Big Brother Is Back

During the last half of the 1990’s Boeing and McDonnell/Douglas decided it would be in their best interests to merge. McDonnell/Douglas had a strong military portfolio, while Boeing had an excellent commercial product line. The leaders of the company at the time felt a merger was in the best interest of all stakeholders, and would afford the larger company a better ability to compete against EADS and any future competitors, such as China. For the most part it has worked.

EADS/Airbus, the European company that manufactures large airframes, felt that if they merged with BAE, a British company, they too could leverage economies of scale and be better positioned for the future. However, there was another reason for this merger, one that is more important, especially due to the outcome.

EADS was initiated with strong government support. England, France, Germany and Spain, concerned with the lack of airplane manufacturing strength, supported a joint effort to develop a manufacturing firm that could compete with US aerospace manufacturing. Airbus was born and has now evolved into a well-run company that is the number one aircraft manufacturer in the world, EADS. That was then, this is now. EADS and BAE Systems, both influenced heavily by government, attempted via a merger to set themselves free from government intervention. However, Germany and France have nixed the merger and are attempting to increase the government’s ability to influence the company. “Angela Merkle, Germany’s chancellor, is rushing ahead with plans for the German government to take a 15% stake in EADS,” while France continues, “opting for strategic stakes in privatized groups.”

It appears that France has an agency that oversees residual state holdings left over from a privatization move in the 1990’s. In other words, the government had nationalized many companies in the 80’s, but set them free in the 90’s. However, the held on to some, and has an agency named APE that oversees these companies, 58 companies to be exact. Interesting name, APE!

Why is this a concern? During the great recession our government bailed out several companies. However, like the Economist reported, “Barak Obama’s government took control of car firms in a quick in-and-out operation, like financial Navy Seals.” Europe’s interventions may last a lot longer as in France’s case. Any time you allow the government to take an inch they will take a mile.

In our case, the best thing we can do as business is run our companies well. This means a sustainable business plan that produces economic success, social value, and takes care of the planet. If we don’t give the government an excuse to get involved, we will be better off. I hope we learn that lesson, before we become a French knockoff.

And that is my thought for the day!

 

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