BAE Systems, Britain’s largest manufacturing employer, and EADS, the owner of Airbus, have announced plans for a $48bn (£29.8bn) merger. The deal creates the world’s largest defence, security and aerospace group, while giving France and Germany an interest in the UK’s main defence contractor.
The new business would generate annual revenues of £60bn and employ 220,000 people worldwide, including 48,000 in the UK, producing a staggering array of state-of-the-art civil and defence equipment under one roof, from Britain’s nuclear submarine fleet to the A380 superjumbo.
However, the deal brings considerable political complexity, and will require the approval of the British government and Washington, BAE’s biggest customer, as well as the backing of the French and German administrations involved in EADS.
The new business will have a dual listed structure similar to Anglo-Dutch firm Unilever, with BAE and EADS still listed in London and Paris, but operated as one group. However, new special shares will be issued to the British government to replace its interest in BAE, and to the French and German governments to account for their involvement in EADS.
BAE shareholders would own 40% of the new company with EADS investors taking 60% in a unified board and management structure. There was no confirmation whether the new company would be headed by BAE’s British chief executive, Ian King, or the German boss of EADS, Tom Enders. Below the holding company level, BAE and EADS will continue to have their own boards and executive committees. In a joint statement, the companies said they had a long history of co-operation, citing the Eurofighter Typhoon consortium and the MBDA missile manufacturer. “The potential combination would create a world-class international aerospace, defence and security group with substantial centres of manufacturing and technology excellence in France, Germany, Spain, the UK and the USA.”
A UK government spokesperson said: “The business benefits of any such arrangements are a matter for the companies involved. However, given the nature of the companies’ activities, we would of course want to ensure that the UK’s public interest was properly protected. We are working with the companies to ensure that this is the case.”
Both companies said sensitive defence contracts would be ringfenced from the rest of the business, preventing the sharing of information with foreign governments. Sources close to the discussions added that senior political figures had been involved throughout.
“Clearly neither of the companies involved would have embarked on advanced discussions had they not engaged with the appropriate governments beforehand,” said one source.
Under the terms of the British government’s golden share – worth a symbolic £1 – BAE must have a British chief executive and a majority of its board members must be British, while non-UK shareholders can own no more than 15% of the business.
EADS is 22.35% owned by a combination of the French state and the French conglomerate Lagardère, while German carmaker Daimler controls a further 22.35% – part of which is being bought by a German state-owned bank. The Spanish state also owns 5.45% of EADS, which was formed by the combination of Daimler’s aerospace unit with France’s Aerospatiale Matra and Construcciones Aeronáuticas of Spain. The companies are not corporate strangers to each other – BAE owned 20% of EADS’s largest business, Airbus, until 2006.
While recent headlines about BAE have focused on its struggles in the wake of the UK strategic defence review and US defence cuts, EADS has been the subject of speculation about political wrangling between Paris and Berlin, with the succession this year of Enders, in place of Frenchman Louis Gallois, reportedly delayed by the intervention of the former French president, Nicolas Sarkozy.
BAE employs 35,000 people in the UK and has 7,500 British companies in its supply chain, but has been cutting jobs in response to the 2010 defence spending review, which imposed an 8% reduction in the £37bn defence budget by 2014/2015. It is cutting around 2,000 jobs at its aerospace division and is reviewing its shipbuilding arm, which could result in the loss of more than 1,000 employees at BAE’s Portsmouth yard. In May it announced plans to close the historic Armstrong factory in Newcastle upon Tyne as part of a further 620 jobs at its UK business.
Last month BAE said first-half sales fell 10% to £8.3bn, while pre-tax profits slipped 5% to £655m, due to reductions in UK and US defence budgets. As Europe’s largest defence contractor, BAE would be sheltered from cuts by teaming up with EADS, Europe’s largest civil aerospace business, due to its ownership of Airbus and the helicopter maker, Eurocopter.
Source: The Guardian