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by Patrick Apel-Muller

Air Wars: Economic Scandals Plague the European Defence group

Translated by Ann Drummond

Translated Wednesday 21 June 2006, by Ann Drummond

"We are facing a major crisis", Arnaud Lagardère announced. EADS (European Aeronautic Defence and Space) group, a jewel in the crown of European industry, is being shaken by the revelation of the exercise of stock-options and sale of shares by directors of the company, several months before the announcement of industrial problems led to the drop in the share price.

The sums of money involved are massive: Noël Forgeard alone, the co-Chief Executive Officer of the group, gets 2.5 million euros. From time to time, such news items from a different world hit the headlines - the world of the former boss of Vinci, Antoine Zacharias - in which heads of large companies and major shareholders always earn more, while constantly demanding that workers tighten their belts. A boost for the minimum wage is out of the question, according to Dominique de Villepin, claiming as an excuse that the wage packet is the enemy of employment. At the Sogerma site in Mérignac, 1,000 employees threatened with redundancy by the aeronautics group are on the other hand quite justified in believing that stock-options are devastating for employment. As a reminder, between them, the heads of the CAC 40 (the 40 largest companies on the French stock market) shared 26.6 million euros in stock-options in 2005-2006, giving them a portfolio worth 700 million euros!

The technological achievements of EADS, including its wonderful Airbus A380, have been overshadowed by a series of business scandals. A fierce battle for the chairmanship of the group has set its directors against each other, and one of the main sources in the Clearstream affair came from within the ranks of the company. Since the death of Jean-Luc Lagardère, a contest has been waged in this company, which brings together the aeronautics and armaments sectors, going far beyond the limits of mere managerial ambition. One contestant is said to be under the influence of the President of the Republic, another is said to be sympathetic to the Minister of the Interior, and Germany and France are locked in a clandestine rivalry to direct the company. Life is of course not made any easier for the company by its rival Boeing and the US authorities.

A real economic war is going on... But what is really making the group more susceptible to shady dealing, is the growing pressure of the financial markets. In 1999, when the state gave up its role as the pilot of Airbus, becoming only an influential passenger, it opened up a Pandora’s Box. The need for short-term profitability led them to cut jobs and resort to subcontracting in order to boost the share price at the expense of the demands of the industry. "A revolution is under way at Airbus, which is not over yet, " Noël Forgeard is reported to have explained in the financial newspaper, Les Échos on 17 May. "It’s a question of concentrating on systems design, which has been called the ’heart of our business’, and outsourcing manufacturing as far as possible." "In future", he added, "we will be able to cut our development sites by at least 40%."

While Lagardère and Daimler-Benz, who are controlling shareholders, are gradually disengaging themselves, there is serious manoeuvring underway in terms of positioning in this strategic industry. Who is going to fill the seat? Who is going to profit from the boom in air transport and the replacement of the fleets? Who is going to have control of tomorrow’s weapons?

So the latest episode in the stock-option saga is not just a problem of "company management". If the courts do in fact determine that insider trading has been going on, public opinion and eventually the electorate will be swayed by a different kind of judgement. The economic decisions which are provoking these scandals are indefensible. At a time when the UMP is trying to privatize GDF (Gaz de France) one way or another, this has to be kept firmly in mind. Energy is becoming a critical challenge for the future. It is too serious a subject to be left to the blind logic of the market.

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