Defensive posture

EADS can't move if it doesn't change. But can it?

France was foolish to insist on keeping an important stake in the defence group to be formed by the merger of EADS and BAE. But the deal was bound to fail either way if Germany didn’t want it in the first place. It looks like this is the real explanation of the collapse of talks. And, that illustrates yet again that the Franco-German maker of Airbus is not a company that can fly by itself, due to the skewed, politicised governance it has been saddled with since its inception 12 years ago.

Initial doubts about the deal stemmed from the longstanding Franco-German obsession with shareholding parity. Discussions bordered on the ridiculous when it was suggested that Berlin’s concerns might be assuaged by proceeding with an oft-mooted plan that state-owned bank KfW buy a stake equivalent to that of the French government’s.

But Chancellor Angela Merkel’s real objection seemed to be that EADS was about to make a major foray into the defence business, which has no appeal for Germany. That’s probably where the real fear lay: the backbone of European defence — both from a policy and business perspective — is a UK-France axis, recently reinforced by serious cooperation on military budgets. Berlin doubtless feared becoming marginalised in a more defence-oriented company.

The only way EADS can dream of resurrecting the defunct merger idea is to become a company with normal shareholders — albeit one that governments watch more carefully, due to its nature. This would require, over time, a gradual shrinking of the public stakes, dissolution of the current shareholder pacts, and trust in the management’s choices in terms of factories and jobs. In other words, just what the merger’s fathers had planned. Tom Enders, the EADS chief executive, must keep at it, building on the progress he has already made in that direction. If this is the main problem, he could envision the same deal again in a year’s time.

But if Germany really doesn’t want to have anything to do with the long-term goal of building some kind of durable European defence industry, EADS might want to start looking in another strategic direction.