Merger potential in European aerospace

September 3, 2013 (www.investorideas.com newswire) Over the past 50 years, the trends in the aerospace industry have been clear – from the gradual amalgamation of the US industry into the twin giants of Boeing and Lockheed Martin, to the creation of consolidated manufacturers such as MBDA, makers of missile technology for air forces and armies across the world, aerospace is rapidly becoming a smaller, more concentrated industry.

Take EADS, for example. Beginning as a merger of German-based DaimlerChrysler Aerospace (DASA), the Spanish Construcciones Aeronáuticas and France's Aérospatiale-Matra, it's grown to become one of the biggest aerospace companies in the world, building anything from Eurocopter helicopters, to Airbus super-jumbos, to space capsules that resupply the International Space Station.
It trades across six European stock exchanges and recently reported a very healthy 21% rise in earnings, with more to come as its advanced Airbus A380 superjumbos and A400M transport aircraft continue to be delivered. But EADS faces a stiff competitor in the form of British-based BAE Systems.
From its roots as British Aerospace, BAE Systems has grown to become a huge multinational corporation, and ironically, considering its roots, now is a bigger supplier to the US military than the UK. Thanks to a long standing atmosphere of co-operation between the UK and US governments, BAE Systems faces a smoother ride when working with the US military compared to its European rival. This has helped it become a primary supplier in a range of fields from electronic warfare components for the US Air Force's most advanced jet fighters to armoured vehicles for the Army - just recently, it won another £500m contract.
BAE Systems has often bucked the trend of a dismal trading day on the FTSE by boosting its shares, including a rise from a 2009 contract for torpedoes used by the Royal Navy and Royal Air force that also saw shares in insurance giant Catlin Insurance UK rise positively.
What lies in the future for Europe's aerospace industry? EADS and BAE Systems worked together closely on the manufacturer of the brand-new Eurofighter over its multi-decade development process. In late 2012, rumours circulated that they were considering a merger in which BAE shareholders would end up with 40% of the new company and EADS shareholders 60%.
A combined EADS and BAE Systems would be a gigantic aerospace company - the biggest in the world, in fact, with $93 billion in sales compared to Boeing's $68.7 billion. But it seems unlikely to happen, due to a lack of political will. Despite long discussions between the British, French and German governments, there just wasn't enough common ground for politicians to agree to a merger. The UK government sought to protect BAE Systems' strong business ties to the Pentagon and the US Department of Defense by restricting any political influence the three governments could have over the combined company. Yet the German representatives were opposed to the entire deal on fundamental grounds. It remains to be seen what the hopes for a EADS/BAE merger will be in the future, but it will take a large change in the political atmosphere to be feasible.
Source Jake Redknapp
Contact jake.redknapp@gmail.com