EADS warns Moscow over board move

EADS, the Franco-German aerospace and defence group, issued a clear warning to Moscow on Thursday that it was not willing to contemplate Russian representation on its board or any move that would give Russia influence over the group's corporate governance.

The statement made jointly by Manfred Bischoff and Arnaud Lagardère, the German and French co-chairmen of Europe’s biggest aerospace and defence group and the parent company of Airbus, came only days before the Russian, French and German leaders are due to hold a trilateral summit at the end of next week in Paris.

Earlier this week EADS confirmed that Vneshtorgbank, Russia’s second largest state-controlled bank had become the largest investor in the concern outside the group of core EADS shareholders after accumulating a 5.02 per cent stake, worth €950m at the close of trading last night.

EADS has become concerned about Russia’s plans to increase its stake further following the declaration by a senior aide to president Vladimir Putin on Tuesday, that Russia might eventually insist on taking a blocking stake in EADS, highlighting the Kremlin’s determination to develop deeper co-operation with Europe’s leading aerospace and defence group.

EADS is anxious to allay any concerns in Washington about a growing influence of Russia in its affairs at a time when the European group is seeking to build its own presence in the US defence market.

At the end of June EADS achieved a breakthrough with its first ever win as a prime contractor for the US military with the contract to supply light utility helicopters to the US army worth up to $3bn, and it is currently seeking the much bigger prize of a role in supplying inflight refuelling tankers to the US airforce.

It is battling against Boeing for the tanker contract. First orders could be placed by the end of 2007 in a programe that eventually could be worth $100bn for more than 400 aircraft.

In their joint statement the EADS co-chairmen said they had taken note of public statements in Russia that the 5.02 per cent stake taken by Vneshtorgbank “could be extended to a blocking minority.”

They said they had a “great interest” in extending the existing co-operation between EADS and the Russian aerospace industry and saw “a great potential for strategic partnerships including joint investments into new aeronautical programmes on either side.”

They insisted, however, that there was no room for the existing majority rights of the core EADS shareholders to be “circumvented” by other investors buying shares through the market.

“It would not be in the interest of the company to change corporate governance or enlarge the group of industrial shareholders,” they said.

The EADS core shareholders hold just over 50 per cent of the equity. DaimlerChrysler, the German automotive group holds 22.5 per cent, the French state 15 per cent, Lagardère, the French media group 7.5 per cent, and Sepi, the Spanish state holding company, 5.47 per cent.

They formed a contractual partnership in 2000, when EADS was formed from the merger of large parts of the German, French and Spanish aerospace industries, which covers issues such as the composition of the board, defences against hostile third parties and specific rights for the French state regarding certain strategic decisions including EADS’s activity in ballistic missiles.

French president Jacques Chirac and the German chancellor Angela Merkel are expected to support the firm stance taken by the EADS chairmen, when they meet Mr Putin next weekend.

The emergence of the Russian state as a significant investor in EADS is likely to apply a sharp brake to the previous intentions of both the German and French industrial shareholders to reduce further their stakes in EADS over time.

Earlier this year both DaimlerChrysler and Lagardère reduced their stakes respectively from 30 to 22.5 per cent and from 15 to 7.5 per cent and had indicated that they eventually expected to sell down further.

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