BAE-EADS merger at risk because US doesn't trust leaky Europeans

Sep 17, 2012

British defence giant's special relationship with US up in the air because of EADS' reputation

MARIO MANCUSO, a former senior adviser on the Committee on Foreign Investment in the US, which decides on national security clearance for foreign arms-makers, is warning that BAE will have to agree to tougher security arrangements if its merger with EADS will be accepted in Washington.

The new company would be required to grant operational control of its most sensitive US defence contracts to a proxy board of three Americans, divorcing its operations from its European headquarters, legal experts warned the Financial Times.

The same paper says the deal could put BAE's special relationship with the US at risk over concerns that security information could leak to BAE's European partners in EADS, the pan-European defence and aerospace company part-owned by the French government.

At the heart of the issue is the French and German government¹s influence within EADS. The FT reports EADS is so distrusted in the US that its numerous efforts to supply the US military have never gone beyond supplying helicopters. BAE managers are confident they can "ring-fence sensitive defence assets" to allay the fears of its wealthiest defence customer that technology could leak to outsiders.

Says Nick Cunningham, analyst at Agency Partners: "It's going to be a tough sell to the US government ­ that they should allow one of their top prime contractors (BAE) to be part of a European group when one of their major concerns over the years has been about transfer of intellectual property."

Still, Reuters says the BAE-EADS merger could create a global aerospace and defence giant that would provide a boost to European leaders' ambitions for a more efficient defence industry. With Nato urging members to cooperate on projects to squeeze maximum value from defence budgets, the combination of BAE and Franco-German dominated EADS would be a significant step forward. "We would welcome any reinforcement of the European defence industry and its competitiveness on the international stage," one European Union source said.

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One word - Protectionism!!