By Sergey Tolkachev

1999 was a turning point in the process of the European defense industry consolidation. Two companies equal on the turnover volume to the leading American defense contractors were created. They are the new British Aerospace that has united with Marconi Electronic Systems, and European Aeronautic, Defense and Space Co. (EADS) that combined French Aerospatiale-Matra and German DASA.

The necessity for the serious consolidation of the European defense industry became evident in the second part of the 90's when three giant defense companies with the annual turnover of more than USD 20 billions - Lockheed-Martin, Boeing and Raytheon were created in the USA. It became clear by 1997-1998 that any serious competition from the side of the European leading defense companies that are 4-5 times smaller than these giants is impossible. The twice smaller export volume also showed the lag between the European and the American corporations. The consolidated American defense concerns managed to pull the Europeans out of some markets in the Middle East countries.

Some of the reasons for the lag of the European defense industry consolidation are the different organizational structure of the leading defense companies, the aspiration of each European state to preserve its own largest companies in the defense and aerospace branches, the lack of the common coordinated European needs for the defense products, the submission of the consolidation process to the socially oriented goals in order to support employment rate and production facilities.

The European defense industry consolidation goes in two dimensions: merges of the largest diversified companies of different branches and inter-corporate merges of the national and the international corporations' units within a particular branch. It resulted the creation of very mixed corporate structure that controls the major armaments producers. The processes of the horizontal integration clearly prevail over the vertical consolidation of the production facilities. The most actual problem for the European defense industry is still the production costs' reduction through economizing on the production scales. The vertical integration is conducted mainly within the large branches such as electronics, production of the main armaments and space industry. The wish of the Europeans to have the equal positions with the Americans in the process of the transatlantic defense cooperation is one more reason for the horizontal integration domination.

The transatlantic integration is called to avoid a trade war that is inevitable if the defense industry is integrated separately within Europe and the USA. The export control and the transfers of the high technologies remain the key problem of the transatlantic integration. The advocates of the integration seek to unify the existing standards and technical characteristics of the developed armaments and military technologies in order to create a common market for the military purchases within NATO.
The European and the American military producers still don't carry out the significant merges but cooperate in the industrial and technological sphere. The contacts in the field of the joint arms production are being strengthened at the state level as well. The US Defense Ministry intends to sign declarations with its counterparts in the leading European countries to promote the cooperation on armaments purchases and technological security.

(part 1)