EADS and BAE Systems call off merger plan to form aerospace giant

Lack of support from British, French and German governments blamed for failure

PUBLISHED : Thursday, 11 October, 2012, 12:00am
UPDATED : Thursday, 11 October, 2012, 3:03am

European Aeronautic, Defence & Space and BAE Systems abandoned their planned merger amid government resistance, leaving in tatters their aspiration to create the world's largest aerospace and defence company.

The two firms said they terminated the deal because the "interests of the parties' government stakeholders cannot be adequately reconciled with each other or with the objectives" of the merger. The deal crumbled just hours before a deadline expired to formalise the agreement.

Germany became the largest stumbling block on the path to an accord, and BAE chief executive Ian King told reporters there was more understanding with France and Britain.

BAE chairman Dick Olver said he would not revisit merger talks with EADS, the parent of planemaker Airbus, unless government positions changed significantly, and the firm would not look elsewhere for a new partner.

"It is, of course, a pity we didn't succeed but I'm glad we tried," EADS chief executive Tom Enders said.

The attempt to build an equal to Boeing exposed the divisions in Europe, with Germany keen to preserve a balance of power with France, and Britain wary to check political meddling at the hands of the French.

The breakdown blocks BAE's path to a civil aviation business in times of shrinking defence budgets and is EADS' second failure in a decade to combine aerospace assets from Europe's three largest economies.

EADS, based in Toulouse, and London-based BAE first said on September 12 that they were exploring a merger.

The German government had sought a token centre of command and job guarantees to give it equal status with the other states, people close to the talks said. France owns a direct 15 per cent stake in EADS, while German interests are represented by Daimler. Germany resisted even after the British and French governments agreed to allow it to hold 9 per cent of the combined company, on par with France.

As talks intensified, there was growing concern that Germany would be left outside a Franco-British axis. Upon becoming EADS chief in June, Enders had bundled headquarters to Toulouse, the home of Airbus, its biggest unit. The move marginalised Munich as one of two operating headquarters. London would become the centre for defence operations in the event of a merger, leaving Germany without any headquarters to call its own.