Ethnocentric vs. Regiocentric Consolidation in the Aerospace and

However, the massive consolidation of the US A&D industry through “pure play” mergers –
leading to the formation of a few giant, defence-heavy companies – also caused major concerns;
especially among those in charge of the Pentagon’s procurement budget. In 1997, the Clinton
administration abandoned its initial pro-merger policy in an effort to maintain a certain degree of
competition and to prevent the creation of harmful monopolies. The potential shift of market power
from buyers (governments) to sellers (A&D companies) is a major public policy risk associated
with large-scale industry consolidation leading to the creation of duo- or monopolies. There is a
danger that “the West could end up with a small set of very large, very powerful, and not very
competitive defence firms, favouring the maintenance of Cold War thinking and technologies.” 96
The key issue is how the gains from industry consolidation are divided between taxpayers (in terms
of cheaper, more capable weapons systems) and shareholders (in terms of corporate profits).
In Europe, defence budgets shrank even more dramatically after the end of the Cold War than in the
US. National governments and their respective A&D companies were reluctantly sacrificing
national autonomy in favour of increased European integration and interdependence in arms R&DP.
A major breakthrough came in October 1999 with the creation of EADS as the largest aerospace
firm in Europe. All three EADS founders (AM 97 , DASA 98 , CASA 99 ) were part of Airbus and had
thus gained valuable experience in collaborating successfully across different languages, business
cultures, and regulatory frameworks. 100 101 Prior to the EADS merger, the acquisition of GEC-
Marconi by BAe 102 – both privately owned, UK-based companies – in 1999 had led to the creation
of BAE Systems (BAE). 103 Due to the US-UK “special relationship”, BAE is the only European
firm with significant exposure and access to the lucrative American defence market. 104 105 In
essence, the “special relationship” refers to the fact that “The [UK] and the [US] are each other’s
106 107 108 109
closest ally and security partner”.
96 (Markusen & Costigan, 1999) p. 29
97 AM = Aérospatiale-Matra
98 DASA = Daimler-Benz Aerospace AG / DaimlerChrysler Aerospace AG
99 CASA = Construcciones Aeronáuticas SA
100 Airbus was initially organised as a GIE – a construct under French law that allowed all four partner companies to
retain their full legal, financial, and managerial independence. The profits from Airbus were allocated to each
participating company according to its stake in the consortium. In July 2001, the GIE was transformed into Airbus
Integrated Company.
101 Following the decision by BAE to sell its 20-percent stake in Airbus in October 2006, EADS now owns 100 percent
of Airbus, which accounts for more than two-thirds of the company’s revenues and an even higher share of its profits.
102 BAe = British Aerospace
103 BAE derives three-quarters of its turnover from defence and counts the US as the most important market.
104 BAE is the biggest non-US subcontractor for LMC’s JSF.
105 In 2007, BAE ranked as the sixth-largest Pentagon contractor.
106 “The US-UK special relationship today has a political and ideological superstructure and an embedded military and
intelligence substructure. […] Defence cooperation was at the heart of the special relationship from the outset, and
remains central to it.” (Wallace & Phillips, 2009) pp. 263 ; 267
107 (Chao & Niblett, 2006) p. 4
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