Governments must not meddle in new euro defence firm, says BAE

 
Robert Fo5 October 2012

Bosses at British firm BAE Systems are insisting a proposed new European defence giant is free of heavy state interference.

An announcement is expected early next week on whether BAE Systems will press ahead with its plan to merge with the EADS Franco-German aerospace contractor. But indications from BAE Systems suggest its board will say they want more time to thrash out the details.

One of the most sensitive points is to ensure that the French and German governments do not enjoy in the new company the same rights of direct interference as they have in the present EADS set-up. The Standard has been told this would be a deal-breaker.

If Paris and Berlin insist on directing the affairs of the new multinational, it is expected that the board of BAE

Systems will not recommend the merger to shareholders. The companies are expected to make a statement on either Monday or Tuesday before a Wednesday deadline for a decision by the takeover panel on whether to back the merger moving ahead, reject it, or allow more time to develop the proposals.

The merger project reflects the dramatically changing landscape in defence and aerospace manufacture and markets in Europe and the US.

National defence budgets are contracting across Europe, while more cuts are likely in the eurozone countries and the UK. The defence budget in America is due to be cut by £300 billion over the next 10 years. Since 2000 it has grown by 67 per cent.

BAE Systems can no longer base the business it runs from the UK to 54 countries on the British defence budget — which accounts for about a quarter of all its business in this country and outside America.

One of the biggest concerns over the deal, particularly in Germany and the UK, is the loss of jobs. With shrinking order books for defence, and the fluctuations in the commercial aircraft market, job losses are likely in Britain, Germany and France.

Opponents of the deal in Britain have claimed that creating a giant European company — likely to be called Airbus— will damage relations, prospects and market opportunities in the US.

BAE Systems builds about a tenth of the Lockheed Martin F-35 Lightning II Joint Strike Fighter, the most advanced manned combat plane. This arrangement, which involves highly sensitive sharing of advanced technologies, has already been discussed with the

Pentagon and the US partners.

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