Cautious optimism over BAE and Airbus merger

THE proposed multi- billion-pound merger between Airbus owner EADS and BAE could be great news for Bristol's vitally important aviation sector, according to industry experts.

As reported in the Post the two firms have revealed they are in talks over a possible £29.8 billion partnership which would lead to the creation of one of the biggest companies in the world.

The news was greeted with caution in some quarters and union leaders have called for urgent talks with bosses at both companies and government ministers to discuss the possibility of job losses.

But in Filton – where just under 5,000 people work for both firms – there is a feeling of "cautious optimism" about the likely merger.

However, it has emerged that any deal is likely to come too late to save the historic Filton Airfield which has been earmarked for closure at the end of this year.

Union leaders at the Airbus plant in Filton, which employs around 4,000 people, say a meeting with the top bosses of the firm is already planned for early October and the potential merger will be the top item on the agenda.

Mike Byfield, from the Unite union, said: "Obviously we are still at a very early stage and all the details of the proposed deal have still to be made public.

"It is very early days but I would say that the general feeling at Filton about the merger is one of cautious optimism. Filton is now a world leader in terms of design and research in the aviation industry.

"There have been concerns raised about job losses but if you look at the two businesses in this area there is very little overlap so there would be no real reason for job losses. If anything this merger could strengthen Filton's hand because of the high level of expertise we have here.

"It is just a shame that any merger will happen too late to save the airfield from closure."

Although Airbus is the largest occupier in Filton, BAE still owns the airfield – which has one of the longest runways in the UK. The company announced more than a year ago that the airfield is no longer economically viable and will close at the end of the year.

Airbus has used the airfield to transport various aircraft components and wings but says it has put in place alternative measures.

Most of the work carried out at Filton is centred on the design of the wings, landing gears and fuel systems for Airbus's commercial fleet of planes. There is a separate factory which builds the wings for the A400m military transporter plane.

Other parts of the EADS business and BAE could see job cuts including EADS-owned defence company Cassidian in Newport in south Wales which employs 1,000 people.

Fabrice Bregier, who took over as chief executive of Airbus in the spring, moved quickly to reassure staff yesterday.

He said: "We welcome the news of a possible business combination of EADS and BAE Systems. Such a combination would strengthen EADS and BAE Systems – thereby making Airbus part of a stronger company overall.

"An EADS and BAE Systems combination is not expected to affect Airbus and its employees in daily operations. Airbus' organisation, product plans, engineering, manufacturing and strategies for the future should continue as is."

He added: "Airbus has a traditional and long-standing relationship with BAE Systems. Until 2006 Airbus was jointly owned by EADS and BAE Systems. Several thousand of today's Airbus team members came to us as BAE Systems employees and BAE Systems remains an Airbus supplier with whom we collaborate on research and development projects.

"Our companies are neighbours in key locations such as the UK where many of the 10,000 UK Airbus professionals work in close proximity with the 35,000 UK employees of BAE Systems and the US."

If the potential tie-up goes ahead BAE would own 40 per cent and EADS 60 per cent of the new super firm.

Barry Warburton, from the West of England Aerospace Forum, believes a merger would be good for the aviation industry in Bristol and in the South West.

He said: "Everything does have to be prefaced with the word 'if' at the moment because there are no guarantees that this deal will go through.

"But I do think that a merger would be good for UK PLC as a whole and for the aviation industry in the South West. There might be a concern about job losses in other parts of the industry but that would not really be the case for Filton.

"We are living in a global world now and it is the strong companies which will survive and prosper. I genuinely think this merger would make both companies much stronger on the world stage.

"We are talking about an incredibly competitive market but this would create a very powerful company in an industry which is becoming increasingly globalised."

When the news first broke the value of shares in both companies soared but yesterday investors were taking a much more cautious approach.

As well as the sensitive nature of national defence work handled by the two firms, the success of the deal also hinges on various government approvals.

The British Government, which has a so-called golden share in BAE that allows it to veto deals that are seen to against the public interest, has already said it will seek to ensure UK interests are "properly protected".

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. "As the Department for Business has already 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."

Andrew Gollan, analyst at brokers Investec, advised BAE investors to sell their shares in the wake of the announcement.

"We do not believe competition and approval issues are insurmountable. Practically, however, combination will be complex. Approvals will be required from multiple global governments.

"Perhaps of more significance, agreement by UK, French and German governments on ownership structures and protection of national interests, for example nuclear deterrent, will prove politically sensitive issues."

BAE said a tie-up with EADS would form a "world-class" company in its sector, with combined sales of £60 billion and around 220,000 staff. The merged group would employ around 48,000 in the UK alone.

BAE specialises in defence, security and the military, whereas the majority of EADS' work is commercial.

EADS, a consortium of aerospace and defence manufacturers from France, Germany and Spain, is headquartered in Paris and Berlin.

BAE produces Astute nuclear submarines and is the largest supplier of land vehicles to the US army.

But the company has been under pressure, reporting a 14 per cent fall in sales last year as military spending in the US and UK was cut. This saw 2011 profits fall seven per cent to £2 billion.

Defence spending has reduced in BAE's largest markets, the UK and the US, and was hit last year by a delay in an order for Eurofighters by Saudi Arabia.

BAE does very little business outside the defence industry while the civil aviation market has continued to thrive.

Airbus can provide BAE with the cash it needs for new investment. At the same time Airbus will be looking to use BAE to help it land lucrative defence contracts in the US and the Middle East.