Story ID: 
Dassault looms large over Thales 
By: Jeff Apter
Caption: Thales, Europe’s third largest civil and defense aerospace group, makes its first appearance at Le Bourget since it acquired a new shareholder and executiv
Word Count: 1107
Thales, Europe’s third largest civil and defense aerospace group, makes its first appearance at Le Bourget since it acquired a new shareholder and executive board last month. The move, in which Dassault Aviation becomes a major active player following the ouster of long-time CEO Denis Ranque after a three-way struggle between the Thales board of directors, the French government and Dassault, follows years of uncertainty regarding Thales’s shareholding structure and strengthens the government’s domestic hold on a leading national defense group. Thales, meanwhile,, says it is managing to move through the crisis and for the time being anticipates no layoffs, seeks stronger relationships with its subcontractors and suppliers, and is focusing on customer service.
After 11 years at the helm, Ranque fell under the sword of Dassault and the French government in a coup at Thales’s annual shareholder’s meeting on May 19. The move follows Dassault Aviation’s acquisition of Alcatel-Lucent’s 20.8-percent equity in the group for about E1.57 billion ($2.16 billion) following the French-U.S. group’s difficulties. 
The sale has the blessing of the French government and AMF, the stock exchange regulator that insists that the existing shareholders’ pact continue unchanged with the new stakeholder. Stock exchange authorities of various countries will be consulted in the coming weeks. 
Dassault Aviation also purchased the 5.16-percent stake that the family-owned Groupe Industriel Marcel Dassault held in Thales, making it the biggest industrial shareholder with 25.96 percent of Thales’s capital and 20.11 percent of voting rights. The government holds 26.53 percent of the group’s stock and 41.1 percent of the voting rights. 
As chief executive, Ranque, whose term as CEO was not due to end until next year, kept Thales independent and warded off its rival, EADS. He expanded Thales’s worldwide activities including acquisition of the UK’s Racal, turning it into one of the country’s leading defense contractors. Thales, formerly Thomson-CSF, has become a major supplier to both the civil and military industries and a leading systems integrator employing 68,000 people and regularly paying dividends. About 13,000 people are employed in the aerospace sector in 11 countries, 9,000 of them in France.

New Board Members
Dassault Aviation chief executive Charles Edelstenne, who with three other Dassault nominees joins the Thales board of directors in which nine of the 16 members have been replaced, told journalists in Paris that his company will play an active part in its decision-making but does not intend to take control. 
He said Dassault’s entry into Thales would help make the builder of the Rafale combat aircraft one of Europe’s leading high technology civil and defense groups, like Britain’s BAE Systems, Finnmeccanica of Italy and Saab of Sweden. The two companies would exchange their know-how but that there is no question of a merger between them. 
Edelestenne said the group’s shareholders–the Dassault family (50.55 percent) and EADS (46.32 percent)–are not obsessed by the ups and downs of the company’s stock-exchange quotations. Despite the difficulties for its Falcon family of business jets in the context of a global economic downturn, the investment in Thales is long term, he said. Thales’s strategy will continue and its profitability will also improve through simplifying the way it functions, R&T cooperation and marketing products abroad.
Dassault’s new role in Thales’s future as a defense group ends years of uncertainty for a company regularly courted, especially by EADS. Airbus attempted to take control three times between 2003 and 2005. On its fourth attempt to buy Alcatel-Lucent’s share, EADS offered a higher purchase price, but in spring 2008 the French government–Thales’s main shareholder and a 15-percent shareholder in EADS, vetoed the move, preferring Dassault. Alcatel-Lucent boss Philippe Camus wanted to see a competition, while Ranque’s suggestion that  Alcatel-Lucent’s equity to be sold on the stock market was rejected. Finally, in November, Alcatel agreed to Dassault’s price. Paradoxically, EADS’s 46.32-percent share in Dassault gives it an indirect stake in Thales.
The new Thales boss is Luc Vigneron, who after 17 years at CGE (which became Alcatel Alsthom and then Alcatel) for eight years headed the state-owned Nexter defense group, formerly known as GIAT Industries, the manufacturer of France’s Leclerc battle tank. He arrives with the reputation of having pushed through a major restructuring move that cut 7,000 jobs, and emerged as a compromise candidate proposed by the French economy ministry that controls the government’s stake in Thales. 
Dassault had favored François Quentin but the former head of Thales’s Aerospace division drew opposition from the government as being too close to Dassault on the Rafale fighter aircraft program. Some opposition was also expressed by Thales’s internal selection committee. And in January, Ranque removed him from his post citing inadequate performance. However,  well informed sources expect Quentin to fill a new post as Vigneron’s deputy.

Moving Through the Crisis
Jean-George Malcor,  in charge of Thales’s Naval Division since 2004 and now new senior vice president for the aerospace division, told AIN that despite the seriousness of the crisis, over the last few years Thales has attracted a large order intake and is managing to move through the crisis because the group anticipated the effects of the dollar’s decline. He believes the civil and military mix is a good balance and the group is active in several world markets where the effects of the crisis differ. Its involvement in the military side is helping it through the peaks and troughs of this period, he said. 
Internally, Thales is accelerating its present cooperation plans with its supply chain, on which so far there has been no disruption, and is ensuring firm agreements. It is talking to its employees to avoid layoffs, though they could not be guaranteed. For the first time, plants will close for two weeks in August to reduce stocks. Meanwhile, R&D plans, in which it invests 23 percent of its revenues, including in the major European initiatives such as SESAR and Clean Sky, are being maintained to stay in the forefront of new technology as an investment in the future. According to Malcor, customer services are assuming a greater role, with the group offering “solid packages” that take short-, medium- and long-term responsibility for systems maintenance and upgrading. Meanwhile, it is forging stronger relationships with airframers and airlines. Even during the crisis Thales has made huge strides and now ranks fourth in the world on IFE systems, up from 28, because of service to customers.