French polls loom over delayed Safran-Thales swap

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French aerospace groups Safran and Thales are struggling to agree a half-billion dollar asset swap and union unease over 4,000 defence jobs risks pushing the deal back as April/May presidential elections loom, industry sources said.

“It is not going to be easy to get a real agreement ahead of the elections,” a source close to the discussions said. “There is too much fear of agitation to allow much to happen.”

In the latest setback to government-backed efforts to reduce costly overlap in France’s defence industry, a meeting aimed at addressing the concerns of a group of Safran staff shareholders opposed to the deal has been postponed, Reuters reports.

Safran’s board was expected to meet on Wednesday to respond to a letter from employees of its Sagem optronics unit, which makes night-vision goggles for the French army, calling for clarity and questioning the logic of the long-delayed deal.

But the meeting has been pushed back to an unspecified date, raising further doubts over the prospects of a quick deal between Safran and Thales to pool activities, the sources said.

A spokeswoman for Safran declined to comment.

The government wants the two privatised companies, in both of which it remains top shareholder, to streamline assets to prevent taxpayers having to pay twice for identical research.

Under the proposal, optronics activities would be grouped together under Thales, Europe’s largest defence electronics group, and inertial navigation, which tells pilots their position, would be run by aerospace and engines group Safran.

Negotiations resumed earlier this year at the insistence of the government after breaking down last year.

But despite a spate of reports that a deal was close, the two sides have been unable to hammer out a final deal.

On top of splits over valuation, an increasingly vocal campaign by Safran unions risks pushing the unresolved debate into 2012, a French election year. That is a period when in France it is traditionally difficult to take decisions on either defence or jobs, let alone both.

Workers at the Sagem unit have held several factory demonstrations and slowed down production to protest against plans to place their optronics activities under Thales.

While the government is looking for new ways of cutting spending, President Nicolas Sarkozy’s government is anxious to avoid strife ahead of presidential elections in April and May, to be dominated by jobs and fears over Europe’s debt crisis.
“Our feeling is there is no real willingness to get this done and it could well be sacrificed because of the political climate,” said Didier Gladieu, a CFDT union official at Thales.

Under pressure from the defence ministry to demonstrate progress, Thales and Safran aim to adopt a memorandum setting out the basis for a future accord. Industry analysts say this may paper over differences while fuelling union protests.
“Signing this memorandum means tying us up in something very dangerous for us and for our jobs and pushing ahead with a so-called industrial plan without foundation could be a catastrophe,” said Jean-Paul Lanel, a union official at Safran.

In earlier rounds of talks, there was rough equilibrium between the two sets of assets to be exchanged. Under the latest scheme Thales would keep control of valuable processor systems, leaving Safran looking for ways to be compensated.

To avoid Thales having to part with cash, the two sides are looking at setting up two ventures whose equity composition would reflect the value of assets contributed by each side.



But sources said the shares remain a major sticking point, with Safran so far resisting terms put forward by Thales.