1. ITV Report

Warning over BAE Systems merger

BAE Systems Typhoon Photo: PA Images

The proposed merger between BAE Systems and European aircraft manufacturer EADS could cost UK jobs and upset Britain's defence relationship with the United States, a Conservative MP warned today.

Ben Wallace called for caution over the deal, warning that EADS, which is part-owned by the French and German states, may be making a "grab" for BAE's multi-billion pound American business while planning to make any cuts to the merged company's workforce in Britain.

But former Defence Secretary Lord Reid said that the mooted deal appeared commercially appealing, and urged the Government to make efforts over the coming weeks to see whether political and diplomatic obstacles can be overcome.

The talks between BAE and EADS, disclosed on Wednesday, could create the world's biggest aerospace company, with a market value of around 50 billion US dollars (#31 billion).

But Mr Wallace, whose Wyre and Preston North constituency in Lancashire is home to many workers at BAE's nearby Warton base, told BBC Radio 4's Today programme: "We call it a merger, but it looks like a takeover.

"EADS has two big government stakes in it - France and Germany - and BAE does not. It is important that we get to the bottom of what safeguards the UK will seek, and indeed whether our very important defence relationship with the US is threatened or strengthened by this merger.

"France and Germany have different employment laws and different employment protections... (and) French unemployment is reaching 13%.

"When they start identifying overlaps, what I don't want to see is the French sweeping in and saying we will just get rid of the British workforce - such as my constituents - because it is easier to do or because we are the dominant partner in this relationship and therefore we choose to have it in Toulouse or Germany."

Mr Wallace added: "We have to be cautious that this is not just a grab for BAE's American business and a grab for the only other big defence spender in the West, which is Britain."

But Lord Reid warned that BAE could face job cuts even if the merger collapses, due to the shrinking of the defence market worldwide.

The former Labour Cabinet minister told Today: "In a commercial sense, this appears very appealing, because it creates a huge European aerospace and defence and civil airline manufacturer. They are complementary. EADS is well grounded in civil airliners and BAE in the defence side, and they are also complementary geographically.

"In commercial terms it appears to make sense, but there are a large number of complexities and obstacles and difficulties to be overcome, not least on the political side."

A key issue will be whether the US Government regards the merger as a threat to its own defence interests, he said.

Lord Reid said it was "a huge call" for the Government, which holds a golden share in BAE, whether to let the deal go ahead.

"It is very tentative and very early, but it is absolutely something that ought to be investigated, tried and tested over the weeks up to October 10 to see if these difficulties ought to be resolved, because they are both operating in very difficult markets, up against huge competitors like Boeing," he said.

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