Paris Air Show

Dassault group ready to quit Thales, citing no reason to stay

 - December 15, 2006, 11:16 AM

The Dassault group is set to sell its 5.7- percent share in Thales, the defense electronics group. “Is there any interest in staying in? My reply is no,” Dassault Aviation chief executive Charles Edelstenne told journalists on Friday. He said there is no long-term reason for Dassault to remain a minority shareholder in Thales, which last year resisted French government pressure to enter into a relationship with EADS, the Franco-German aerospace group.

The sale of Dassault’s shares is not expected to be imminent but there is speculation that the equity may be sold on the stock market rather than going to Alcatel, which controls Dassault’s shareholding in Thales. Dassault has no control over its share in Thales following a 1998 five-year shareholders’ agreement linking it with Alcatel and the French government, which hold 9.5 percent and 31.3 percent respectively of the group’s equity. Since 2003, the shareholdings have been allowed to vary with the agreement of the other partners.

Serge Tchuruk, president of Alcatel, has said that Dassault’s involvement in Thales is “either too much or not enough.” He added that if Alcatel bought Dassault’s shareholding, it would indeed strengthen the company’s role within Thales but would have no effect on the strength of the government’s role in the group. Immediately after Edelstenne’s announcement on Friday, Jean-Paul Béchat, chairman of Safran, formed from the recent merger of Snecma and Sagem, said that Safran is “not in the least interested in becoming just another Thales shareholder.”

According to Edelstenne, Dassault originally decided to enter Thales’ capital as there was “no longer any room for two electronic companies in France” and received its shareholding through merging its subsidiary Dassault Electronique with Thales. Thales is involved in several Dassault defense programs including the Rafale fighter for which it supplies the RBE2 electronic radar system.

The proposed withdrawal of Dassault from Thales follows an attempt by EADS this year to take over the defense electronics grouping. Thales chairman and CEO Denis Ranque said that he expected the European defense industry to change in 2005 and that his group would be involved in reshaping it. Last week, he said that Thales was not interested in being acquired. “We have no strategic interest in staying where we are. We might be nearing another consolidation (of the industry) in Europe,” he said, but would not comment about what his shareholders want. A better-prepared alliance with EADS or a tie-up with Alcatel associating Italy’s Finmeccanica have been mooted as possible future scenarios.

Edelstenne said that since the 2003 Paris Air Show, the outlook for the world economy had improved, reflected in the increased number of orders being won by commercial aircraft makers. But the impact of rising oil and commodity prices is being felt and the euro/dollar exchange rates remain a key concern for exports. “Dassault Aviation has emerged unscathed from the trough period of 2003 and is now positioned to take advantage of the upturn in the aerospace sector,” he stated, adding that in 2004 Dassault’s financial performance “benefited from the fact that our order book was hedged at a rate of one dollar to the euro.”

Falcon deliveries will reach between 50 and 55 units in 2005, representing a production rate of around five aircraft per month. Despite the improvements in economic conditions since 2004, this figure is lower than the 63 aircraft delivered last year. Edelstenne attributed this to the 40 orders received for Falcons in 2004 and the introduction of an accelerated depreciation tax credit for customers of business aircraft makers in the U.S., bringing forward deliveries initially planned for the beginning of this year.

Defense activity over the last decade accounted for a “marginal share of total sales. But this situation is set to change,” Eddelston reported. Dassault believes that it can retain its historical 15 percent of the world market.