Speculation has rippled through Europe and beyond since leading Russian business daily Vedemosti reported that Russia’s VneshTorgBank (VTB) has invested around $1 billion to acquire 4.5 – 4.8% of the European Aeronautic Defence & Space Corporation (EADS), the Franco-German aerospace concern that owns Airbus and serves as Europe’s largest defense contractor. Their timing has been timely, given problems with subsidiary Airbus that have depressed EADS’ share prices almost 33% from its $35 high in March 2006.
VTB, which is Russia’s second largest bank and 100% government-owned, is hardly seen as an independent entity… and its actions could have wider ripples in the global defense market.
Russian government sources have openly said that they hope to be given some say in EADS’s management, based on a combination of shares owned and talks between the respective governments. Some European sources are already hinting darkly (or happily, depending on the source) at a German-led effort to diminish France’s clout in the EADS partnership, while others point to Russia’s status as Europe’s top natural gas supplier – a status enhanced by their recent Algerian arms deal – as a more likely source of potential leverage.
It’s also no coincidence that Russia’s interest comes at a time when Russia’s own aviation sector is in the throes of an ambitious, state-led restructuring into a single aviation holding called United Aircraft, set to be finalized in the coming months. As DID has noted, EADS is the major foreign partner via its 10% stake in Irkut Corp., who is expected to provide the core of the UA management team. It would later sell that stake to UAC.
Timing does indeed seem to be everything in this deal. Russia’s investment in EADS comes as Boeing and Airbus are competing for a $3 billion export order – and also a US air-air refuelling tanker deal that could be worth $100+ billion.
VTB’s investment may help Airbus to secure the Aeroflot order, but with political tensions between Russia and the USA at higher than usual levels due to Russia’s arms sales policies, the Airbus KC-30’s battle for a much bigger prize (and indeed, EADS’ access to the US defense market as a whole) may have just become tougher. After all, what Russia wants – technology transfers and management say – is exactly what the USA will fear about giving EADS important military contracts.
See Business Week’s “Russia Jumps Into the Aerospace Race” for more insight.