European Comment: Russia ups aerospace spat

Russia is turning into the latest commercial battlefield for Airbus and Boeing.

The two dominant aircraft manufacturers are currently vying for a big Aeroflot contract, and are proposing billions of dollars of engineering and outsourcing work in Russia to gain the upper hand.

The long-term stakes are even higher. Airbus believes Russia will need 600 new planes over the next 20 years and is already talking of forging a $25bn partnership with the Russian government to develop a new aircraft. Boeing plans investing a further $3bn in Russian design and manufacturing on top of the $2.5bn it has already spent there.

Yet all this is as much defensive as offensive. For Russia nurtures big ambitions of its own to revive its aerospace industry, which has languished since the fall of the Soviet Union.

President Vladimir Putin is now merging all the country’s aircraft companies into one state-controlled group.

The chances are he will pump in huge sums of money to get Russia flying again and competing against Airbus and Boeing.

So is it wise for the two western manufacturers to offer their know-how so readily to the Russians?

All the more reason for Europe and America to resolve – at long last – their subsidies dispute. A negotiated settlement, rather than a protracted legal battle, would establish new rules that could also be applied to Russia and others with similar ambitions.

Empty seats

The aviation industry never seems to learn the lesson. Aided and abetted by manufacturers all too keen to sell their wares, airlines have traditionally ordered too many new planes during boom times and then struggled to fill them when the cycle turns. Back in 1991, airlines ordered what at the time was a record number of new aircraft before the Gulf war sent the industry into a tailspin.

The next record for new aircraft orders was set in 1999, with crisis striking soon afterwards when the telecoms bubble burst, followed by the terror attacks on the US in 2001.

A new record was set last year with Airbus and Boeing booking more than 2,000 new orders. The airlines continue to talk up the prospects of buoyant air traffic, especially in fast-growing Asian countries, but danger signals are flashing all over the skies.

Giovanni Bisignani, the head of the International Air Transport Association, this week used the Singapore Air Show to warn of new overcapacity problems facing the industry, especially Middle East and Asian carriers that have been indulging in an extravagant new aircraft buying binge.

Carriers from these regions took more than a third of new orders last year. Their combined fleets are set to rise by 48 per cent without taking into account all the extra orders they are expected to book. Yet, according to IATA, passenger and freight traffic in these regions is growing more slowly than increases in Asian and Middle East airline capacity, and likely to continue doing so. Bad habits die hard.

Twisted cables

If Fulvio Conti is seriously thinking of mounting a bid for Electrabel – or indeed the Belgian utility’s French parent Suez – the Enel boss might find it useful to have a few words with Carlo De Benedetti.

After all, the Italian businessman knows a thing or two about bidding for a Franco-Belgian group. More than a decade ago, he launched one of Europe’s first cross-border hostile raids, targeting Société Générale de Belgique – a corporate icon that included Electrabel in its portfolio.

Fierce resistance from the Franco-Belgian business establishment frustrated his plans, with Suez rushing to the rescue. Since then, Suez boss Gérard Mestrallet has refocused the former French financial holding into an energy and water utility, which now has full ownership of Electrabel.

In business you never have permanent enemies, just permanent self-interests; Mr De Benedetti and Mr Mestrallet have since become partners in an Italian electricity venture.

All the more reason for Mr Conti to touch base with Mr De Benedetti, which should not be too difficult in the small world of Italian business.

Enel’s boss has certainly managed to create some additional splashes in the waves rocking the European energy sector.

Apart from eyeing Electrabel and Suez, he confirms an interest in lending Spain’s Gas Natural a helping hand should it decide to better Eon’s offer for Endesa.

All this reflects his determination not to see Enel become a bystander in the game of European energy consolidation.

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