British Aerospace (BAE Systems) and EADS announced that they are discussing a merger.

If the merger was approved, BAE would own 40%, and EADS 60% of the new firm. Shares in BAE rose 10.6% today, whilst shares in EADS fell 5.6%. EADS, is a consortium of French, German, and Spanish aerospace and defence manufacturers which also owns Airbus. Regulations set by The UK's Takeover Panel, mean that the two groups must announce the result of their talks by the 10th October 2012.

BAE have been hit by recent reductions in UK and US defence spending , and uncertainties over the Joint Strike Fighter F35 project. The two firms said a merger has been under discussion for several months. It would create a concern with a wide range of products for civil and military use, the new group might have similar product portfolio as its American rival Boeing. 

It remains to be seen how The UK and US governments, local and national politicians, unions and suppliers like GKN and Rolls Royce react to this development. There was a great deal of political pressure on BAE to keep the Brough factory open, after an earlier announcement this year that the firm would shut the plant down after it failed to secure orders from India for the Hawk trainer. 

The Unite trade union have stated that "Our first priority will be to safeguard jobs and skills ." It is concerned that consolidation means the closure of plants and the loss of incomes and employment. The Union wants to meet  government ministers Vince Cable (The Business Secretary) and Philip Hammond (The Defence Secretary). 

Nick Cunningham, an analyst at Agency Partners, implied that the deal would be a "tough sell" to the US government, BAE's biggest customer, given the US Department of Defense's concerns over the transfer of technology and intellectual property. On the other hand, Guy Anderson, a defence analyst inferred that: "A merger between BAE and EADS is unlikely...It would have to navigate onerous regulatory hurdles and sell off many overlapping chunks along the way."  There are uncertainties over how many divisions, or operations might have to be sold off at the insitence of competition authorities` Some of the background is considered in this Sky TV interview .

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