£13.5bn Franco-German aerospace union opens way for BAe in Europe

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DAIMLER CHRYSLER Aerospace (Dasa) and Aérospatiale-Matra of France yesterday formed the world's third-largest aerospace company with the merger of their defence and aerospace units.

DAIMLER CHRYSLER Aerospace (Dasa) and Aérospatiale-Matra of France yesterday formed the world's third-largest aerospace company with the merger of their defence and aerospace units.

The deal to create a pan-European group heralds a new stage in the industry's consolidation, and should accelerate the switch of Airbus Industrie, the commercial aircraft maker, into a unified company.

Yesterday's corporate union, named the European Aeronautic, Defence and Space Company (EADS), will have annual revenues of 21bn euros (£13.5bn) and eventually control 80 per cent of Airbus. It will start operations next year and have 40 per cent of its equity floated in the spring.

The deal was welcomed by British Aerospace (BAe), the defence and aerospace group that holds 20 per cent of Airbus. Last year BAe and Dasa failed to pull off a merger, and BAe turned to GEC's Marconi defence electronics arm. In June, Dasa merged with Construcciones Aeronauticas (Casa), the state-owned Spanish group.

A Paris-based analyst said: "In almost every field they [Dasa and Aérospatiale-Matra] were working together. In Europe they will be the biggest player... In this industry, they seemed natural partners."

Manfred Bischoff, Dasa chief executive, said: "We know each other, complement each other and have a proven track record of working together... For the first time, investors will have the opportunity to invest directly in cutting-edge products... such as Airbus, Ariane and the Eurofighter."

The French government had held 47 per cent of Aérospatiale-Matra, while Lagardÿre, also French, had 33 per cent. Dasa was wholly-owned by DaimlerChrysler. DaimlerChrysler will have 30 per cent of EADS, and another 30 per cent will be divided between Lagardÿre, the French state and unnamed private French institutions. Paris said it would cut its stake to 15 per cent, offering the balance of its holding in a secondary share offering.

Jürgen Schrempp, co-chairman of DaimlerChrysler, said: "We will be the driving force in the aerospace industry. It will also unlock shareholder value."

The EADS board will be jointly headed by Mr Bischoff and Jean-Luc Lagardÿre, Lagardÿre chairman. The business will have dual head offices in Munich and Paris and be registered in the Netherlands.

BAe said the trend towards industry consolidation was inevitable, and yesterday's deal raised the prospect of transforming Airbus into a single body. "The integration of these businesses creates a stronger partner," the company said. "The merger is a very helpful step towards the creation of the [unified] Airbus Industrie. Only a bilateral negotiation between BAe and the new merged company now remains."

Talks on moving Airbus from its partnership structure to unified body have been under way for the past 18 months, but progress has been slow.

BAe rejected claims that the new union left it at a disadvantage. "This is a very dynamic environment," a spokesman said. "I don't think that we feel in any way marginalised, if only because we have very big links with them through partnerships."

Shares in DaimlerChrysler ended 1.69 per cent up yesterday at 69.2 euros. Lagardÿre was 6.7 per cent higher at 22.27 euros and Aérospatiale-Matra added 7 per cent at 42.82 euros before both were suspended. BAe slipped 4.1 per cent to close at 374p.

The deal was signed in Strasbourg, France, at a ceremony attended by German Chancellor Gerhard Schröder and the French Prime Minister, Lionel Jospin. "Today's success shows that German-French co-operation is the inexhaustible motor for European unity," said Mr Jospin.

EADS will rank third in size behind US giants Boeing and Lockheed Martin.