Defence merger could herald wave of sector consolidation

The proposed deal, the biggest since a 2000 pan-European merger created EADS under joint French and German control, could kick-start a wave of consolidation in the sector, as companies vie for shrinking defence budgets.

It would create a group with combined sales of £60bn and around 220,000 staff, including 48,000 in the UK alone.

BAE has 1,100 staff at Brough and a training academy at Doncaster’s Robin Hood Airport.

Linda Hudson, chief executive of the US arm of BAE Systems, said the deal made sense given the downturn in US and European defence spending, but would also insulate the combined company against the inevitable cycles of the aerospace sector.

“It’s a win-win proposition for both companies in this environment,” Ms Hudson said.

Boeing CEO Jim McNerney said the Chicago-based aerospace leader was not threatened by such a merger, which he predicted would mark the start of global consolidation in the industry.

An EADS-BAE merger would create an entity with more balanced commercial and military operations, a model that Boeing has followed for some time, Mr McNerney added.

Geographically, BAE’s strength in the United States, Britain and Saudi Arabia would complement EADS’ operations in Europe.

Despite its advantages, the deal faces numerous regulatory, security and cultural hurdles and its fate is far from certain.

Keith Hazlewood, national officer of the GMB union, said: “This is a worrying development as so much of our high-end engineering and manufacturing skills are embodied in this company.

“The UK Government must play a proactive role as this company contains the skills vital to the defence of our nation. It is as important to our defence as the armed services which shows what is at stake here.”

Prime Minister David Cameron’s official spokesman described the BAE deal as “a commercial matter”.

“The Prime Minister has been kept informed of the discussions,” he said. “Given the nature of the company’s activities we will want to ensure that the UK’s public interest is properly protected and we are working with the companies to ensure that is the case. The companies have been keeping us informed of their discussions and will continue to do so.”