UK defence giant BAE Systems could be forced to look for a strategic partner in the US following the collapse of its mega-merger talks with Airbus owner EADS this week, analysts believe.
That deal would have created a global aerospace and defence group with interests ranging from commercial airliners, nuclear submarines, helicopters and cyber security programmes. The two groups between them employ around 6,000 people – mainly high-skilled engineers – in the Bristol area.
But the failure of the German government to effectively back the merger meant it was abandoned at the 11th hour on Wednesday – leaving both BAE and EADS to go back to the drawing board.
For majority French-German owned EADS, the collapse of the talks has been disappointing. But with Airbus remaining the world’s largest manufacturer of passenger jets, it is unlikely to be licking its wounds too much. It would have benefited from better access to the US market by teaming up with BAE, but it is already a supplier to the Pentagon.
The fall-out for BAE could be more serious. Analysts now think it will increasingly look across the Atlantic for growth – with some even suggesting a tie up with Airbus’s arch US rival Boeing.
Other major US defence groups also said to be ready to talk to BAE are Lockheed Martin, which already works with BAE on the F-35 Lighting (Joint Strike Fighter), Northrop Grumman, the world’s largest builder of naval ships, and the radar and missile giants Raytheon and General Dynamics,
Politicians had been grappling with the complexities of state shareholdings with three-way discussions between the UK, France and Germany. All three countries were seeking different assurances over political interference, jobs and workshare. UK politicians are also concerned that European control could impact on BAE’s lucrative defence contracts in the US.
However, it was Berlin’s opposition to the deal that scuppered it. Most observers had expected the firms to ask for a two-week extension to Wednesday’s deadline insisted on by UK regulators for the £28bn marriage of equals. But this was abandoned when it emerged that the German government was prepared to effectively kill the deal.
According to the Reuters news agency, several sources close to the negotiations said German Chancellor Angela Merkel had opposed the merger.
Airbus employs around 4,000 people at its Filton, Bristol, plant mainly involved in designing wings, landing gear and fuel systems for all Airbus aircraft. EADS itself has engineering operations on the same site.
BAE has a number of bases in Bristol, including at Filton, where it works on major defence projects for the MoD including next generation warships and cyber security.
BAE already earns around 50% of its revenues in the US, where it has been active in acquiring specialist defence and security firms.
