BAE, EADS would create European defense giant

Two giants of the European aerospace and defense business are discussing a potential merger that would create a mammoth defense company with a total market value of about $50 billion.

Two giants of the European aerospace and defense business are discussing a potential merger that would create a mammoth defense company with a total market value of about $50 billion, reports the New York Times.

EADS, which is the parent of Airbus, and BAE Systems are looking to link up as their respective industries become increasingly competitive, the story said. BAE officials are deeply concerned about how the company will fare in a time when large European countries and the United States are pulling back on their military spending. Prospects are better for Airbus as passenger airlines, which constitute its main customer base, have improved lately.

“They are complementary businesses,” Richard Aboulafia, an aerospace analyst at the Teal Group, said in the story. “This is a way of achieving balance from the defense side.”

Overall, the merger would enable the companies to better weather the ups and downs of their markets. At present, Airbus brings in about 65 percent of EADS revenue; after the deal, commercial aerospace would account for 53 percent of revenue with 47 percent coming from military and security, according to a source quoted in the story who requested anonymity because the merger talks are still in progress.

The combined company would rival U.S-based Boeing. Boeing's revenue was nearly $70 billion last year; annual sales at BAE and EADs were more than $96 billion in 2011.

“On the face of it this will create one of the largest aerospace and defense organizations on the planet,” Guy Anderson, a senior defense industry analyst with IHS Jane’s in London, is quoted as saying in the story. Such a combination, he noted, would “change the European defense market beyond recognition.”

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