But the point about spending of this sort is that it doesn’t necessarily have to be on defence. It could just as easily be on sending a man to the moon, or trying to find a cure for cancer.The Eurofighter was conceived of at a time when German unification and the end of the cold war were still strictly for dreamers. The effect of high US defence spending is to turbo-charge American industry and technology; it is the great powerhouse of the US industrial success story. That’s still pounds 100,000 per job, which even for high technology is going it.
This brings us to the third part of the Defence Secretary’s justification – that it will keep Britain at the cutting edge of technology There’s something in this argument. For this, Britain gets 230 state-of-the-art fighter aircraft (great toys, Batman) and creates about 15,000 jobs That’s pounds 1m per job.

Now let’s be charitable about this and make the admittedly heroic assumption that these will be multiplied 10- fold in the field once the spin offs of the project into other industries are taken account of. But let’s assume that in all likelihood the others will follow our lead; the real puzzle of this enterprise is that seven years after the collapse of the Berlin Wall we are still ploughing ahead with it at all

Consider first the cost – pounds 15.4bn minimum. But as is usually the case with government announcements, it is not all it seems. For a start, this isn’t really the go-ahead at all, since the project still requires the Germans, and to a lesser extent the Italians and the Spanish, to commit. If they don’t, it is hard to see how the British can really go it alone. GEC and BAe held unsuccessful merger negotiations 18 months ago but could not agree terms. However, there is still strong support within the BAe boardroom for a deal: “My own view is that BAe and GEC should have happened years ago,” said one BAe board member..

At first sight, Michael Portillo’s announcement of the go-ahead for the hugely ambitious Eurofighter programme is a big shot in the arm for British industry and technology. Representatives of the Ministry of Defence and the Department of Trade and Industry sit on the National Defence Industry’s council, the body which is co-ordinating moves towards European consolidation.Nevertheless the strategy faces some daunting obstacles.The creation of single European suppliers would raise immediate anti trust complications by robbing governments of competition for defence contracts other than from US manufacturers.Unlike its US counterpart, the European Aerospace Industry is structured to accommodate national defence procurement programmes of different countries.BAe is also under no illusions that issues of national pride, jobs and technological leadership will also need to be addressed.There are already concerns that the restructuring of Airbus will involve job losses of up to 20 per cent along the 30,000 workers directly involved in the consortium.There is also likely to be as huge battle over the assets that each of the four partners puts into the new company and how they will be valued. Privately, senior BAe executives believe that the timetable set for signing a binding memorandum of understanding by the end of this year will be difficult to meet.On the domestic front, BAe appears to have ruled out an acquisition of a fighting vehicles business such as Vickers, maker of the Challenger tank, or GKN, which owns the helicopter manufacturer Westland and also makes the Warrior armoured vehicle.But the prospects of a merger with GEC Marconi which specialises in defence, electronics, radar and weaponry, is bound to be heightened by the arrival next week of George Simpson as GEC’s new chief executive.Mr Simpson, a former deputy chief executive of BAe intends to carry out a fundamental re-evaluation of GEC strategy and could, insiders believe, be the man to forge an alliance with BAe. Its missiles business was merged last month with Matra of France and the combined group intends taking a stake in the French defence electronics business, Thomson, when it is privatised later this year.BAe now envisages bringing other partners into the process so that in time Europe has just one manufacturer of civil aircraft, military aircraft, military engines and missiles.Rival aerospace groups such as Aerospatiale and Dassault in France, Daimler in Germany, Alenia in Italy and Casa would pool resources to create a single dominant supplier.Overseeing this would be a European holding company in which each of the big aerospace companies had equity stakes.The plan is being actively supported by the British government. The four partners in the civil aircraft manufacturer Airbus Industrie – BAe, Aerospatiale of France, Germany’s Daimler-Benz and Casa of Spain – have agreed to transform the consortium into a single corporate entity by 1999. Separately, BAe and the Franco-Italian group ATR have merged their regional aircraft businesses through a joint venture called AIR.BAe is also seeking joint ventures for its own military divisions. If British Aerospace still exists in its present form in five years, then we will have failed.”The Deputy Prime Minister, Michael Heseltine, yesterday backed the calls for the further restructuring and consolidation of the European defence industry to match developments in the US.He told delegates at the Farnborough Air Show: “Europe faces the same dilemma and we haven’t moved with sufficient speed.”The restructuring of Europe’s aerospace industry is already under way.

The hugely ambitious strategy would see BAe disappear as an independent company over the next five years through a merger with one or more of its counterparts in Germany, France, Italy and Spain.
BAe has not ruled out a merger of its military aircraft and missiles business with GEC as a forerunner to the creation of an all-embracing European aerospace holding company.The aim of the strategy would be to establish a grouping with the scale resources, technological know-how and marketing power to take on the likes of Lockheed Martin and Boeing of the United States.Senior BAe executives liken it to the creation of an aerospace version of Royal Dutch Shell or Unilever.One said: “The case for Europe getting together is overwhelming because if we don’t have consolidation across Europe the Americans will win. British Aerospace is spearheading attempts to create a single European commercial aircraft and defence grouping by the turn of the century to compete with the might of the Americans. It recently announced it was taking on a further 5,000 workers to cope with demand for the 777.. In addition, it yesterday brought forward the delivery dates for 10 more 747-400s which cost $155m each.Boeing said it planned to almost double production from 18 to 36 planes a month by 1998. Hopes that the plane would be formally launched at Farnborough were dashed because the company had failed to persuade an airline to make a firm order. It hopes to achieve this by the end of the year.However, Boeing did use the airshow to announce $6.3bn of new orders, of which around $1bn are thought to have come from British Airways.BA is buying four 747-400s, three 777-200s and three 757-200s. Due to enter service in 2003, the A3XX will have to be one-third-funded by European governments in what Airbus describes as “refundable loans”.The consortium, which is planning to convert its structure into a conventional company, also needs to attract partners, probably from the Far East, to share the risk and provide 40 per cent of the capital But Boeing has troubles of its own with the 747 500-600.

“The smaller number they are using is a self- serving proposition to support their claim that there’s only room for one aeroplane,” said David Venz, an Airbus spokesman.He insisted the A3XX would be 20 per cent cheaper to operate per passenger than a conventional 747. Over the next 20 years that should translate into 1,400 orders for the A3XX.Boeing argues there will be enough room for more frequent flights and, coupled with the trend towards non-stop long-haul travel, the demand for super-jumbos will be less than 500, insufficient to justify the development budget.Privately, European aerospace companies accuse the US of using the failed collaborative talks to delay Airbus gaining a foothold in a market which Boeing has, until now, monopolised.Yesterday Airbus was scathing about the latest Boeing attack. The two sides differ radically over the anticipated demand from airlines for super-jumbos with more than 500 seats.Airbus believes that lack of runway space and environmental considerations will encourage carriers to cram more passengers on to larger aircraft. Mr Woodard said both sides had then agreed the cost would be between $12bn and $15bn.