For Regional Aircraft, Key Lies in Alliances

AMSTERDAM -- Blasted by the winds of recession, the world's civil aircraft industry is gritting its teeth hoping for better times. While the big players have the power to stay aloft, the smaller companies that make regional aircraft -- those with 50 to 80 seats -- have made big losses. Industry analysts say that in this sector there are far too many manufacturers, too many types of aircraft and too many plans for new ones. Europe has British Aerospace, or BAe, Deutsche Aerospace and its 51 percent-owned Dutch company Fokker NV, the Franco-Italian ATR group, Saab of Sweden and CASA of Spain, all fighting for scarce orders from recession-squeezed airlines. Analysts say none makes money, and the weaker need to become subcontractors or assemblers supporting the successful designs."The pressure for this is growing and growing all the time," said Kieran Daly, commercial aviation editor of industry magazine Flight International. But with most companies having various degrees of state support or ownership, politics and national pride have put a spanner in this otherwise natural process of coalition. "Look at the way it has been rationalized in America. We (Europeans) can't overcome the politics," said Pete Deighton, an analyst at brokers Smith New Court in London. In North America, with rationalization unhindered, only Bombardier of Canada with its Canadair unit has survived as a true regional aircraft maker. It is doing well, and added 136 million Canadian dollars ($98 million) to the parent firm's profits last year. Similar European consolidation, predicted for years, may now finally start to happen because of moves by two major European players, Deutsche Aerospace, or DASA, and Aerospatiale of France. DASA, which is part of Daimler-Benz, said recently it was offering a minority stake in Fokker to BAe and might sell a majority in Dornier, another planemaker, to ATR. DASA has just emerged from a painful 2.5 billion Deutsche mark ($1.52 billion) restructuring, and with Fokker needing fresh capital too, has decided to seek a radical solution. State-owned Aerospatiale, which together with Alenia of Italy owns ATR, is also being forced to take a more hard-nosed approach ahead of privatization due in a couple of years. In preparation, the French government injected 2 billion French francs ($357 million) to recapitalise the company, more than soaking up 1993's 1.42 billion francs loss. But investors will be looking for ways to stop such losses recurring, including inviting other companies to join an enlarged ATR group, analysts say. "You could envisage a sort of Airbus-type group of (regional aircraft makers) if all goes well," Deighton said. Once the first move is made, alliances will quickly form. "It needs the dam to break," said Flight's Daly. Everything hinges on government attitudes. On one side is national pride in a flagship industry, on the other the cost to taxpayers of propping up unviable companies.