark
August 11, 2014 7:48 pm

Simon

Interesting stuff and those sort of tweaks go on in any design process but fundamentals remain, your clients didn’t come a long and say see the way you’ve wrote that in c++ could you do it java instead within the original budget and schedule please.

Hohum
Hohum
August 11, 2014 9:02 pm

Talking of BAE, they are earning a paltry $80 million from divesting their South African business to Denel.

Rocket Banana
August 11, 2014 9:05 pm

Mark,

C++ to Java… I’ve got some code to do that :-)

Dangerous Dave
Dangerous Dave
August 12, 2014 10:42 am

@Mark, @Simon: What you say is all well and good in the Software development biz, but in manufacturing most of the R&D, prototyping etc. requires physical representations of the device, not *everything* can be 3D/CAD modeled.

In the software field an evolving spec only requires modules to be rewritten (programmer time) and unit testing (QA time). In manufacturing you are talking about design time (CAD), re-tooling, re-prototyping, safety testing and stress testing of new components (including destruction tests) and then certification and QA.

It’s much more complicated to do all the “agile manufacturing” stuff when you are producing physical objects, rather than just virtual objects (software/data). This is why 3D printing has gained so much interest, as it takes the prototyping/QC/Testing/Integration phase of components and dramatically shortens it.