India’s decision to eliminate four of the six aircraft in the Indian Air Force (IAF) tender for 126 Medium Multi Role Combat Aircraft (MMRCA), first reported by StratPost, may already have resulted in one winner, even before the commercial bids for the Eurofighter Typhoon and the Rafale are opened.
The ownership structure of the Eurofighter consortium (Eurofighter GmbH) is such that BAE Systems of UK has a 33 per cent stake in the program, while Italy’s Alenia Aeronautica, wholly owned by Finmeccanica, has a 21 per cent stake. EADS owns 46 per cent of the Eurofighter.
But it also owns just a little bit more of Dassault Aviation, the company that manufactures the Rafale. While Dassault (Groupe Industriel Marcel Dassault) has a simple majority shareholding of 50.55 per cent, 3.13 per cent is held by private investors. The rest of the 46.32 per cent is owned by EADS.
According to a statement solicited from Cassidian, formerly known as EADS Defense & Security, “The shareholding of 46 per cent in the Eurofighter consortium makes EADS the largest industrial partner in the Eurofighter program, in which we continue to invest strongly.” The statement also says, “EADS holds a 46 per cent capital share in Dassault Aviation.”
On the face of it, irrespective of the aircraft selected as the MMRCA, as things stand, EADS will be a 46 per cent beneficiary.
Cassidian is prompt to refute speculation that EADS has any part in the Rafale campaign or that it would consider itself part of the winning team if the French were to win. “EADS and Dassault are two different competitors in the MMRCA tender. Therefore there will only be one winner,” it says, also adding elsewhere in its statement, “It is up to the customer to decide which is the most suitable combat aircraft for the Indian Air Force.”
Even if the two fighter campaigns are separate, would a French win benefit EADS?
Insiders say a Rafale victory would hardly bring fortune to EADS by virtue of its stake in Dassault Aviation. Any dividend for EADS arising from profits from the tender would solely depend on the discretion of the management of Dassault Aviation, controlled by Groupe Industriel Marcel Dassault. The sources admit that the EADS shareholder value might benefit in the event of the French taking the Indian skies, but dismiss that as notional. When pointed out that all share values are notional anyway, they insist EADS would not be able to capitalize on its stake, perhaps for reasons of its ownership structure. [See Box]
They also point out the differences in the sizes of the companies, saying that while in 2010 Dassault’s defense sales amounted to EUR 959 million, with EUR 723 million coming in from domestic sales alone, the revenue of the EADS defense division, Cassidian, was EUR 5.933 billion in 2010. The sources say 46 per cent of each company, therefore, implies stakes of very different values and a win would mean very different things to each company.
This predicament is unprecedented for the two fighter programs. While the two European twin-engine aircraft have competed in tenders before, they have never faced off each other in a final contest. Which is why, although the eventuality has been contemplated before, it has not come to fore so far.
The Cassidian statement makes sure to point out, “This stake was transferred in the year 2000 from one of the companies which were merged into EADS.” Indeed, this legacy shareholding has a complicated history, which came along with the assets of the French company, Aérospatiale-Matra, absorbed by EADS, leaving it in the predicament of holding a substantial stake in a competitor’s business.
One, in which, Cassidian insists EADS plays no role. “EADS is not involved in the management of Dassault, nor is it an industrial partner. Therefore it has no influence on Dassault’s campaigns including Rafale, which is a competitor of the Eurofighter Typhoon in India’s MMRCA tender,” says its statement. The irony, the sources agree, is sickening.
But beyond the irony, for practical purposes, does it matter if a single company benefits from the selection of either aircraft, even if marginally, as long as the IAF has made its choice?
One industry observer, who declined to be identified for the purpose of this article, asks in turn, “If Lockheed Martin and Boeing were the only two finalists, how would it have looked? Now imagine perceptions if both had cross-ownership, appearing in a sense as a big monolith? What would be the thinking about how they got to the finish line?”
Cassidian seems aware of the potential of this dangerous perception to complicate the MMRCA contest for them, were it to gain traction.
The company asserts, “During rigorous field evaluation trials, Eurofighter Typhoon has demonstrated its outstanding capabilities to the Indian Air Force. We are confident that at the end of the selection process, Indian authorities will be convinced that the Eurofighter is the most capable and the most modern multi-role combat aircraft. We are also sure that the Indian Air Force will be more than satisfied with this weapon system like the other six Air Forces which operate the Eurofighter already today.”
Lockheed Martin’s F-16IN, Boeing’s F/A-18 Super Hornet, SAAB’s Gripen and the Russian MiG-35, failed to make the cut in the IAF’s technical evaluation in a contest for an order expected to be worth USD 10 billion.
EADS was formed on 10 July 2000 by the merger of Aérospatiale-Matra of France, DaimlerChrysler Aerospace AG (DASA) of Germany, and Construcciones Aeronáuticas SA (CASA) of Spain.
While 49.6 per cent of the shareholding of EADS is Free Float, the Spanish state holding company, SEPI, owns 5.47 per cent. Germany’s Daimler and the French Sogeade (Lagarde and the French state holding company Sogepa) hold 22.45 per cent each, and are the two largest stakeholders.
Daimler and Sogeade, each nominate two directors to the Board of EADS. These four directors jointly propose the appointment of the Chairman and Chief Executive. In addition, SEPI appoints one director, while four independent directors are also appointed, upon joint proposal by the Chairman and the Chief Executive Officer and individual approval by the Board.
Lakshmi Narayan Mittal, Chairman and CEO of Arcelor Mittal has been one of the independent directors of EADS since 2007.
Others have tried to gain a foothold in EADS. Russian entities attempted to buy Free Float shares on the open market and tried to demand a say in the company, unsuccessfully, leading them to offload the stake on the open market.
Louis Gallois, current CEO of EADS and former co-Chief Executive is a former director of Dassault Aviation. He resigned the position in December, 2008, apparently when EADS failed to gain a stake in the French defense company Thales.
This awkward situation over Eurofighter and Rafale continues in the tradition manifested by the joint Franco-German control of EADS. This joint and equal control is also one of the reasons preventing EADS from divesting its stake in Dassault Aviation.