Long negotiations lead to joint venture (700 words)

Published: 1/10/2001

Following a prolonged period of negotiation, it appears that the Romanian authorities have finally found an acceptable structure for the relationship between Eurocopter and IAR Brasov. The memorandum of understanding signed, on the 22nd of December, by Neculai Banea, the President of IAR SA Brasov and Dr Siegfreid Sobotta, Eurocopter VP, however, falls well short of the expected sale of the helicopter manufacturer, to the European producer, by the Romanian State Ownership Fund (70% owner). The MoU covers the formation of a joint venture company in 2001, incorporated under Romanian law, with the name Eurocopter Romania after a period of due diligwence to define the exact value of the constiuent company's contributions. The joint venture, which weill be shared by an executive from Eurocopter, will have the following remit: to market Eurocopter products in Romania; to manufacture light twin-engined helicopters for the Romanian market; to provide support for new helicopters sold in Romania; to sub-contract components for the Puma and Alouette helicopter in the European Union; and to upgrade “pre-owned “ helicopters for the Romanian and export markets, such as the IAR Puma upgrade, the Socat. The deal comes following the split of IAR into three parts in early December. Top Therm, Aripa Fixa and Elicoptere, were created on the basis that the company, as a whole, was insufficiently “mature” to achieve privatisation - according to Neculai Banea. The helicopter producer has therefore been retained within state ownership, but a public tender will privatise the profitable TopTherm, which specialises in plastic components and will be followed by the privatisation of component producer, Aripa Fixa, after restructuring IAR's relationship with Aerospatiale (the French Eurocopter constituent), goes back to 1970, when the company which was founded in 1925, contracted to build, under licence, the Alouette III 317B. This was followed by a number of other co-operations, including the IAR 317 Air Fox and the IAR 330L SOCAT upgrade of the Puma. They won a tender, for the company, after the failure of a proposed deal with Textron Bell, arising from a number of factors, including disagreements over the restructuring plan for the plant and the placing of orders for attack helicopters by the Romanian Government. Eurocopter, however, has proved unwilling to take over the helicopter-maker outright and has requested a number of delays in making its final offer for the plant, during 2000, in order for it to pursue further talks regarding the legal, industrial and financial aspects of the deal. It has denied that it is losing interest in the deal. The final outcome of a joint venture however, suggests that the Romanian authorities, despite much postulation about withdrawing from the negotiations in the middle of 2000, have accepted the joint venture agreed before Christmas and could not overcome Eurocopter's concerns about outright purchase. The deal appears to offer Eurocopter the benefits of IAR's manufacturing, but without the tail-end of the problems that Britten-Norman struck in its acquisition of Romaero - a deal that was subsequently cancelled when the UK producer tried to have the price of the purchase reduced, after due diligence revealed facts materially affecting the price. The details released, concerning the deal between the two parties, suggest that the expected construction of the single-engine AS 350BA Ecureuil and the twin-engine AS 355N Ecureuil, under a previous agreement in 1996, may continue. The comments from Eurocopter do not make it clear whether the helicopter will be produced for export outside of Romania. Overall, it is not entirely clear what the precise intentions of Eurocopter are towards the struggling enterprise, but it seems likely that the focus will be on Eurocopter's products, suggesting that IAR's small production of motor glider and light aircraft will end, as it will remain outside the JV. It is also uncertain how much Eurocopter intends to invest in the factory built in 1968, although more details will undoubtedly become available over the next twelve months. Eurocopter, for their part, have made a statement as follows: the company will be integrated “within the framework of a global policy in harmony with the group logic of the world's leading helicopter manufacturer”, although your correspondent is unclear what this actually means.Jean-Louis Espes of Eurocopter has however, offered further clarification saying that the enterprise will operate with "relative autonomy" keeping the structure light, but with the support of Eurocopter industrial and commercial network.

Article ID: 2278