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Why Is the US Spending $35 Billion on Air Tankers From Europe?

Writing on the Weekly Standard’s “The Blog” about the Pentagon’s awarding of a reported $35 billion tanker jet contract to EADS, John Noonan notes: “There had been doubts as to whether the Air Force, and Congress, would award such a massive contract to a French firm, but a thaw in relations following the election of Nicolas Sarkozy may have eased concerns.” But why should a thaw in relations following the election of Nicolas Sarkozy ease concerns? If this was indeed the Pentagon’s thinking, then it is egregiously short-term thinking. Nicolas Sarkozy may act like a king, but he is not one. He has been elected to a five-year term that ends in May 2012. Who knows if the first planes will even be delivered by then?

Moreover, EADS is not a French firm. It is for all intents and purposes a Franco-German one, in which the French state, more precisely, is one of the principal shareholders. According to the latest figures provided by the firm, the French holding company SOGEADE owns 27.5% of EADS stock and the German firm Daimler owns 22.5%. A Spanish state holding company, SEPI, controls a significantly smaller share (5.5%). SOGEADE is jointly owned by the French state and the French armaments manufacturer cum publisher Lagardère. The French state alone owns 15% of EADS stock. Lagardère is in the midst of selling off half of its prior 15% share. When the sell-off is complete, Lagardère will be left with 7.5% of EADS stock and the French holding company SOGEADE as a whole with 22.5%, equivalent to the German share.

A further peculiarity of the EADS ownership structure should be noted, moreover. While EADS continues to identify Daimler as owner of 22.5% of its capital and the German company continues to control 22.5% of EADS voting rights, in February 2007 Daimler in fact sold a third of these shares (representing 7.5% of the total capital of EADS) to a consortium of banks assembled expressly for this purpose by the German government. Private banks put up 60% of the necessary investment and German public banks the remaining 40%. This means that German public banks — the federal Bank for Reconstruction (KfW) and banks of the individual German states — currently own some 3% of the capital of EADS. The bank consortium is supposed to retain the shares for three years, until July 1, 2010, at which point it is free to sell them in turn. The German state, however, will have the first purchase option on the shares. (Sources: Focus, Der Tagesspiegel)

This is to say that by 2010, Germany could officially join France as one of the principal shareholders in EADS.

Now, if it should at some point become French or German policy to oppose a given American military operation, how can one be sure that the French or German governments will not use the obvious leverage that the EADS tanker deal gives them in order to undermine or prevent it? Given that these are the very countries that spearheaded the opposition to the American-led invasion of Iraq, it does not take a particularly long historical memory in order to be convinced that such a possibility is not merely hypothetical.

There are, moreover, serious reasons to have doubts too about the appropriateness of entrusting a defense contract to a group involving the French state’s private partner in EADS, Lagardère. In early 2003, it was widely reported in the English-language media that Montana Management, a front company for Saddam Hussein, owned a significant stake in Lagardère. The 2003 reports focused specifically on Lagardère’s publishing arm, Hachette, and placed the value of the Montana Management stake at $90 million. But a UN list prepared pursuant to Security Council Resolution 1483 notes that Montana Management owned shares in both Hachette (8.4%) and the French defense contractor Matra (2.5%) prior to their fusion in the Lagardère Group. A recent (December 2007) report in the French daily Le Figaro estimates the total current value of the Montana Management stake in Lagardère to be €200 million (or $300 million). As required by UNSC Resolution 1483, these assets appear to have been frozen. But their owner appears still to be Montana Management principal Khalaf al-Dulaymi — described in the above-cited UN document as the one-time “director of investments” of the Iraqi Intelligence Service. “Iraqi lawyers have demanded the seizure of the property of Dulaymi,” Le Figaro report notes, “…but Dulaymi has opposed the move.”

Finally, it might be worthwhile recalling here the curious episode that occurred in September 2003, when following the overthrow of Saddam Hussein, Polish troops reported finding “French-made” Roland-3 anti-aircraft missiles in Iraq. The report was predictably dismissed as unfounded by the French government. As so happens, the Roland anti-aircraft missile is manufactured by the “Euromissile” subsidiary of none other than EADS.

John Rosenthal is a contributing editor for World Politics Review.