BAE/EADS merger could cost jobs and hurt US ties, warns MP

The proposed merger between BAE Systems and European aircraft manufacturer EADS could cost UK jobs and upset Britain's defence relationship with the United States, a Conservative MP warned today.

Ben Wallace called for caution over the deal, warning that EADS, which is part-owned by the French and German states, may be making a "grab" for BAE's multi-billion pound American business while planning to make any cuts to the merged company's workforce in Britain.

But former Defence Secretary Lord Reid said that the mooted deal appeared commercially appealing, and urged the Government to make efforts over the coming weeks to see whether political and diplomatic obstacles can be overcome.

The talks between BAE and EADS, disclosed on Wednesday, could create the world's biggest aerospace company, with a market value of around 50 billion US dollars (£31 billion).

But Mr Wallace, whose Wyre and Preston North constituency in Lancashire is home to many workers at BAE's nearby Warton base, told BBC Radio 4's Today programme: "We call it a merger, but it looks like a takeover.

"EADS has two big government stakes in it - France and Germany - and BAE does not. It is important that we get to the bottom of what safeguards the UK will seek, and indeed whether our very important defence relationship with the US is threatened or strengthened by this merger.

"France and Germany have different employment laws and different employment protections... (and) French unemployment is reaching 13 per cent.

"When they start identifying overlaps, what I don't want to see is the French sweeping in and saying we will just get rid of the British workforce - such as my constituents - because it is easier to do or because we are the dominant partner in this relationship and therefore we choose to have it in Toulouse or Germany."

Mr Wallace added: "We have to be cautious that this is not just a grab for BAE's American business and a grab for the only other big defence spender in the West, which is Britain."

But Lord Reid warned that BAE could face job cuts even if the merger collapses, due to the shrinking of the defence market worldwide.

The former Labour Cabinet minister told Today: "In a commercial sense, this appears very appealing, because it creates a huge European aerospace and defence and civil airline manufacturer. They are complementary. EADS is well grounded in civil airliners and BAE in the defence side, and they are also complementary geographically.

"In commercial terms it appears to make sense, but there are a large number of complexities and obstacles and difficulties to be overcome, not least on the political side."

A key issue will be whether the US Government regards the merger as a threat to its own defence interests, he said.

Lord Reid said it was "a huge call" for the Government, which holds a golden share in BAE, whether to let the deal go ahead.

"It is very tentative and very early, but it is absolutely something that ought to be investigated, tried and tested over the weeks up to October 10 to see if these difficulties ought to be resolved, because they are both operating in very difficult markets, up against huge competitors like Boeing," he said.

Asked whether the Prime Minister was concerned that the proposed merger could harm the UK's relations with the United States, a Downing Street spokeswoman said: "As the Department for Business said in their statement, we want to make sure that the UK's public interest is properly protected."

Defence Secretary Philip Hammond indicated that the Government will demand assurances that any deal will benefit the national economy and not compromise security.

Speaking to the Guardian during a visit to Afghanistan, Mr Hammond said: "The British Government will have to be satisfied that this is in the UK's national interest, because we have a special share in BAE Systems.

"We will want to be reassured not just about the security implications but about the implications for the future allocation of work to the UK. It's not just military work, but Airbus work."

Mr Hammond added: "We are not Luddites, we recognise that BAE Systems has big challenges in a marketplace where most of the customers are reducing defence budgets.

"So sticking our heads in the sand and saying we would rather things just carry on as they were is not necessarily a very realistic response. We have to engage with the realities that the company faces and one of those realities is that our budget is smaller, the US, French, German, everyone's budget will be smaller and the company has to respond to that."

Shadow defence secretary Jim Murphy MP said: "We will monitor this significant development closely. Our priorities are a strong, high-skilled British defence industrial base producing sovereign capabilities. We do not want to see any more job losses in the defence sector and must continue to ensure efficiency in procurement."

PA