Bush boost for BAE merger bid

BAE Systems could come a step closer to fulfilling its aim of merging with an American competitor under proposals being considered by the US Congress.

George Bush wants to reward the UK for its support in the Iraq war, and has proposed to waive International Traffic in Arms Regulations (Itar) for the UK. Itar prevents many US arms manufacturers exporting technology and would also be a considerable hindrance to BAE's plans to merge with a US rival, as applications for export licences often take months.

A scrutinising committee in the Senate broadly supported the plan, although a committee blocked it last month. But the House of Representatives alternative, to speed up the application process for the UK, is likely to pass, and would make the UK more attractive to US defence firms.

The US State Department said it was lobbying Congress for the full Itar exemption. The proposals will be voted on by each house next month before being put before a committee to reach a compromise agreement. Ministry of Defence insiders believe differences will be resolved this summer.

BAE said a merger with a US company could hasten the exemption, although there appears to be no firm deal on the cards. "We have got to have industrial weight to get inside the Pentagon and make the [technology transfer] happen," said Mike Turner, chief executive of BAE, speaking at the Paris Air Show.

US defence manufacturers have also been lobbying Congress, as the easing of the restrictions could increase the number of US companies getting contracts from the UK's Ministry of Defence. Jim Albaugh, head of Boeing's defence division, said the restrictions harmed global sales.