BAE in talks with rival to create aerospace giant

Chief Scottish Political Correspondent

Thursday 13 September 2012

DEFENCE giant BAE Systems, which operates the Govan and Scotstoun warship yards on the Clyde, is in talks over a potential merger with a European rival to create the world's biggest aerospace and defence company.

UNCERTAINTY: With EADS not involved in shipbuilding one concern is that the marine business could become sidelined within the new conglomerate. Picture: Colin Templeton

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ROBBIE DINWOODIE CHIEF SCOTTISH POLITICAL CORRESPONDENT

BAE said the merger with EADS (European Aeronautic, Defence & Space) would form a world-class company with com-bined sales of £60 billion and 220,000 staff – around 48,000 of which would be in the UK.

No assurances could be given against potential job losses on the Clyde but BAE, which employs around 3000 people in Glasgow, said there was little overlap in the business activities of the two firms.Unions said the announcement had come as a complete surprise with the issue now to dominate a meeting of GMB delegates from across the UK in Preston today.EADS is best known for the Airbus project, which BAE left acrimoniously six years ago. The company, which has been built by mergers of French German and Spanish firms, is not involved in shipbuilding but one concern is that the marine business could become sidelined within the new conglomerate.A BAE spokeswoman said: "BAE Systems and EADS have a long history of collaboration and are currently partners in a number of important projects, including the Eurofighter. The potential combination would create a world-class international aerospace, defence and security group with substantial centres of manufacturing and technology excellence in France, Germany, Spain, the UK and the USA."News of the talks was greeted positively on the stock market with shares in BAE soaring 10.6% yesterday.BAE said the proposed deal would see its shareholders own 40% of the combined group, with EADS shareholders having a 60% stake.BAE said the firms were in talks with governments worldwide about the implications of such a deal, given the sensitive and secure nature of their work. BAE is an expert in the field of defence, security and military, whereas the majority of EADS's work is in the commercial sector.EADS, which is a consortium of aerospace and defence manufacturers from France, Germany and Spain, has its headquarters in Paris and Berlin.Under City takeover rules, both firms have until 5pm on October 10 to announce a deal or walk away. BAE produces Astute nuclear-powered submarines and is the largest supplier of land vehicles to the US Army but the company has been under pressure, reporting a 14% fall in sales last year following cuts in military spending in the US and UK. The firm's profits last year fell 7% to £2bn.Losses were also felt due to a delay in an order for Euro- fighters to Saudi Arabia.A UK Government spokesman said: "We are aware of this proposal. The business benefits of any such arrangements are a matter for the companies involved. However, given the nature of the companies' activities we would of course want to ensure the UK's public interest was properly protected."We are working with the companies to ensure this is the case. Given the market sensitive nature of transactions of this sort we would not want to comment further at this stage."One industry source said BAE was still seen very much as a defence company at a time when defence budgets are under pressure, despite its attempts to diversify.He added that given its past acrimony over Airbus, the deal was unlikely to be "a marriage made in heaven".Defence industry analyst Guy Anderson, of IHS Jane's, said: "A merger between BAE and EADS is unlikely and wouldn't happen without a lot of trials and tribulations. It would have to navigate onerous regulatory hurdles and sell off many overlapping chunks along the way."A Scottish Government spokesman said: "We will continue to keep in touch with developments on the potential merger between BAE Systems and EADS, with a view to safeguarding jobs and investment."FactfileBAE Systems is Europe's biggest military contractor, employing 100,000 workers around the world with more than 5000 in Scotland.Its Govan shipyard on the Clyde was bought from Kvaerner in 1999.The Scotstoun shipyard, also on the Clyde, opened more than 100 years ago and was previously owned by Yarrow Shipbuilders Limited.The combined shipyard workforce on Clydeside is estimated at around 3000.Among its other Scottish operations is an electronic systems plant at Hillend, near Dunfermline, which employs around 200. Last year, it won a £20 million order to create an advanced radar systems for the next generation of Typhoon combat aircraft.BAE's aviation design and development base at Prestwick employs about 430 staff.Its Portsmouth shipyard, which employs 1500, opened in 2003 to replace a previous shipyard in Southampton. The £50m shipyard was the first new facility built in the UK in 60 years. Its submarine site in Barrow-in-Furness, Cumbria, employs around 1000 workers.

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BAE in talks with rival to create aerospace giant

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