Components > Defense Blog

BAE Systems-EADS Merger Dead in the Water

by Asif Anwar | 10月 10, 2012

On the EADS/BAE merger front, my initial reaction was not favourable with the emphasis in my opinion targeting size over quality. On the defense front, I think it would have made more sense for BAE Systems to look to merge with Cassidian, which is the defense side of EADS bringing complementary strengths in terms of capabilities and regional market areas of focus (BAE Systems is strong in the US while Cassidian is having success targeting opportunities from emerging markets such as South America). I believe a BAE Systems/Cassidian match would better service the defense market with a focus on systems and capabilities rather than offering whole platforms and certainly as an example, we see the success that Raytheon and Northrop Grumman are starting to achieve targeting the fast-jet radar retrofit market.

On the other hand, the inclusion of the aerospace side of the business would have brought scale to the potential new company, but I also wonder whether the issues that Airbus has had with some its platforms, e.g. the A400M would have brought any immediate advantages to the company. Even on the commercial front, Boeing was way ahead of Airbus in terms of orders if we take this year’s Farnborough Airshow as one example (Boeing aircraft orders 370 vs. Airbus aircraft orders 101) and based on this, the new larger company was not necessarily going to bring about any advantages.

You then also have the issues of sovereign control and rather whether France, Germany and the UK would have been willing to let go of the control they have especially where the respective companies have been involved in developing bespoke systems and platforms. The governments of these countries needed to ensure that they didn’t lose capabilities and suppliers as a result of the new company shifting emphasis to other markets. Obviously, this is why we saw a lot of talk about certain contracts and activities being ring-fenced.

Across the pond, parties in the US will have had similar concerns especially given the inroads that BAE Systems has made into that market. We can also expect that Boeing would have used these concerns to try and block the merger and/or try to block the new company from competing in future US programs.

Having said all this, it is the very fact that the two companies are so disparate that could have helped drive the merger forward. There were no obvious overlaps with the activities of the two companies so we were not going to see necessarily see employee headcount reductions, facility closures with both sides of the merged company continuing operations as normal.

Ultimately, it would appear that the political hurdles presented by the French, UK and German governments have been insurmountable on this occasion. Both Tom Enders (EADS head) and Ian King (BAE Chief Executive) have expressed regret that they were unable to bring the merger together. No doubt we will not see similar sentiments from Invesco and other BAE Systems shareholders.

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