Doomed to Failure?

German Chancellor Angela Merkel and French President Jacques Chirac agreed Friday that their two countries should both shoulder the burden of up to 10,000 job cuts at Airbus even as details on how the European aviation giant's restructuring program were again postponed to early March.

Barbara Böttcher, a European integration analyst at Deutsche Bank Research, talked to DW-WORLD.DE about the difficulties facing Airbus as it grapples with rival national interests, attempts to merge political and industrial policies and turn a profit at the same time.

DW-WORLD.DE: What motivates governments to buy shares of international companies? Interest in making a profit, gaining influence in how the company is operated or some combination of both?

Barbara Böttcher: I don't think it's interest in getting profits because large parts of the companies where states used to have shares have not been especially profitable. I think it's much more national interest in securing access to technology and making sure that national interests with regard to security issues are not in danger and probably also making sure that market access for other states or companies is under a certain level of control.

When we take the example of Airbus, it seems like national political interest is one of the factors that is keeping the company from economically succeeding. Are European companies almost destined to failure when governments buy stakes in them?

It is not a necessary consequence. Airbus is a very particular issue because the national stakes in Airbus are represented by a fragmentation of the company's production structure. Let's assume that Airbus is concentrated in two locations, one in France and one in Germany. We would then get out of a lot of cost problems and coordination problems so I don't think it's a necessary consequence. But, of course, as soon as you have various national stakeholders in a company, it becomes very difficult.

The situation is different if you have one national company that has only one state stakeholder. But if you have a group of states holding stakes in a company this is extremely difficult. And this is what the Airbus fuss is about. It's not purely because it's a state-influenced company, but because it's influenced by various state stakeholders with sometimes conflicting interests.

Is a company like Airbus forced to make decisions for political reasons that end up hurting the company as an economic entity?

This would be short-sighted. This kind of decision making does not help you survive in the market. From a purely economic point of view, we need to have a streamlining of production structure for Airbus and various other management measures. If there is a decision to neglect this and emphasize the political issue, I think it will become very difficult for Airbus to be a competitor with Boeing.

German Chancellor Angela Merkel has said there needs to be equality between France and Germany on job cuts at Airbus and at a meeting on Friday French President Jacques Chirac agreed there should be a "fair division." Is that the type of condition that could hinder Airbus' development?

Once you have reached the decision that there have to be cuts in production sites, I think there has to be some sort of compromise. You have to look at cost efficiency but you have to find a certain balance because otherwise it's not a German-French undertaking anymore.

Are there examples of multinational, European companies that have succeeded because of -- or in spite of -- having more than one government owning part of them?

No, I'm afraid not. Some of the projects, like Galileo, they are not really enterprises. They are a type of project financing but not purely market-oriented corporations.

It could be that the problem comes in when the companies have to make a profit. Running a corporation becomes very difficult when you have even two different political opinions about where a company should go. To a certain extent there are sectors where state influence is understandable. If you have a market for aircraft it is very difficult to have market access without start-up subsidies.

As shareholders in a company the national governments have a right in saying how a company is run.

Yes, but you have to see that Germany never exerted this kind of influence. It's very much a German-French problem of different approaches to industrial policy.

One of the problems that Airbus has run into is that Germany has decided to limit and reduce subsidies in the aviation sector. That has led to a disadvantage in technology investment in the German parts of Airbus, whereas France has consequently pumped state money into their parts of Airbus production. You could say that Germany now suffers from disadvantages because it has tried to step down with state interference in the company.

The European Union monitors these types of cross-border businesses and projects and in the case of Airbus is helping its defense against Boeing's charges of EU countries providing subsidies. Is there a role for the EU when it comes to finding compromises in how Europe's cross-border projects operate?

No. Not at all. I think the EU Commission has a say when it comes to issues of competition and problems with market access but there is no role for the EU in this.

What is the effect of economic patriotism on the EU's single market?

The economic patriotism we looked at showed that even within the single market there was a nurturing of national champions and ambitions from European governments to deny market access as we've seen in the energy sector in Spain and in the finance sector with mergers and acquisitions in Poland. That is really a problem for the single market, because its major advantage is providing a level playing field and making sure European countries reach a sort of critical mass to compete with US companies in various areas. If you go back and raise the fences around the national markets you certainly undermine the European single market.

Is there a way to bring national champions from a number of EU countries together to form a European champion?

That's certainly a very strong industrial policy and, in fact, that was the intention of Airbus and EADS. I think it is very difficult to form a European champion that is driven by political power. I'm afraid they are really domed to fail.

If you look at a lot of cross-border mergers and acquisition projects of the last decade, especially between Germany and France in the pharmaceutical sector, after five to seven years you see that in order to succeed one of the cultures dominates the company. You will never get a merger of mentality and culture but have one dominant culture and that certainly makes it very difficult to be at an equal level with another country.