U.S. Interests Buying Up European Arms Makers

by Julio Godoy Ê

The U.S. investment fund KKR (Kohlberg Kravis Roberts & Co) bought the German aeronautics firm Motoren und Turbinen Union (MTU) this month for an estimated $1.8 billion. The firm produces engines for the Eurofighter aircraft. The company is also a leading supplier to the German federal army (Bundeswehr).

MTU was acquired just days before the German government passed a new law giving it the right to veto sales of strategic industries to foreign companies. The law sets a 25 percent limit on foreign investment in defense companies.

The right-wing opposition Christian Democratic Union called the law "hostile" to NATO, but Finance minister Wolfgang Clement said it "corresponds to similar laws covering strategic sectors in France, the United States and Britain."

The law was introduced after the U.S. investment fund One Equity Partner bought the manufacturing facilities at HDW, the world's leading submarine manufacturer in 2002. The U.S. military firm Northrop Grumman was involved in the takeover, German military specialists say.

The new legislation is due to be tested soon. The high-tech manufacturing firm Siemens is planning to sell its military division Krauss-Maffei Wegmann which manufactures tanks and armoured vehicles. Several U.S. firms are reported to have shown interest in the proposed sale.

U.S. firms are stepping in all over Europe. General Dynamics has over the past five years bought military companies from Styers in Austria, Mowag in Switzerland and Santa Barbara Blindados in Spain. All three were placed under a single management in October last year.

The U.S. firm tried also to take over Alvis, the British manufacturer of armoured cars. The move was blocked by the British firm BAE Systems.

"But as a result of the European acquisitions, General Dynamics now has considerable influence over production of engines for the Leopard armored car," a French industry manager told IPS.

"The U.S. military industry has been trying to get into this European sector for years," he said. "They are now establishing a cordon around us."

The next U.S. step could be into SNECMA, the engines manufacturer at the heart of French military industry. The French government is considering privatization of the firm.

Jeffrey Inmelt, chief executive of the U.S. giant General Electric told the French newspaper Les Echos that he is "very interested" in a share in SNECMA. "The French company is of central strategic importance in the construction of aircraft engines," he said.

European industry is fragmented and therefore prone to acquisition by big companies, says Dominique Gallois, defense expert with the newspaper Le Monde. Industry must restructure itself to counter the corporate U.S. offensive, he says.

"One possibility is to set up a conglomerate like the European Aeronautics Defense and Space (EADS) company," Gallois says. The company supported by the French, German, Spanish and British governments manufactures the Airbus. EADS itself could bring together several European defense firms under its wing, Gallois says.

Pascal Boniface, director of the French Institute for Strategic Studies says European companies must enter into alliances to maintain their independence.

"After the second war against Iraq, the U.S. government and its allies in the military industry don't want to see an independent and powerful European counterpart," Boniface told IPS. "That itself shows that this industry is of strategic importance."