15 Jan 04. The FT reported that, Snecma, the state-owned French aero-engine and aerospace equipment manufacturer, has rejected a merger approach by Thales, ahead of Snecma’s planned privatisation this year.

Jean-Paul Bechat, Snecma’s chief executive, on Wednesday said bankers had valued the company at €5bn-€6bn ($6.3bn-$7.6bn). He also said net profits last year would show “a significant increase” over the net earnings of €106m in 2002, with a further rise in profits forecast for this year.

If the French government decided to privatise or partially privatise the company in the first half of this year, he said Snecma was “ready”. He confirmed that General Electric of the US was interested in acquiring a 10 per cent stake.

While he considered GE’s move as “friendly” and strengthening the companies’ long association in the civil aero-engine business, he shot down the idea of a possible merger with Thales, the French defence electronics group.

“Thales’ interest in us is flattering,” he said. “But an alliance with a systems integrator is neither useful nor necessary for us.”Such a merger risked undermining the company’s commercial relations with other customers and systems integrators, he added. For the same reasons, he dismissed any potential financial alliance with Dassault Aviation since it was Snecma’s business to sell products to customers such as Thales or Dassault. “GE has no such ties with Boeing or Lockheed Martin in the US, and Rolls-Royce has none with BAE Systems in the UK,” he said. Many aerospace industry observers felt Thales’ approach to Snecma was a response by the 30 per cent state-controlled French systems integrator to the continuing desire of the European Aeronautic Defence and Space Company to combine with Thales.

In what was tantamount to a dress rehearsal of an eventual privatisation roadshow, Mr Bechat on Wednesday said Snecma had shown that its business model had weathered successfully the recent storms in the aviation business.In spite of another difficult year, group sales of €6.4bn had remained stable, net financial debt, which totalled €590m at the end of 2002, had been reduced by half, and the company had an operating margin of more than 7 per cent of total sales. The increase in 2003 earnings that the company now expects to report at the end of February reflected lower provisions related to US airline customers. Mr Bechat said Snecma was hit in 2002 by the decision of United Airlines and US Airlines to seek Chapter 11 bankruptcy protection. Last year, it faced Air Canada’s Chapter 11 filing, although US Airways emerged from bankruptcy. “We have not faced any other catastrophes in the second half of last year,” he said. Since then, the airline industry appeared to be recovering – helping to boost the company’s privatisation prospects. “The economic obstacles that had delayed our privatisation process have been lifted,” Mr Bechat said.

Comment: We discussed the possibility of some kind of Snecma/Thales deal lat year in connection with French Government holdings. However the approach has been rebuffed but the other great BATTLESPACE talking point, the possibility of an EADS merger with Thales in some form, will not go away, could it happen in 04?