BAE plans merger with Lockheed or Boeing

telegraph.co.uk ^ | Filed: 08/06/2003 | By Mary Fagan

[budanski]

BAE Systems has informed the Government that it is planning a giant transatlantic merger with one of its US defence rivals, either Boeing or Lockheed Martin.

The UK's biggest defence company has made it clear that its future lies in North America and has discussed the implications in recent weeks with Patricia Hewitt, the trade and industry secretary, and Geoff Hoon, the secretary of state for defence.

A mega-merger is expected later this year, according to executives of the company. One said: "BAE has always said there will be more consolidation and that it would be part of that. It will be in at the end game.

"The company has to grow in the US. That is where the market is and the money is. It is where the research and technology really happens and where people have budgets. A deal could quite easily happen sooner rather than later."

Boeing is said to be the preferred partner of Sir Dick Evans, the chairman of BAE, although BAE would be very much the junior in such a relationship. Boeing's £22bn valuation dwarfs BAE.

A deal with Boeing would also create a serious conflict of interest: BAE owns a 20 per cent stake in Airbus, the European commercial aircraft company that is Boeing's arch rival.

Last week Philippe Camus, the chief executive of EADS, which owns 80 per cent of Airbus, warned that BAE would have to dispose of its stake in Airbus should it merge with Boeing. Analysts say EADS is very concerned about the effect of any tie-up with Boeing, which would give the Americans a huge boost in the European market.

Analysts say that Lockheed, with which BAE works on the Joint Strike Fighter programme, would be a more logical fit for the UK company. General Dynamics of the US is also seen as a potential suitor.

BAE's share price rose sharply last week when Mike Turner, the chief executive, was reported in an analyst's note as having said that any deal need not necessarily be on a 50/50 basis (or that BAE could only merge with a business approximately the same size as itself).

The comments fuelled speculation that a full takeover of BAE is on the cards. According to one BAE source: "We have never been prescriptive. We have never said that the deal we might do would have to be on a 50/50 basis."

BAE's shares rose to a six-month high of 148p, bringing the company's market capitalisation to £4.5bn.

The Government has no ideological objection to BAE merging with a US giant, especially in the wake of the joint US/UK military action in Iraq.

[budanski]

This is Big!!

[nwrep]

This is HUGH.

[alnitak]

"Believe it when I see it". There have been rumours like this concerning BAE's future for at least 5 years. I think BAE uses them as a negotiating tool with EADS :-)

[Trueblackman]

Remember that 4 engined mini-starlifter looking airplane that was the biggest piece of crap flying pilots and passagers alike hated the thing.

[Sub-Driver]

I doubt it, the regulators in the EU & US will nix it.

[Willie Green]

I doubt it, the regulators in the EU & US will nix it.

Don't count on it.
Dubya favors international control of industries vital to our national security.

Bush Seeks More Foreign Ownership of U.S. Airline Stock

[RayChuang88]

Remember that 4 engined mini-starlifter looking airplane that was the biggest piece of crap flying pilots and passagers alike hated the thing.

I think you're referring to the BAe 156 regional airliner. The early versions were much-disliked due to the poor reliability of the engines and the fact the plane was a bit underpowered. It wasn't until the Lycoming jet engines were upgraded that the later versions (sometimes known as the Avro/BAE RJ85) were better-liked by both pilots and passengers.

Anyway, if BAE Systems merges with Boeing it will have some very interesting effects on the airliner industry. This is because BAE Systems has a division that produces wings for the Airbus A330/A340 and the upcoming A380 airliners; will Boeing ownership mean possible political problems in wing development for future Airbus planes?

[FairOpinion]

This should be a serious concern to our national security, since both Lockheed and Boeing (the two companies BAE is considering) are involved in highly classified defense programs, which of course would all be controlled by a foreign company, if the merger is allowed to proceed.

Even though BAE is a company is a friendly nation, it's still a foreign company and we can't have cirical national security programs controlled by foreign companies in foreign nations.

[FairOpinion]

typo -- I meant "critical national programs"

[boris]

In the future there will be only two companies: Boeing and Microsoft, and everyone will work for one or the other of them.

I'm (sort of) kidding, but I recall that in some movie there was only one restaurant surviving...I think it was Taco Bell.

--Boris

[budanski]

Demoliton Man
starring Wesley Snipes, Sylvester Stallone, and Sandra Bullock.

[MissionMan]

Hi.

I work for BAE in North America -- for the US government -- doing classified work -- and I'm an American born and bred.

The British arm of our company is a bunch of F' ups actually (my opinion)-- they've lost money the last two years to the tune of multiple billions of pounds. The North American sector is very profitable.

Thus the interest in a merger, or a buy out. And from a US sector perspective it would be very welcome(Assuming the buyers have a clue)

[1rudeboy]

bttt

[1rudeboy]

Well, sir, if you're so worked-up about foreigners owning 49% of U.S. airline stock, why don't you buy some? Willie? Where'ja go? Willie?

[FairOpinion]

I can see that in SOME areas there could be cooperative programs with foreign company on a program to program basis, but I still can't see how the US government would allow themselves to be dependent for major programs on foreign companies.

I can see if BAE would buy PART of Boeing or Lockheed.

Considering that we have some 4 major defense contractors left after the mergers in the US: Lockheed, Boeing, Northrop and Raytheon, I will be VERY surprised if the US gov will allow the merger.

If they do, we might as well "merge" UK & US back together. :)

[ContentiousObjector]

BAE-146, I had the misfortune of flying in one just last week. (Air Canada)

More expensive than a real jet, lower opperating ceiling than a Dash-8\Q400

I would imagine the ONLY reason any of them are flying is because the lease terms are very favorable, otherwise they would be parked in the desert and leasing them at giveaway prices is better than parking them for good.

In other British Aviation (oxymoron?) news, the Nigerians have grounded the 1-11 citing it as a death trap

[ContentiousObjector]

it wouldn't make an awful lot of sense for BAe to merge with Boeing when BAe is a major partner in the Lockheed JSF program and F-22 program.

Not to mention it's involvement with Airbus

At the same time, I don't think the British government would be esspecially pleased to see BAe disappear and both governments could claim national security as a reason to veto