PARIS, Sept 27: The proposed tie-up of European firms EADS and BAE Systems to create a head-on rival to US giant Boeing in civil and defence aviation is tied-down by a knot of commercial and national interests.
The negotiations are in a bind which straddles the Atlantic, because BAE Systems is important to British and US defence programmes. In Europe, EADS is bound by German and French national interests.
BAE Systems, the leading British arms manufacturer, and the European Aeronautic Defence and Space Company want to build a company worth $45 billion (35 billion euros).
The new conglomerate would engineer products used deep in the ocean, on land, in the air and in outer space; from torpedoes and tanks to Airbus jumbo jets, rockets and satellites.
The deal, which would mark something of a second marriage, makes industrial sense since it combines successful military and civilian activities, and would reshuffle the cards among global defence companies to Europe’s benefit.
Political and commercial issues nonetheless represent major hurdles to a deal.
German Defence Minister Thomas de Maiziere told journalists in Cyprus on Thursday: “I think we need more time” before EADS and BAE can tell British stock market regulators the companies are ready to roll.
A key issue is how much of the new company would be owned by France, Germany and Spain, which now control directly or indirectly the majority of EADS’ equity.
Britain, France and Germany must all approve the deal owing to the strategic implications for their defence industries.
Britain is cool towards state industrial holdings and EADS chief executive Tom Enders, a German, who noted on Wednesday that the presence of public shareholders in defence and aerospace firms was not “absolutely necessary.”
BAE Systems owned 20 per cent of Airbus but withdrew in 2006 to focus its strategy on the United States, but also after years of unease with German-French national interests in the Airbus business.
British lawmakers want France and Germany to own minimal stakes in a new entity, while Berlin and Paris want to ensure their respective interests are balanced.
DEFENCE SECRETSMeanwhile, Alan West, ex-head of Britain’s Royal Navy, has warned that relations with the United States could be damaged if BAE becomes the junior partner in a new group.
“I have concerns about American exchange of information with us,” West told The Times newspaper.
BAE is the largest foreign supplier to the Pentagon and almost half of the group’s sales are made in the United States.
Britain owns a special share in BAE, and under the plan being discussed, a combined group would issue so-called golden shares to each of the French, German and British governments.
That would allow them to vet any investor that sought to acquire a holding of more than 15 per cent.
Another commercial issue is how much of the new group would be owned by EADS and BAE shareholders.
The plan foresees EADS owning 60 per cent and BAE holding the remaining 40 per cent, but the German automaker Daimler, a major EADS investor, is not happy with that ratio, and some market observers say a 70-30 split would be better.
Enders has defended the proposed levels as ‘very fair.”
BAE employs 83,600 people, mainly in Australia, Britain, India, Saudi Arabia, and the United States, according to its website, and reported sales last year of 17.77 billion pounds (22.4 billion euros, $28.8 billion).It is active in naval, ground and air defence systems, along with security, electronics and IT networks.
EADS employs about 133,000 people at more than 170 sites worldwide, and posted 2011 sales of 49.1 billion euros.
It makes helicopters, Airbus jets, Ariane rockets and satellites.
Another key focus therefore is the effect of the deal on employment, with the German government concerned that BAE would displace activities and jobs at Cassidian, an EADS defence unit based mainly in Germany.
EADS wants to reduce its currency exposure, because most of its costs are in euros and many of its sales are made in dollars. It is also trying to establish a solid base in the US market.
De Maiziere acknowledged after meeting British and French counterparts that the proposed deal “is a complex situation. There are a lot of questions and conditions.”—AFP