The Aerospatiale Group - Company Profile, Information, Business Description, History, Background Information on The Aerospatiale Group

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Company Perspectives:

The Aerospatiale Group is a major international force in virtually every sector of the aerospace business, from aircraft and helicopters, to defense and space systems.

History of The Aerospatiale Group

The Aerospatiale Group is one of the world's leaders in the development and manufacturing of aerospace equipment, ranking second only to British Aerospace in Europe and ranking among the top five in the world. The most diversified aerospace company in Europe, its expertise covers civil and military airplanes and helicopters; strategic and tactical weapon systems; and space systems. Almost 90 percent of the company's sales are made in international consortiums, including Airbus Industrie, AI(R), Euromissile, Arianespace, and Eurocopter SA. Its development of the Concorde in partnership with Great Britain is one of the best known examples of Aerospatiale's commitment to cooperation with other countries. About three-fourths of the company's revenues are generated via exports. After decades of ownership by the French government, Aerospatiale was slated to merge with the privately-held Dassault Aviation SA in 1997 and then be privatized in 1998.

Aerospatiale's many products and research projects may be divided into three categories: space and defense, helicopters, and aircraft. Aeronautics make up just over half of the company's annual sales. As part of Airbus Industrie, a consortium that also includes Germany's Deutsche Aerospace Airbus (DASA), the United Kingdom's British Aerospace plc, and Spain's CASA, Aerospatiale produces a successful line of commercial jets. Aerospatiale's commercial helicopter business, Eurocopter SA, generates nearly 20 percent of its annual revenues. This subsidiary is 70 percent owned by Aerospatiale, with DASA holding the remaining 30 percent. The world's leading exporter of helicopters, Eurocopter supplies 120 countries with vehicles for civil and military purposes. Aerospatiale's space and defense division, which contributes almost one-third of the company's sales, produces France's nuclear weapons, both land-based and sea-launched strategic missiles.

Early Twentieth Century Predecessors

Incorporated in 1970, Aerospatiale can actually trace its history back to the early days of aviation. The company is the product of a long series of mergers in the French aerospace industry that began when eight major firms were nationalized in 1936 and 1937. These companies had been built by pioneers in aviation, including Louis Bleriot, Gabriel Voisin, and Henri Farman. As far back as 1901 Bleriot sketched airplanes, although the machines he depicted would not be manufactured until 1906. Voisin, who initially collaborated with Bleriot, later became his major competitor in aircraft manufacturing. Farman, who bought his first plane from Voisin, set several records, including, in 1908, the first one-kilometer closed loop flight. He then founded what was to become a leading manufacturer of aircraft in France.

Competition in the limited market for aircraft was fierce. For example, Bleriot was almost bankrupt in 1909 and saved his company by being the first to cross the English Channel in an airplane. Not only did the prize money from the Daily Mail newspaper come in handy, but his instant fame brought in many orders for the Bleriot XI.

Aerospatiale's predecessor companies benefited in the succeeding years from the Army's interest in airplanes. The military observed planes in such large-scale maneuvers as the Reims Competition in 1911, in which manufacturers competed to make the aircraft best suited to the military's operational requirements. Aircraft orders boomed in World War I. For instance, 13 Bleriot SPAD VII and SPAD XIII were made a day, for a total of 13,000 by the end of the war--Bleriot representing just one manufacturer.

After the war, companies began concentrating on the development of commercial air transportation, and the French manufacturers were at the forefront of the industry. In 1918 Farman designed the Goliath, which over the next six years set several world records, including its 1919 two-stage flight from Paris to Casablanca to Dakar, totaling 2,200 kilometers. Bleriot supplied Europe's first airlines with "Berlines," and in the 1920s and early 1930s, Potez's plant was reputed to be the world's most modern aeronautical facility. Manufacturing flourished in this period, with French aircraft setting records and fulfilling much of Europe's need for air transportation.

Nationalization of France's Aircraft Industry in 1936

In 1936 the Popular Front Government assumed power, and France's major aviation companies were nationalized. Farman, Hanriot, Potez, Marcel Bloch, Louis Bleriot, Dyle et Bacalan, Loire Meuport, Liore Olivie, and Dewoitine were combined into six companies according to geographical criteria: the Société Nationales de Constructions Aeronautiques du Centre (SNCAC), du Sud-Ouest (SNCASO), du Sud-Est (SNCASE), du Midi (SNCAM), du Nord (SNCAN), and de l'Ouest (SNCAO). These were streamlined into two companies, SNCASO and SNCASE, in 1941.

In 1940, with the signing of the Armistice, France submitted to German occupation. According to the Armistice agreement, aircraft plants were required to manufacture material for the German forces, thus subjecting the manufacturers to Allied bombing. During the war, bombing destroyed aircraft facilities and work tools, holding up development, and the U.S. and British aeronautical industries advanced far ahead of the French over the next five years.

When France was liberated in 1945, its aeronautical industry struggled to catch up. Many studies that had been secretly pursued during the Occupation bore fruit and sped France's return to the level of the U.S. and British industries. For example, the country's first jet, the Triton, had been secretly developed during the war and was tested only one year after France was liberated. However, attempts to develop a helicopter were frustrated by mechanical problems and the closing of SNCAC in 1949. With the development of the Djinn by SNCASO in the mid-1980s, the French helicopter industry got its real start, producing 150 units between 1956 and 1960. The French-owned companies also produced several enduring aircraft during this period, including the Noratlas and the Fouga Magister, which were both flown for several decades.

The mid-1980s began a critical period for the companies that were to become Aerospatiale. Their helicopter designs moved to the forefront of the industry when they replaced piston-driven engines with high-capacity turbo engines. The helicopters utilizing these engines--the Alouette I introduced in 1955, and the subsequent Alouette II--sold well both nationally and as exports. The companies also gained ground with their studies in supersonic aircraft, developing the Durandal in 1956. Their experimentation with combined turbo/ramjet propulsion systems on the Griffon II eventually led to the application of this technology on modern tactical missiles.

This period also saw the beginning of Aerospatiale's subsequent dedication to cooperative agreements with other countries. After the reconciliation between France and West Germany, the two countries worked together in the tactical missile field, developing the Milan and Hot anti-tank missiles in the early 1960s. They extended their cooperative endeavors to include the development of the Airbus program. France and Great Britain together pursued the creation of a supersonic transport plane, resulting in the 1969 maiden flight of the Concorde.

Aerospatiale's immediate predecessors--Sud-Aviation; NordAviation; and SEREB (the Société pour l'Etude et la Realisation d'Engins Balistiques)--had all been formed by the late 1950s from those companies initially nationalized by the French government. SEREB's first job was to develop the Strategic Ballistic Surface-to-Surface Missile and the Strategic Ballistic Sea-to-Surface Missile for national defense. These developments provided a solid base for the implementation of France's later nuclear policy. In addition, these ballistic studies led to a space launcher program in 1962. The resulting Diamant, successfully fired in 1965, established France as the third leading space developer, behind the United States and the Soviet Union.

Creation of Aerospatiale in 1970

In order to eliminate duplication in marketing, customer service, and research and development, the French government decided to merge its three aerospace companies in 1970. It was hoped that the new company, Société Nationale Industrielle Aerospatiale, would increase efficiency and France's competitiveness in the aerospace industry. Initially, management was reorganized but production remained unchanged. A lack of aircraft orders led to losses three years in a row--$100 million in 1973 alone. These continued losses prompted the government to demand reorganization along departmental lines, creating aircraft, helicopter, missile, and space divisions. Layoffs were also threatened for several years in a row, but major unemployment in France caused the government to step in, holding the company together with a $100 million advance in capital.

Aerospatiale's performance in the 1970s was impeded by a disappointing lack of business at the aircraft division. The Concorde, scheduled to begin service in 1975, had only nine orders in 1973, and those were from the countries sponsoring the aircraft's development, France and England. Aerospatiale was finding it difficult to market to other countries because cost overruns and environmental problems had more than quadrupled the price of a Concorde from $15 million to $65 million. In addition, operating costs for the Concorde, already quite high, rose dramatically with skyrocketing oil prices. Interest in the United States was particularly low because the aircraft would not be allowed to fly supersonically over land. Airbus Industrie's Airbus A 300 B, a twin-engine wide body aircraft, was also in financial trouble because of a low number of orders.

Aerospatiale's first years were successful ones for its other divisions. The helicopter line was improved with the introductions of Ecureuil, the Super-Puma, and the Dauphin. This division remained profitable during Aerospatiale's tough times in the 1970s, becoming, in fact, the world's leading exporter. Aerospatiale also developed plans inherited from SEREB for France's first strategic nuclear missiles. The company installed 18 land-based Sl missiles in 1971. The same year, it introduced its Ml missiles for submarines. Throughout the 1970s, Aerospatiale was improving its missile designs, replacing the S2 with S3 missiles in 1980 and continuing to upgrade its M series submarine missiles. The decade also saw work on the Exocets, a series of anti-ship missiles to be launched from surface ships, combat aircraft, coastline battery, or submarines.

France's space programs had suffered from cuts and delays because of a lack of funds in the late 1960s, a situation the country had hoped to resolve with the creation of Aerospatiale. Indeed, Aerospatiale played a major role in the European space cooperation that began in 1972. The company became the industrial architect of the Ariane space launchers, first successfully fired in 1979, and the prime contractor for several satellite programs.

In 1973 the French government gave Aerospatiale emergency financial support in the form of government guarantees for a $26 million public bond issue. Despite this aid and the strong performances of the helicopter, tactical missile, and ballistic systems divisions, the company still registered losses in 1974 and 1975.

"We are dying a slow death," André Gintrand, financial vice-president of Aerospatiale, lamented in Business Week in 1974. "With the American competition in the market, we can't breathe," he remarked. President Charles Cristofini felt more transnational aircraft would help fight the U.S. aircraft leaders by encouraging more national airlines to buy European products. Aerospatiale was also competing with the privately-owned Avions Marcel Dassault Breguet Aviation for military contracts and felt that the government was favoring Dassault.

Aerospatiale's aircraft division continued its policy of forming international cooperative ventures, joining forces with Alenia in 1982 to form ATR. The company created the ATR 42, a small regional transport aircraft and, later, the ATR 72. Airbus Industrie expanded its line and soon offered a large series of commercial aircraft. Orders gradually improved during the 1980s; in 1989 aircraft orders totaled over 39 million francs, and in 1990 Airbus Industrie had 1,250 firm orders for A300s, A310s, and A320s.

International Partnerships Dominate in 1990s

In 1992 Aerospatiale, DASA, and Alenia were planning a new consortium called Regioliner, which hoped to produce a 120-seat jet by 1996. Many companies saw the market for a new generation of small jet aircraft that could be used for short routes, but lacked the money to develop them. The companies were hoping for government funds to help start them on this proposed $2.5 billion project.

Aerospatiale's creation of new subsidiaries and cooperative ventures accelerated in the early 1990s, as it attempted to distribute the burden of research and development and receive the benefits of governmental subsidies from several nations. In 1990 Aerospatiale, DASA, Alenia, and Dassault, formed a single company, Euro-Hermespace, to oversee the development and production of the Hermes spaceplane, a vehicle similar to NASA's space shuttle. France provided funding for a 43.5 percent share of the company; the country's interests were then to be administered by a new company, Hermespace France, owned jointly by Aerospatiale, with 51 percent, and Dassault, with the remainder. However, Hermes and the Columbus space station encountered financial, political, and management problems in the early 1990s. While the ESA evaluated the cost of the station and waited to see what NASA did with their plans for a space station, a ministerial conference decision delayed the production of Hermes in 1992. Eventually, the Hermes program was postponed indefinitely, and Euro-Hermespace was dissolved.

In 1991 Aerospatiale and DASA merged the commercial operations of their helicopter divisions. The new company, Eurocopter Holding, was owned 60 percent by Aerospatiale and 40 percent by DASA. However, Eurocopter SA, which directed the activity of the French and German helicopter divisions, was 75-percent owned by Eurocopter Holding and 25 percent by Aerospatiale directly. Before the merger, Aerospatiale held 33 percent of the world helicopter market, based on sales from 1985 to 1989, whereas MBB held only eight percent. Revenue from the two helicopter divisions equaled about $1.6 billion in 1990. The new company will combine sales, service, and support operations.

Privatization Expected in Late 1990s

The aircraft industry of the 1990s was fraught with problems and challenges. The already-troubled airline industry scaled back orders in the face of recession and the Persian Gulf conflict. With the end of the Cold War, many nations began to downsize their military budgets and cancel defense programs. Most of Aerospatiale's international projects, including the Aster surface-to-air system and their third generation of anti-tank weapons, were going forward in the early 1990s. However, the backlog of missile orders dropped and that area of business activity was hurt by the cancellation of the S-45 strategic missile program and the Hades short-range nuclear missile.

At the same time, France's government undertook a program to privatize more than 20 state-owned companies, including Aerospatiale. Executives and government officials alike realized that the aerospace giant required a great deal of shaping up before it would be fit for the public equities exchanges. In fact, the company suffered consecutive losses totaling FFr 5.3 billion (US$1 billion) in 1992, 1993, 1994, and 1995. Aerospatiale pursued a variety of cost-cutting measures throughout this period. In 1995, the company reorganized its operations into three primary divisions: space and defense, helicopters, and aircraft, gradually cutting 17 percent of its work force in the process. In 1992 Credít Lyonnais, a state-owned French bank, acquired 20 percent of Aerospatiale from the French government. This increase in capital enabled the company to reduce its debt and its interest expense, thereby freeing funds for new investments. The company vaulted a major hurdle in 1996, achieving a profit of FFr 981 million on sales of FFr 50.8 billion. Its FFr 129.9 billion backlog seemed to portend continued success in the year to come.

Aerospatiale was slated to merge with its former rival, privately-owned Dassault Aviation SA, in 1997, prior to privatization. The union would create Europe's largest aerospace company, with sales estimated at FFr 60 billion (US$12 billion). In the fall of 1996 Guillaume Angue of the trade publication Interavia Business & Technology forecast that the merger would leave the Dassault family with about one-fourth of the unified company's equity, the government would maintain its majority stake, Credít Lyonnais would retain its 18 percent stake, and minority investors would hold the small remainder. He further predicted that the state and its bank would each contribute some of their equity to the initial public offering expected in 1998.

As if a major merger and historic privatization didn't generate enough excitement for Aerospatiale, by the mid-1990s its German and British partners in Airbus were urging the conversion of the consortium from a Groupement d'Interet Economique into a "single corporate entity." Reluctant to relinquish ownership of the necessary plants, Aerospatiale balked at the plan. As of mid-1997, the partners had agreed to an interim plan that would transfer production management to Airbus while leaving as is ownership of the factories. In spite of this delay, many analysts agreed that the eventual union of the Airbus partners' military and civil interests into "Eurospatiale" was a foregone conclusion. It seemed that little more than pride and politics stood in the way.

Principal Subsidiaries: Airbus Industrie (GIE); Satic (GIE); Sogerma-Socea; Cosata; Sextant Avionique; Cryospace (GIE); Nuclétudes; Starsem; Apsys; Pyrospace; Fleximage; Space Systems/Loral (U.S.); Nahuelsat (Argentina); Euromissile (GIE); EMDG (GIE); Eurosam; Celerg; (ASB) Aerospatiale Batteries; GDI Simulation; Eurocopter S.A.; Eurocopter Deutschland (Germany); Unilaser; Cimpa; Aerospatiale Inc. (U.S.); Aerospatiale Canada Inc.; Aerospatiale Deutschland GmbH (Germany); Aerospatiale Do Brasil (Brazil); Aerospatiale UK Ltd.

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Further Reference

1970--1990, A 20-Year Adventure: Airplanes, Rockets, Helicopters, Missiles, Satellites, Neuilly-sur-Seine: PEMA 2B, 1990."Aerospatiale," Aviation Week and Space Technology, October 19, 1992."Aerospatiale, Dassault Aviation Agree to Develop Stronger Bonds," Aviation Week and Space Technology, January 4, 1993.Angue, Guillaume, "New Alliances Emerge from French Aerospace Shakeup," Interavia Business & Technology, August-September 1996, pp. 15--18."Civil Transports: From the ATR to Hypersonic Aircraft," Market Supplements, Aviation Week and Space Technology, January 20, 1990."Civil Wars: The Paris Air Show," The Economist, June 21, 1997, p. 65."Consortiamania," The Economist, May 23, 1992."Cooperative Ventures Aid Expansion," Market Supplements, Aviation Week and Space Technology, January 20, 1990."Credit Lyonnais to Buy 20% Stake in Aerospatiale from French Government," Aviation Week and Space Technology, August 3, 1992.Crumley, Bruce, "Foreigners in French Firms' Future?," Air Transport World, November 1993, pp. 101--04."Europe's Growing Impact on High Technology," Design News, March 23, 1992.Fink, Donald E. "France Reorganizing Aerospace Industry," Aviation Week and Space Technology, March 3, 1969."The Foundation of European Space Leadership," Market Supplements, Aviation Week and Space Technology, January 20, 1990."France: Aircraft Makers Take a Nose Dive," Business Week, September 15, 1973."France: Emergency Refueling for Aerospatiale," Business Week, November 2, 1974."France Searching for Solutions to Continued Aerospatiale Losses," Aviation Week and Space Technology, April 19, 1976."French Flight: European Aerospace," The Economist, April 19, 1997, p. 64."Helicopters: The World's Top Exporter," Market Supplements, Aviation Week and Space Technology, January 20, 1990.Lenorovitz, Jeffrey M., "Aerospatiale Defines Concorde Follow-On for 21st Century," Aviation Week and Space Technology, January 20, 1986.------, "Aerospatiale, MBB Merge Helicopter Commercial Sectors," Aviation Week and Space Technology, May 20, 1991.------, "Company Formed to Manage Next Phase of Europe's Hermes Spaceplane Program," Aviation Week and Space Technology, November 12, 1990.------, "French Plan Unmanned Space Station," Aviation Week and Space Technology, August 3, 1981."A Pillar of French Defense, Backed by Strong R&D," Market Supplements, Aviation Week and Space Technology, January 20, 1990.Reed, Arthur, "'Long-Term Business'," Air Transport World, June 1997, pp. 62--63.Shifrin, Carole A., "Britain and France Begin Concorde Follow-On Study," Aviation Week and Space Technology, May 14, 1990.Sweetman, Bill, "'Planezilla': Mighty Technical Challenge," Air Transport World, May 1993, pp. 74--77."Turbulent," The Economist, September 7, 1996, p. 7."War by Competition Policy," The Economist, October 12, 1991.

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