BAE and EADS in merger talks as Woodford site closes

by Tudor Rickards

As someone living close to Woodford aerodrome, the proposed merger of BAE and EADS [announced September 13th, 2012] had more than professional interest for me.

Last rites

Each morning, I drive or walk past the little airfield at Woodford in Cheshire, where BAE systems has conducted part of its aerospace business for many years. From time to time, sleek military aircraft would swoop past above. Transporters, each carrying one wing for the mighty Airbus, would trundle down Woodford Road, which had its plastic road furniture regularly removed and then replaced to permit easier access to the site. Each year, a flying show featuring Britain’s most loved aircraft blocked the roads around the village.

Now, only glimpses are to be seen of the last rites. Construction has been replaced by dismantling of aircraft such as the Nimrod shown in the image above.

Planning permission

Woodford aerodrome is now waiting for planning permission before conversion to new build which would produce private housing and mark the end of such commercial activities. While BAE systems faces the most serious job-losses, the site occupies a slice of aeronautic history going back to 1910. Local residents are still involved in community discussions.

Creating a global giant

At a strategic level, the merger between the two organisations has considerable face appeal. Woodford is probably of little significance in the wider scheme of things.

Dealbook, a New York Times publication, reported the news that the merger of the two biggest European aerospace and defence companies would create a global giant with a combined market value of nearly $50 billion.

“On the face of it this will create one of the largest aerospace and defense organizations on the planet,” said Guy Anderson, a senior defense industry analyst with IHS Jane’s in London, who added that the combination would “change the European defense market beyond recognition.”

Shares of BAE Systems rose 10.8 per cent by the end of trading in London on Wednesday [12th September 2012], while shares of EADS were down 5.6 per cent.

BAE and EADS (for European Aeronautic Defense and Space) have a history of collaboration. They are partners on a number of projects, including the Eurofighter jet. BAE also held a direct interest in the Airbus consortium for many years before selling it back to EADS in 2006.

The deal could give the two companies more lobbying muscle to compete with Boeing and other American military companies. BAE already has a strong presence in the United States, but EADS has had only limited success with American military contracts. Last year, the company lost a coveted $35 billion Air Force contract for aerial refuelling tankers to Boeing.

Regulatory Hurdles

Any deal would face its share of regulatory hurdles. The European Commission would have to approve the merger. The American government might also weigh in on the transaction. BAE’s Sanders unit could especially face scrutiny.

Leadership issues

The merger will bring with it some complex leadership issues. EADS over the years has been involved in many tortuous strategic decisions as the competing pressures from French and German stakeholders played out. Government involvement will now be compounded by British political interests.

Leaders We Deserve will be among the millions of interested parties watching the situation as it develops. Maybe, just maybe, for local residents and BAE employees there is renewed hope for a sensational last-minute change of plans for the Woodford site.

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