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The Week Of:
October18,1999

Dassault to Split Business and Fighter Companies

Serge Dassault adamantly plans to keep his Dassault Aviation independent, despite the pressures of European consolidation. Just days prior to the DASA/Aerospatiale Matra merger announcement, the iconic chairman of the French fighter and biz jet house granted AWN a private interview at the NBAA show in Atlanta.

Despite Aerospatiale Matra's 46% ownership in Dassault, Serge Dassault professes no concern about complications from the merger. "They do commercial aviation and we do military and business aircraft," said Dassault. "We do different things." This division of activities supposedly minimizes any impact of the DASA/Aerospatiale Matra merger, however DASA is one of four European partners in the Eurofighter military aircraft.

Another hidden complication is the fact that Dassault is known to be discussing a relationship with Brazil's Embraer. If a deal comes together, Dassault would pick up a piece of the company, perhaps as much as 10%. Is the French manufacturer interested in the regional jet market? "No, but we understand that this is part of Embraer," said Dassault, referring to the Brazilian manufacturer's successful ERJ series. "We believe in the future that it is necessary to have cooperation in countries where we sell our fighters, as a trade offset," added Dassault later, perhaps alluding to the $5 billion the Brazilian air force is expected to spend in coming years.

Discussions with Embraer may also be prompted by a recent World Trade Organization ruling that both Embraer and Canada's Bombardier violated trade rules by using illegal government subsidies. Loss of this support puts Embraer at a disadvantage since the company is developing several new aircraft programs, including last month's announcement of the new ERJ-140 aircraft, plus supporting export financing for its many airline customers.

Dassault is also talking to other prospective partners around the world to support its military export programs. Despite recent French government orders for the company's Rafale aircraft, export still comprises a dominant 80% of orders. As a result, Dassault is looking at other companies in target areas of the world to serve as offset partners.

Will Dassault consider US companies for merger or partnership? "Not really," responds Dassault. "We sell our military aircraft to countries that don't buy US aircraft." To partner with Lockheed or Boeing would bring US political pressure when the company sought to sell to countries not friendly with the US. Plus, US partners would try to put pressure on Dassault not to compete in orders to countries in which the US does sell aircraft. "In either case, this is not good," added Dassault.

On Dassault's recent decision to put on hold further development of a supersonic business jet, Dassault explains, "We thought we could use an existing engine, but there is not enough power to fly at supersonic for three hours. We talked to all of the major engine companies and we learned that this engine would require heavy investment in development. For only 200 to 300 aircraft the market is not sufficient to pay for the engine development." The company remains willing to reconsider, however, if an engine emerges in the future.

And finally, is Dassault happy with the speed of his company's separation into military and civil divisions, slated to be completed by the end of the year? "Yes, it is progressing according to our schedule. This is not a complicated process," smiles Dassault. The company made the decision to separate into two divisions to provide more focus on the dissimilar markets for fighters and business jets. The split will not be a legal division, however, but simply two operating divisions of the company.



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