Sunday

31st Jul 2016

Giant defence merger faces hurdles in Britain, France and Germany

State control and European-based jobs are the main sticking points in a planned merger of Eads, the Franco-German company producing Airbus planes and BAE Systems, Britain's biggest defence contractor.

The British parliament on Monday (24 September) launched an inquiry into the would-be €35-billion-merger to create the world's largest defence and civil aviation firm.

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  • The merger of BAE Systems and Eads would create the biggest defence and aviation company in the world (Photo: Defence Images)

"The merger of two such large defence contractors would have a significant and strategic impact on their relationships with UK, US and European governments. It could also radically alter the defence industrial base in these countries," said the defence committee in the British parliament, according to the Telegraph.

After announcing the merger plan last month, the two companies have until 10 October to table a formal proposal for the deal.

But with France and Germany also signaling unease about the plan, the companies are expected to arrange an extension to the deadline.

A German document, seen by Reuters, lays out the worries of the economy ministry about possible takeovers and job losses in Germany.

Similar concerns have been voiced in France, where the state wants to retain control over the future defence giant.

Eads and BAE Systems have promised the governments of France, Germany and the UK a "golden share" in the new entity which could be used to block any potential future takeovers.

But both Berlin and Paris are sceptical about the prospects of the legal brake, which has been struck down in previous merger cases in EU courts.

With some 50,000 Eads employees in Germany alone, possible job losses are also of concern, despite assurances by the two companies that the link-up would not see cuts to staff.

Meanwhile, Berlin is unhappy with plans to value Eads at 60 percent of the new company, saying the figure should be closer to 70 percent.

The British government is concerned that too much Franco-German control over the new company could jeopardise BAE Systems' contracts with the Pentagon.

The British firm supplies parts to the F-35 fighter jet produced by Lockheed Martin and more than 60,000 cockpit and cabin parts to Boeing, Airbus' US competitor.

Eads chief executive Tom Enders will appear before German parliament on Wednesday to defend the plans.

The same day, defence ministers from Germany, France and UK are expected to discuss the matter at an EU meeting in Nicosia. The governments need to give their blessing for the merger to go ahead.

A meeting on Saturday between French President Francois Hollande and German Chancellor Angela Merkel failed to produce a definite endorsement of the merger.

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