Two of the defense industry’s largest European concerns, EADS (owner of Airbus) and BAE are rumored to be in discussions about a merger between the two companies.

Such a merger would create a defense firm larger than American companies Boeing and Lockheed but the proposal to unite the two is fraught with political concerns on both sides of the Atlantic.

Years of slow growth in defense spending in the United States and Europe has led BAE to explore strategic options. Previously, under French President Nicolas Sarkozy, a merger between BAE and EADS was blocked because of Sarkozy’s close personal relationship with Serge Dassault, the owner of Dassault Aviation.

Newly-elected French President Francois Hollande does not present this type of roadblock. The governments of the United States, Great Britain, France, and Germany would have to sign off on any deal and cede controlling shares so that the merged company could have a more normalized structure. Without a normal corporate structure BAE’s institutional shareholders would likely reject the deal. Additionally, the new entity would have to insure its Atlantic partners that no vital development information would be leaked. In the United States, Boeing and Lockheed are expected to lobby against the deal as its completion would result in a competitor larger than both of them.

Under European Union law a defense firm can create a special type of share to allow countries invested in the project veto power over the entry of any major third-party.

 

[The Economist]