Back to Black?

In both 320 sections, we've recently been talking about bribery, with some reference to the 2003-2006 scandal involving BAE Systems (British Aerospace Engineering) and Saudi Arabia, with a supporting cast of a large flock of fighter jets, a pink airplane, a peacock-blue Rolls-Royce, and numerous sports cars.

Although there was some speculation that BAE chairman Sir Dick Evans and his high degree of cross-cultural awareness played a part in securing the Saudi contract.

Well, BAE is in the news again.  There's a proposed merger between BAE and EADS (European Aeronautic Defence and Space Company).  Per the Financial Times:

Both companies are aiming to reach an agreement by October 10, according to two people familiar with the deal talks. BAE and EADS executives wanted to decide “whether this thing will fly or not” by that date, although the deadline could be pushed back if necessary, one of these people said.

Some Background

Both companies are defence contractors (that is, weapons manufacturers), although only about a third of EADS revenues are military (EADS includes Airbus, which is civilian aircraft).

The Economist quick update on the arms business

EADS is a Dutch company, with a complex ownership structure that includes the German, French and Spanish governments and Daimler and worldwide operations (including China and Brazil). 

BAE is British owned and  deals primarily with the UK and other English-speaking countries (US and Australia), with significant interests in India and Saudi Arabia.

The Merger

According, again, to the Financial Times, the motivation behind this is mutual benefit.  BAE has a significant presence in the US defence market (which is almost half of the world's defence spending), allowing the EADS / BAE combination to take on Boeing.  And, if military markets dry up (though plans would be to expand into additional lines of military hardware), EADS has Airbus, which is civilian aircraft.

However, nobody else -- shareholders, governments, employees, labor unions, and the lady that pushes the food trolley on the Hogwarts Express -- likes the idea.

More later....

The US Reaction

Here's the New York Times coverage; from the comments, it appears that US observers are worried about the potential power and size of the mergerd firm.