Daimler plans to sell its stake in the European Aeronautic Defence and Space company (EADS) when a consortium agreement expires in June 2012, the German newspaper Frankfurter Allgemeine Zeitung reported, citing industry sources. The German auto giant, according to the report, wants to focus on its car manufacturing business

Government officials in Berlin will meet later this month to discuss the possible consequences of such a move, a source familiar with the matter told Reuters. German Chancellor Angela Merkel has already held an initial meeting about Daimler and EADS with Finance Minister Wolfgang Schäuble und Economy Minister Rainer Brüderle, according to the source.

Change in long-term shareholders

Speculation has been mounting ever since Daimler, which no longer views the aerospace investment as core to its operations, reduced its stake in EADS from 22.5 percent to 15 percent in a 2007 deal brokered by the government with a German bank consortium. Early last year, Berlin tried but failed to find a long-term German investor to take over the banks' stake, which agreed to extend the current arrangement for up to three years.

Daimler is tight-lipped about its plan, saying only that previous comments by its chief financial officer Bodo Uebber - who also serves as supervisory chairman of EADS - remain valid. Last year, Uebber said the long-term shareholder structure of the aerospace company could change.

Most of EADS is controlled by German and French interests, both public and private. Daimler and the German banking consortium own 22.5 percent, while the French government has a 15 percent stake and the French media group Lagardere 7.5 percent.

These four shareholders, together with the Spanish state holding SEPI, with a 5.47 percent stake, form the core shareholder bloc of EADS.

Lagardere, which has halved its investment in EADS since 2006, has indicated that it has no plans to cut its stake further before 2012. In the same breath, however, the company has also made it clear that it doesn't see itself as an indefinite partner.

Keeping jobs, accessing technology

Any sale by Daimler or Lagardere would have implications for the Franco-German shareholder balance, raising politically sensitive issues in Paris and Berlin.

Both governments are keen to preserve strategic oversight of a company that makes, among other products, civilian and military aircraft in competition with Boeing of the United States. But the two part ways when it comes to state ownership: while the French state isn't overly shy to buy into the private sector, the German government is more reluctant.

"The German government needs to retain German participation in the company," said Cord Schellenberg, an independent aerospace consultant based in Hamburg. "It's about keeping jobs, about having access to future technologies and about having a say in a very strategically important industry."

At the same time, Schellenberg argues that Daimler has benefited and could continue to benefit from its aerospace involvement – if CEO Dieter Zetsche and shareholders agreed to stick with the EADS investment.

"Many innovations, like lightweight materials now used in cars, originated in the military aerospace sector before moving to the civilian aerospace sector and later the car industry," he told Deutsche Welle. "Daimler has profited from synergies between the aerospace and auto industries and from having direct access to new technologies."

Focused on making winning cars

Uebber knows this. The Daimler executive began his career with the airplane manufacturer Messerschmitt-Bölkow-Blohm, which later became part of the German aerospace group Dasa before being folded into EADS.

But his boss, Daimler chief executive Dieter Zetsche, has made it clear that under his leadership, the focus is on cars.

The search for a Daimler replacement in EADS won't be easy if a replacement is, indeed, required. Candidates would need deep pockets and ideally some technological expertise – not to mention an interest in aerospace. There aren't many that fit that bill on German soil. Siemens' sheer size and engineering background makes it a possible candidate, but it has other interests. And the nation's other big carmakers want and need to remain focused on producing winning cars in the fiercely competitive auto sector.

By the look of things, policymakers in Berlin and Paris may need some acrobatic flying skills to keep EADS from entering a nosedive.

Author: John Blau
Editor: Sam Edmonds