The Russians and EADS...again

Recently Vneshtorgbank, Moscow’s state owned foreign trade bank, spent about a billion dollars to buy 5.02% of the shares of the European Aeronautic Defense and Space Corporation (EADS). The revelation of this purchase is a clear sign, corroborated by press reports, that Moscow seeks a place on the corporation’s management team. It turns out that Russia has been talking to Germany, and possibly France, about acquiring shares and management responsibilities in EADS since late 2004 (Business Week Online, September 15, 2004). But it is not fully clear what Russia hopes to achieve, although a blocking position and a seat on the management board are clearly stated Russian objectives (Liberation Website [Paris], September 22; Vedomosti, September 18).

While Russia’s ultimate objectives may not be wholly clear, it is apparent that Russia seeks to force EADS and its parent governments to take its interests into account. EADS’s stock has been falling and, just as Russia announced that it had bought what it hopes is a blocking minority share in EADS, Moscow announced a major purchase of passenger jets from Boeing and from Airbus. Since EADS is the Airbus parent company, this was widely seen as an attempt to use the lure of a big Russian contract to rescue the falling stock price as leverage to gain a seat on the board. Once EADS’s management announced that Russia would not be given a seat on the board, the order for the Airbus purchases was suspended (Times [London], September 20). And Moscow apparently has also broadly hinted that if it were denied a seat on the board of EADS, it would go exclusively to Boeing (Nezavisimaya gazeta, September 22).

In other words, it appears Moscow is attempting to pressure EADS into giving it a seat on the board of directors. This whole affair has caused considerable apprehension in Europe, because Russia has also announced its intention to acquire up to 10% of EADS’s outstanding shares. Furthermore, it would not be Vneshtorgbank sitting on the EADS board if Russia were to achieve its objective, but the Russian state, which owns the bank. Thus Russia would gain its first entree into a major European aviation firm and secure influence over a major European defense producer. While Russian President Vladimir Putin has denied any aggressive intention (New York Times, September 24) it is clear that EADS and the French and German governments share a clear dislike of this possibility.

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EADS, for its part, worries that Russian attempts to force its way onto the board would compromise its efforts to compete for American defense contracts, which would help its efforts to recover from the slump in stock prices (Independent [London], September 15).

If the Russians were to acquire that much of EADS, then we'd see a huge problem for EADS gettin American defense contracts. Indeed, it would effectively quarantine EADS from the American defense procurements permanently...or at least until such time as the Russians were within the Western sphere through joining the EU and backing away from the SCO or at least reenter friendly relations!

The Gas War(s) with Ukraine, the annexation drive for parts of the xUSSR republics, the Sahklin Oil fiasco, and now this...