BAE, EADS talks may spur more mergers

Wed Sep 12, 2012 7:16pm EDT
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By Rhys Jones and Victoria Bryan and Andrea Shalal-Esa

LONDON/WASHINGTON (Reuters) - In the biggest shakeup in Europe's aerospace and defense sector in more than a decade, Britain's BAE Systems (BAES.L: Quote) and Airbus-owner EADS EAD.PA said they are in advanced talks to create an industry giant that would overtake rival Boeing (BA.N: Quote) in sales and contend with shrinking defense spending in Europe and the U.S.

The proposed deal, the biggest since a 2000 pan-European merger created EADS under joint French and German control, could kick-start a wave of consolidation in the sector, as companies vie for shrinking defense budgets.

Boeing CEO Jim McNerney said the Chicago-based aerospace leader isn't threatened by such a merger, which he predicted would mark the start of global consolidation in the defense industry.

"I don't see this as something that is going to threaten us fundamentally," McNerney told Reuters after a speech to the Council on Foreign Relations in Washington.

Executives at Lockheed Martin Corp (LMT.N: Quote) declined comment.

An EADS-BAE merger would create an entity with more balanced commercial and military operations, a model that Boeing has followed for some time, McNerney added.

While the complex deal faces obstacles, U.S. government officials were not likely to block it, according to multiple sources close to the matter who were not authorized to speak publicly.

These sources said the companies have already held direct discussions with U.S. officials, though no formal proposal has been put forth yet.   Continued...

Workmen stand in the BAE Systems' Govan shipyard in Glasgow, Scotland May 26, 2011. REUTERS/David Moir