European defence super-merger hits turbulence
Post date: Sep 18, 2012 3:56:37 PM
Talks to create a new European defense giant have entered a perilous political phase, with national concerns growing over security and jobs if BAE Systems and EADS merged.
UK-EADS/BAE - The proposed super merger between BAE and EADS has already struck political turbulence.
Last week plans were revealed for what would become the world's biggest aerospace and defence company.
But the governments of Britain, Germany, France and Spain must agree first, making the deal extremely difficult.
The German chancellor is giving little away.
ANGELA MERKEL, GERMAN CHANCELLOR, SAYING
"We are in discussions with others about this. As for EADS, of course Franco-German co-operation plays a bigger role. We have to make a decision and give an answer within certain deadlines."
The proposed company would be 60-percent owned by Franco-German-Spanish EADS, and 40 percent by the UK's BAE Systems.
On the face of it, the deal makes financial sense.
European governments could use more of the same military equipment, saving money at time when defence budgets are tight.
But unions at EADS and BAE factories worry about job cuts the merger could bring.
And BAE is keen to protect key projects like the new generations of submarine it is building for the British military.
David Reeths is Director for Aerospace and Defence Consulting at IHS Janes.
DAVID REETHS: DIRECTOR FOR AEROSPACE AND DEFENCE CONSULTING, IHS JANES, SAYING:
"It is going to be hard for some governments to overcome and that to me is the biggest obstacle to the merger is the potential loss of workforce in the European home countries. But the reality is that these countries were going to be facing these losses already. BAE already announced significant cuts in the United Kingdom."
The super merger would see EADS and BAE Systems join forces in a company worth around 38 billion euros.
It's suggested the new venture could be called Airbus.
But that name is unlikely to be welcome in the United States as it would directly challenge that country's aerospace and defence giant Boeing.
DAVID REETHS: DIRECTOR FOR AEROSPACE AND DEFENCE CONSULTING, IHS JANES, SAYING:
"I think the biggest concern I would have towards this deal is that some of the American defence companies would see this as very threatening to them, that potentially it does give EADS and the combined BAE Systems company a great toe-hold into the American marketplace so I see it political obstacles much more than the security obstacles that exist."
It's unlikely the negotiations will be protracted.
Sources close to the talks told Reuters that EADS and BAE Systems would rather scrap the deal than make wide-ranging concessions.
The next three weeks will see frenzied discussions.
BAE and EADS have until October 10 to decide whether to pull back or proceed with the deal.
Andrew Potter, Reuters