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EADS seeks merger with BAE to take on Boeing as military budgets shrink

A tie-up will create one of the largest defence companies with sales nudging US$100 billion


European Aeronautic, Defence & Space and BAE Systems are reviving a decade-old plan to build an equal to Boeing that would balance civil and defence operations amid shrinking military budgets.

EADS, the parent of Airbus, would control 60 per cent of the new entity, with London-based BAE owning the rest, the companies said on Wednesday. The enlarged group would have a unified management and a dual listing, and some of the defence assets would be shielded to maintain access to US markets.

A combined company would have 220,000 employees and sales nudging US$100 billion, and unify assets spanning civil jets, Eurofighter warplanes and nuclear submarines. A merger would revive plans for a single European aerospace business that were abandoned more than a decade ago when the formation of the two firms split the industry along civil and defence lines.

"This will create one of the largest aerospace and defence organisations on the planet, and change the European defence market beyond recognition," said Guy Anderson, an analyst at IHS Janes in London.

The deal would add Toulouse-based EADS' revenue of about €49 billion (HK$490.83 billion) last year to BAE's £17.7 billion (HK$221.15 billion). That compares with US$68.7 billion at Chicago-based Boeing and US$46.5 billion at Bethesda, Maryland-based Lockheed Martin, the world's biggest defence company.

"BAE Systems and EADS believe that the potential combination of their two businesses offers the prospect of significant benefits for customers and shareholders," the companies said.

EADS chief executive Tom Enders, who took over in June, has been revamping senior management positions and switched the leader of the Cassidian defence business this month.

The companies co-operate on the Eurofighter warplane and first explored scenarios for a combination in early June, a person familiar with the talks said. Besides Enders, EADS chief strategist Marwan Lahoud had been a driving force behind a deal, said the person.

Boeing chief executive Jim McNerney said on Wednesday that a combination of EADS and BAE would not threaten Boeing "fundamentally".

"I have a pretty deep and abiding faith in our company's strength," he said. "It does reflect a global consolidation that is beginning to happen."

This article appeared in the South China Morning Post print edition as: EADS to take on Boeing with BAE merger