The long-deferred announcement that Finmecanica and GKN are finally proceeding with the merger of their helicopter units, Agusta and Westland, is a significant step in the consolidation of Europe's defense and aerospace industry.
However, beyond the immediate advantages it may create for the two companies, the merger will just as significantly complicate European cooperation in the field of helicopters and, on a larger scale, is another step towards the ultimate emergence of two opposing industrial blocs in Europe : France, perhaps with Germany, on the one hand, and Britain and Italy on the other.
At face value, a link between Agusta and Westland is both obvious and overdue. The two companies are used to working together, have a very good jointly-developed product in the EH-101 heavy helicopter, and have complementary product lines, with Agusta's mostly civil line fitting in well with Westland's military product range.
Together, the two companies also will offer a more credible competitor to Eurocopter, the French-German manufacturer, giving European governments - as well as civil clients - an alternative European supplier and thereby ensuring that no single company will achieve virtual or effective monopoly status in the single European market.
And, providing Westland brings to the table its treasure chest, the combined company will be able to invest in R&D to develop future products without having to rely, as is the case in Italy, on infrequent government contracts.
One problem that remains to be worked out is how large will be the Italian government's stake in the new company, and how it will be reconciled with the British penchant against any form of state participation in industry.
But there are other problems, however, due to Agusta's long-standing links with Bell (reinforced by last year's agreement between the two companies on the BA-609 tilt-rotor and the AB-139 utility helicopter) and to Westland's non-participation in the four-nation NH-90 program.
The latter is fairly straightforward : the NH-90 contract requires participating companies to approve the entry of a new partner in the program, and has stringent restrictions on the provision of program-related information to a non member. This will be an interesting subject for lawyers to look at," one industry official said Mar. 22.
Agusta's link with Bell provides similar concerns regarding competition, since it is unclear how Agusta will be able to keep separate its work with Bell on the AB-139 and BA-609 on the one hand, and with Eurocopter and Fokker on the NH-90 on the other hand, while tightening its ties with Westland.
A more important aspect is the possible emergence of an Anglo-Italian defense bloc.
After last year's merger of some defense units of Finmeccanica with those of GEC Marconi (which is now being taken over by British Aerospace), and last week's announcement of the Agusta-Westland link, Finmeccanica is now talking of merging some of its other business areas with those of British Aerospace, for example the two companies' Eurofighter business.
In a March 20 interview with the Italian financial daily Il Sole, Finmeccanica's Managing Director Alberto Lina said his company was in pole position for an alliance with British Aerospace, adding that "we are in a stronger position as we enter negotiations with BAe."
The fact is that Europe's true industrial prize is Airbus, in which British Aerospace has only a 20-percent stake (compared to almost 38 percent each for Aerospatiale and DaimlerChrysler Aerospace) and to which Italy does not belong.
The creation of a strong Anglo-Italian partnership in defense and aerospace is certain to be viewed with some misgivings in France, and possibly in Germany, and could push them close to each other in a defensive reflex.
And this would completely wreck Europe's long-standing dream of setting up a single European Defense and Aerospace Company around Airbus, to be able to compete on equal or near-equal terms with industrial giants in the United States.
The EADC has already been slowed by British Aerospace's decision to merge with GEC Marconi, rather than with a Continental partner, and by Aerospatiale's merger with Matra Hautes Technologies. Today, it is certainly no longer the political and industrial priority it still was as late as in July 1998.
It wouldn't take much to knock this project completely off the tracks, and the emergence of rival European industry blocs would be a good way of achieving this result. And, if this happens, the only winner would be U.S. industry.