Quote: "Report: BAE and Airbus parent in talks to combine"
European Aeronautic, Defence & Space Co., the parent of Airbus SAS, is in negotiations with BAE Systems Plc about a combination of the two companies, Bloomberg reported, citing people familiar with the talks.
The talks are at an advanced stage, with the two companies exploring a combination that would allow London-based BAE to maintain its independence to sell into the U.S. defense market, according to Bloomberg.
A final deal hasn't been reached and an agreement may still fall through, according to the report.
And here is the Bloomberg link with more details...
mffoda From United States of America, joined Apr 2010, 966 posts, RR: 0 Reply 4, posted (1 year 2 months 3 weeks 4 days 13 hours ago) and read 5473 times:
Quoting AirbusA6 (Reply 1): A bit of a U turn by BAE who sold their stake in Airbus to concentrate on US defence sales, maybe they're regretting it...
They sold their 20% stake in Airbus several years ago, and now they would be a 40% stake of EADS/Airbus. I'm not sure if that is a good or bad deal for BAE? Although BAE stock jumped up 12% on the news...
imiakhtar From , joined Dec 1969, posts, RR: Reply 5, posted (1 year 2 months 3 weeks 4 days 13 hours ago) and read 5454 times:
Quoting goosebayguy (Reply 2): Would be a dreadful move by BAE. They suffer from poor management but this would be terrible. Hope its not true.
On the contrary, I think this merger would be excellent for the UK.
In my opinion, BAE made a HUGE error when they relinquished their 20% stake and put all their eggs into the defence market. Tumbling defence budgets and an ever decreasing order backlog means they have to diversify their portfolio.
It would also be good news for Airbus workers in the UK as it would in all likelihood grant them a little peace of mind as regards to job security in the long term (I'm aware of the UK Govt and EADS wing work agreement post share sell).
For those who like to reminisce, there is an excellent report available on the UK parliamentary record website (hansard) from 2007 that goes into a lot of detail about the BAE share sell. Search under:
House of Commons
Trade and Industry Committee
Ninth Report of Session 2006–07
Bongodog1964 From United Kingdom, joined Oct 2006, 3328 posts, RR: 3 Reply 9, posted (1 year 2 months 3 weeks 4 days 11 hours ago) and read 5118 times:
As others have said, BAe made the baffling, if not unfathomable decision to sell off its stake in Airbus, pinning its hopes on the defence market. This was at a time when military programmes were already being squeezed with military budgets les than half what they once were in terms of GDP.
There was a fear at the time that the sale of their Airbus stake might see Airbus withdrawing work from the UK, fortunately this has not been the case and EADS have proved to be a good employer. The same cannot be said for BAe whose declining military workload has seen widespread redundancies and closure of some sites. Others are only a shadow of their former selves.
Hopefully this merger will work to the advantage of both parties. Airbus should be able to utilise some of the surplus capacity that BAe have a s a result of military contraction, and BAe can provide technology which EADS might not have.
Just hope that the senior management at BAe are given a P45 rather than the keys to a larger executive office.
astuteman From United Kingdom, joined Jan 2005, 9594 posts, RR: 97 Reply 10, posted (1 year 2 months 3 weeks 4 days 11 hours ago) and read 5103 times:
Quoting imiakhtar (Reply 5): In my opinion, BAE made a HUGE error when they relinquished their 20% stake and put all their eggs into the defence market. Tumbling defence budgets and an ever decreasing order backlog means they have to diversify their portfolio.
I'd suggest that BAE's strategy in the period from considering selling the Airbus stake has worked very well.
They have broken their utter dependency on UK MOD (which was THE strategy).
They've become the 3rd largest defence (or is it defense) contractor in the USA, and made far more money in the US defence market in the period than their stake in Airbus would have in the same period.
BAE operating margin has been pretty much double-digit for a whie now.
It for sure wasn't at the time they sold the Airbus stake.....
Quoting mham001 (Reply 8): How would this not trigger European anti-trust rules?
I'm guessing some special rules apply when it comes to defence and national interest..
BMI727 From United States of America, joined Feb 2009, 15058 posts, RR: 26 Reply 12, posted (1 year 2 months 3 weeks 4 days 11 hours ago) and read 4984 times:
Quoting astuteman (Reply 10): I'd suggest that BAE's strategy in the period from considering selling the Airbus stake has worked very well.
I agree. I'm not sure where this idea that not having a hand in civilian markets is awful. It hasn't hurt Lockheed, Northrop Grumman, or General Dynamics (if you don't count Gulfstream) and it hasn't hurt BAE.
Counting on European defense markets is a bad idea, but defense as a whole is still a pretty good business.
Why do Aerospace Engineering students have to turn things in on time?
srbmod From United States of America, joined Mar 2001, 17274 posts, RR: 51 Reply 13, posted (1 year 2 months 3 weeks 4 days 11 hours ago) and read 4954 times:
Quoting Stitch (Reply 9): The WSJ is behind a paywall, so you cannot directly link. Use Google News, which will bypass it and display the article.
The Moderators recommend using one of the various link shortening services whenever a link to a source is not posting properly (The Wall Street Journal is among a handful of newspaper sites whose links do not render correctly. Even WSJ stuff posted on Yahoo is prone to this.).
EADS has to work on increasing their US military contract numbers anyway they can, and this is a no-brainer of an acquisition for them. Now whether this deal goes through, who knows.
I'd suggest that BAE's strategy in the period from considering selling the Airbus stake has worked very well.
They have broken their utter dependency on UK MOD (which was THE strategy).
You're right. Now they're relying on the Saudis. I believe BAE are still waiting for the Saudis to sign the Salam Eurofighter programme.
Quoting astuteman (Reply 10): They've become the 3rd largest defence (or is it defense) contractor in the USA, and made far more money in the US defence market in the period than their stake in Airbus would have in the same period.
How long will that last? The picture painted in the annual reports is bleak.
Quoting astuteman (Reply 10): BAE operating margin has been pretty much double-digit for a whie now.
That's one of the few positives.
I maintain my view that BAE selling their stake was short sighted, but I guess hindsight is 20/20.
Bongodog1964 From United Kingdom, joined Oct 2006, 3328 posts, RR: 3 Reply 16, posted (1 year 2 months 3 weeks 4 days 8 hours ago) and read 4571 times:
Quoting astuteman (Reply 14): Quoting Bongodog1964 (Reply 9):As others have said, BAe made the baffling, if not unfathomable decision to sell off its stake in Airbus
It was neither baffling, unfathomable, or ill-judged.......
BAE made it very clear what the drivers were, and have done exactly what they said they would do.
Making the USA a defence "home market" was one of the best decisions the business has ever made.....
I know you have a vested interest as a BAe employee on the defence side of the business, but to my mind the decision to concentrate on defence was a classic case of short termism. each succesive generation of military equipment is procured in smaller numbers than its predecessor. How many Astutes are replacing the S & T class subs ? Remember the RAF ordering nearly 400 Tornados to be part of a fast jet fleet which also consisted of Harriers, Jaguars & Buccaneers. We now have a fast jet fleet a fraction of that size. The US military is also contracting fast.
If the move towards the US defence industry was such a good strategy, why now look to merge with the worlds largest Civil airliner business ?
AirbusA6 From United Kingdom, joined Apr 2005, 1997 posts, RR: 0 Reply 17, posted (1 year 2 months 3 weeks 4 days 7 hours ago) and read 4478 times:
Clearly, and this isn't just hindsight, defense budgets are under threat, and have been for several years, whereas civilian sales have been expanding fast, so voluntarily exiting Airbus was a major strategy call. Against this, their 20% stake gave them little power in running the business.
40% of the combined business sounds reasonable, and maintains a reasonable split between the European partners, I wonder if EADS will try to take over Dassault?
it's the bus to stansted (now renamed national express a4 to ruin my username)
SQ22 From Germany, joined Feb 2012, 95 posts, RR: 0 Reply 20, posted (1 year 2 months 3 weeks 3 days 20 hours ago) and read 4170 times:
Quoting AirbusA6 (Reply 17): 40% of the combined business sounds reasonable, and maintains a reasonable split between the European partners, I wonder if EADS will try to take over Dassault?
I think from an economic perspective that would make a lot of sense, but I doubt it from the French perspective, even if Dassault would be willing to sell there would be issues. Like with the unions and the government.
What about Saab Defence and Security? I think they have an agreement with BAE. Is it a distribution agreement?
r2rho From Germany, joined Feb 2007, 2441 posts, RR: 1 Reply 21, posted (1 year 2 months 3 weeks 3 days 15 hours ago) and read 3872 times:
From a corporate point of view, BAE's US Defense business is definitely attractive for EADS, who sees it as a priority to grow in that market. For BAE, having a civilian side via Airbus & Eurocopter to compensate for cycles in defense spending is also good.
Whether its a good idea to create such a large company is another thing, IMO EADS is already very large and struggles to manage itself efficiently, making it larger and more complex will not help.
From the point of view of European Defense Ministries and taxpayers, this would be bad news as it creates a de-facto monopoly in many Defense sectors, and certainly in large defense projects. Alenia, Dassault, Saab, Thales & Co would be dwarfed and rendered insignificant. Competition would be provided by Boeing, LM or NG, but no intra-EU competition would exist.
As a taxpayer, I will not be happy if this merger goes forward.
vv701 From United Kingdom, joined Aug 2005, 7039 posts, RR: 17 Reply 23, posted (1 year 2 months 3 weeks 3 days 14 hours ago) and read 3246 times:
Quoting sabenapilot (Reply 18): A merger involving a share swap with EADS getting the controlling majority in the combined entity seems most likely.
My understanding is that a new holding company, 40 per cent owned by BAE Systems and 60 per cent owned by EADS, may be formed and that if this happens it will control the operational business units of both companies. I have seen no indication that the existing companies, business units or divisions of the two corporations would automatically be merged.
I do not know much about EADS. However BAE Systems comprises 12 separate Business Units. These range from "BAE Systems Australia" through "Maritime - Naval Ships" and "Maritime - Submarines" to "Land & Armaments" and "Military Air & Information". No doubt if an agreement is reached there may be some mergers at the Business Unit level. But equally it is possible that many of these Business Units will continue to operate as they do today with only a change in reporting lines.
Operationally - but not structurally - the combined business could turn out to look somewhat like IAG where BA and IB continue to operate separately even though IB handed over their BCN-LHR service to BA and BA are now sending aircraft to MAD to be painted, thus improving the efficiency of both airlines operations.
Structurally it seems possible (likely?) that shareholders may not be directly impacted. By that I mean that the quoted companies will remain owned as they are today, with BAE Systems holding 40 per cent of New Company shares and EADS holding 60 per cent.
In some ways this reflects the current EADS shareholding structure. Lagardere and the French government own 22 per cent of EADS between them, Daimler also owns 22 per cent (but has agreed to sell one third of this holding to the German government) and the Spanish government owns 5.5 per cent. However Daimler is, according to the BBC, considering taking this opportunity of selling in the market the other two-thirds of its current 22 per cent stake.
sweair From Sweden, joined Nov 2011, 1757 posts, RR: 0 Reply 25, posted (1 year 2 months 3 weeks 2 days 22 hours ago) and read 2554 times:
Quoting r2rho (Reply 21): From the point of view of European Defense Ministries and taxpayers, this would be bad news as it creates a de-facto monopoly in many Defense sectors, and certainly in large defense projects
I share these thoughts, and Pentagon will never accept having foreign governments involved in their subs, aircraft carriers and what else BAE does in the states. As a whole EU will lose defence business in US this way.
EU needs more internal competition not less, we all stand to lose by this deal. I don't know why so many cheer a monopolized defence sector, I don't think they want to pay more?
Saab will probably be gobbled up as well, a sad development in a EU I never wanted.
autothrust From Switzerland, joined Jun 2006, 1518 posts, RR: 8 Reply 28, posted (1 year 2 months 3 weeks 2 days 21 hours ago) and read 2532 times:
Quoting r2rho (Reply 21): From the point of view of European Defense Ministries and taxpayers, this would be bad news as it creates a de-facto monopoly
EADS & BAE are the only companies in Europe which can ensure the technological edge we have in many areas and are competitive enough to challange US Defense Companies.
The European Market is just to small and is always getting smaller. If that means they will have a monopoly but can withstand Chinese, Russian and US competence, then so be it. I prefer the jobs and knowhow gathering in Europe then elswhere.
This is a good move i hope the merge will happen without problems.
Also the US Defense Market isn't very open either.
astuteman From United Kingdom, joined Jan 2005, 9594 posts, RR: 97 Reply 29, posted (1 year 2 months 3 weeks 2 days 18 hours ago) and read 2406 times:
Quoting sweair (Reply 27): So you think Pentagon would accept having foreign governments involved in their future super secret military toys? BAE does not have this problem in its current form
I was trying to work out how you saw BAE as "not foreign" in the context of Pentagon contracts.......
The division BAE Systems (Inc) could be (and is) classed as a "domestic" supplier in the USA.
But the division EADS North America already shares that "US domestic" characteristic (as it too has to).
And if I'm not mistaken, EADS is already involved in a large number of US defence contracts in its own right, despite being "foreign". It may not quite have the US footprint of BAE, but BAE, like EADS, is NOT a US company
Quoting Bongodog1964 (Reply 16): I know you have a vested interest as a BAe employee on the defence side of the business
My opinion as stated has nothing whatsover to do with any sort of "vested interest".
It is an intellectual position, not an emotional one.
Bongodog1964 From United Kingdom, joined Oct 2006, 3328 posts, RR: 3 Reply 30, posted (1 year 2 months 3 weeks 2 days 18 hours ago) and read 2372 times:
Quoting astuteman (Reply 29): Quoting Bongodog1964 (Reply 16):I know you have a vested interest as a BAe employee on the defence side of the businessMy opinion as stated has nothing whatsover to do with any sort of "vested interest". It is an intellectual position, not an emotional one.
As its an intellectual position, you need to bear in mind that BAe's reliance on defence, saw turnover drop by 14% and profits by 7% in the last financial year.
vv701 From United Kingdom, joined Aug 2005, 7039 posts, RR: 17 Reply 31, posted (1 year 2 months 3 weeks 2 days 15 hours ago) and read 2216 times:
The perception that the likes of BAE Systems and EADS can successfully compete in a market where technological developments even challenge the world's largest defence manufacturers to compete on their own is surprising.
Consider the F-35. Its lead supplier is Lockheed-Martin. BAE Systems have significant involvement in the design, development of this weapons system. Amongst other contributions they have lead responsibility for the aft fuselage, both the vertical and horizontal tail surfaces and the folding wings of the naval version of the aircraft.
The perception that, while the giant Lockheed-Martin has needed to enter partnership with the likes of BAE Systems on the F-35 project, both BAE Systems and EADS can continue to separately and independently play long term significant roles in a market that shrinks but becomes technologically more complex(thus requiring higher investment) every year is dangerous. If Europe is to continue to have any long term role as an advanced defence equipment manufacturer in competition with the likes of Boeing and Lockheed Martin then it needs to grow its prime defence contractor(s).
It seems to me that the alternative is for the European defence industry long term to focus on low tech weapon systems and acting as a sub-cont actor to produce the less technologically advanced sub-systems for the world's major defence contractors' projects.
As for competition, it is competition that has driven BAE Systems and EADS into these talks.
astuteman From United Kingdom, joined Jan 2005, 9594 posts, RR: 97 Reply 32, posted (1 year 2 months 3 weeks 2 days 14 hours ago) and read 2183 times:
Quoting Bongodog1964 (Reply 30): As its an intellectual position, you need to bear in mind that BAe's reliance on defence, saw turnover drop by 14% and profits by 7% in the last financial year.
Seems like a sensible time to make a move then, doesn't it?
In all seriousness, I think this has been recognisable for quite some time.
However, big defence businesses like BAE (and EADS) can't just throw themselves into any old diversification - they just don't have the speed of response or flexibility required for most business environments.
BAE's approach to this is, I believe, to look for an "adjacency" based on core competences. And they have indeed done so, quite successfully. But it is a slow process. The link with EADS will help.
Anyone who saw "smart procurement" ( ) at work might understand some of the drivers behind BAE's exit from Airbus, and diversification out of the UK.
If they'd have done it 6 - 12 month's earlier, they'd have looked like geniuses, given the collapse in the market value of their share when the A380 delays were announced.
Even so, in truth, in the intervening 6 years, they haven't missed out on much financially from the position at which they exited Airbus, have they?
And they have benefitted hugely from the diversification into the "home markets", the USA in particular. If you want to make any real return in defence, the USA is the only real place to do so these days.
The Americans look after their defence industry......
To me, now seems like an ideal time to get back into bed with EADS - certainly as far as Airbus goes. There's only upside in terms of financial performance from where they are now IMO.
The only thing BAE did wrong was to wait too long to leave Airbus IMO. As I said, if they'd have left 6 months earlier, they'd have got out at the top, and be getting back in at the bottom. dumb or what?
As an aside, H1 2012 figures showed revenue down 10% and EBITA down only 3% on last year (from £968M to £939M. Margins have improved in the period.
Bongodog1964 From United Kingdom, joined Oct 2006, 3328 posts, RR: 3 Reply 35, posted (1 year 2 months 3 weeks 1 day 16 hours ago) and read 1790 times:
Quoting sweair (Reply 34): I think a merged BAE will actually lose jobs, Daimler and France will demand to be the guy who benefits the most like always.
Fortunately Daimler and France have treated UK manufacturing failry since taking over BAe's Airbus stake, no work has been lost from the UK at all. Why should it be any different if BAe and EADS merge ?