Ethnocentric vs. Regiocentric Consolidation in the Aerospace and

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Declaration I certify that the thesis I have presented for examination for the PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without the prior written consent of the author. I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party. 2
Abstract This thesis relies on realist and neo-mercantilist approaches to explain the consolidation of the US and European aerospace and defence industry during the second half of the 1990s. Based on two case studies, the Boeing / McDonnell Douglas (BMD) merger in 1997 and the EADS merger in 1999, the thesis analyses the different political and economic motivations that led these aerospace and defence companies as well as their respective home governments to pursue either ethnocentric consolidation (in the case of the US) or regiocentric consolidation (in the case of France, Germany, and Spain) strategies. The BMD merger is interpreted as an attempt by the American hegemon to ensure that the important military, economic, and technological benefits derived from this strategic sector continue to accrue, above all, to the United States and its aerospace and defence industrial base. The cross-border EADS merger, in contrast, is viewed as a Franco-German-led counterbalancing attempt to guarantee the survival and autonomy of the European aerospace and defence industry, including Airbus, in the face of growing competitive pressures from the rapidly- consolidating US mega-primes like Boeing. The thesis contrasts several high-profile transatlantic M&A deals in a variety of business sectors with the marked absence of similar transactions between US and European aerospace and defence companies. It thus highlights the strategic nature of this particular sector as well as American concerns about the proliferation of advanced US technologies to third countries, including to European NATO allies. Ultimately, realist and neo-mercantilist arguments prevailed over liberal-institutionalist / globalisation arguments among policymakers and business leaders on both sides of the Atlantic (especially in Washington, DC and Paris) – thus paving the way for the BMD and EADS mergers. 3
Page 1: THE LONDON SCHOOL OF ECONOMICS AND
Page 5 and 6: The final word of gratitude goes to
Page 7 and 8: 6.4 Growing US unilateralism and th
Page 9 and 10: EEA European Economic Area EEC Euro
Page 11 and 12: Chapter 1: The Aerospace and Defenc
Page 13 and 14: status vis-à-vis all potential cha
Page 15 and 16: The cooling in transatlantic relati
Page 17 and 18: Even though America and its Europea
Page 19 and 20: acquisition of MDC - the smallest o
Page 21 and 22: 1.2 The economic and strategic impo
Page 23 and 24: Virtually all of these industry dyn
Page 25 and 26: Aerospace companies also deliver si
Page 27 and 28: Unless we act soon, we may find tha
Page 29 and 30: interdependent relationship between
Page 31 and 32: The increasing importance of techno
Page 33 and 34: 1.3 The consolidation of the US and
Page 35 and 36: “A cursory look across four facet
Page 37 and 38: procurement agency within the Minis
Page 39 and 40: 1.4 International collaboration and
Page 41 and 42: US aerospace companies. 138 As a re
Page 43 and 44: had managed to replace MDC as the w
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Page 47 and 48: important political dimension. Toda
Page 49 and 50: International anarchy means that th
Page 51 and 52: turning it into a US-dominated acad
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Unipolarity can be a very stable 19
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competitiveness declines and it wil
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It is striking to note that success
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for pre-contract award procedures r
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increased economic scale and effici
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autonomy as a result of unequal tra
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notwithstanding. The third benchmar
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Despite public pronouncements in su
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of international law: yesterday tho
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deeply-entrenched reliance on (conf
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Let’s turn to neo-liberal institu
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exemplified by the BMD / EADS merge
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isk, high-stakes environments are m
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It is obvious that liberal institut
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politics, including human rights an
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generic. But many national security
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(such as rules and models) that def
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esurgence than the newly-liberated
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political coordination at the gover
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Germany have not only a bilateral
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process of interest is ‘transpare
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thus promises particularly useful i
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are particularly common. 337 As a r
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Finally, this methodological sectio
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“There are no fixed recipes for b
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Chapter 3: The Boeing / McDonnell D
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4.7 percent of GDP. Yet even at the
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F-22 production line closes, Boeing
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3.2 Corporate strategies to deal wi
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from potentially aggravating milita
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3.3 “The Last Supper”: how the
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aseline year, clearly distorted the
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primes also raised alarm, especiall
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administration’s volte-face took
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ethic” 464 that dominated the thi
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3.5 Boeing, McDonnell Douglas, and
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with Boeing’s sheer size and corr
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its leadership position compared to
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Prior to Boeing’s take-over, MDC
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Furthermore, Boeing hoped to levera
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After the Americans realised in lat
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FTC’s unconditional approval of t
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transnational R&D and production st
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civil and military aircraft manufac
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In the military aircraft domain, in
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Most of the defence projects were b
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greatly extended the range and scop
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In 1983, UK Defence Minister Heselt
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NATO” 616 , a not-for-profit orga
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4.2 The failed EADC 632 and BAe / D
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Finally, EADC’s shareholder inter
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With combined annual revenues in 19
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(#1), and missiles (#2). Furthermor
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Finally, EADS’s Defence and Civil
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4.3.1 Aérospatiale Matra (AM) AM w
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4.3.2 DaimlerChrysler Aerospace AG
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4.4 The Galileo Global Navigation S
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[T]he military implications of Gali
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compatible with national security,
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lost ground in Afghanistan, Russia
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France - backed by German financing
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and the combat systems that go on t
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industry restructuring caused certa
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Chapter 5: Going American: Explaini
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Washington embraced the ethnocentri
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More recently, EADS / Airbus teamed
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sensitive US technologies 832 and e
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5.2 Growing foreign dependence of t
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need to be achieved during a relati
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Technology” in 1990 to analyse
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their sovereignty but also to vital
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However, with the deterioration of
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5.3 The rise of economic rivalries
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which military conflict between maj
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European relations, especially in d
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5.4.1 The DaimlerChrysler merger:
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ankruptcy or swallowed by one of it
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Regulatory approval for the deal wa
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5.4.3 Deutsche Telekom’s take-ove
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commitments in the WTO and would af
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5.5 Moving both towards and away fr
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the UK, France, Germany, and Russia
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Chapter 6: Building Europe and Bala
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1966. 1036 1037 It was not until th
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Going into the Maastricht negotiati
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The 1995 election of President Chir
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Bulgaria be part of NATO’s first
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Europe needs strengthened armed for
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While the Americans dominated the a
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illicit and dangerous transfers of
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“This is not fundamentally a prob
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In July 2004, the European Defence
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1183 Ibid. collectively. And, of co
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using the “Three Ds” language.
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administration’s freedom of movem
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decision that made America - especi
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so one expects to find conflict”
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candidate Nicolas Sarkozy even made
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companies win crucial multi-billion
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aircraft business in the early 1980
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Mercantilists, by definition, are g
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slowly wither and die in the face o
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Despite these rather dramatic indus
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defence-related industry has experi
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persisted because of “inaction”
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European economic and military stra
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In April 1998, the French, German,
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EADS) were already cooperating thro
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The initial merger discussions betw
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(in the case of privatised companie
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7.3 Britain and the US Defence Mark
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take-overs of Tracor and AES / Sand
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To this day, America has failed to
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Chapter 8: Conclusion This thesis u
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armaments cooperation. Even more im
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In Europe, the transnational EADS m
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easy for key EU members like France
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Finally, realism can also account f
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coordinated response to ensure the
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GAO’s decision” 1385 . Just a f
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Annex Table 1: Economic Weight of t
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Table 4: FY1987-FY2007 DoD Budget A
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Interviews: Cohen, Eliot, Robert E.
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BBC Monitoring Europe, „EU, Franc
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Chao, Pierre and Niblett, Robin,
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Doyle, Michael, “Kant, Liberal Le
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Giegerich, Bastian, “Navigating d
Page 307 and 308:
Holmes, Kim, “US-European Strateg
Page 309 and 310:
Kolodziej, Edward A., “Making and
Page 311 and 312:
Maynard, Michelle, “Daimler consi
Page 313 and 314:
Neuman, Stephanie G., “Defence In
Page 315 and 316:
Robertson, George, NATO Secretary G
Page 317 and 318:
_____, “Telekom faces FCC hurdle
Page 319 and 320:
US Arms Control and Disarmament Age
Page 321 and 322:
Operations, US House of Representat
Page 323:
Willcock, John, “DASA remains pri
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