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BAE, EADS talks may lead to mergers

LONDON/WASHINGTON--In the biggest shake-up in Europe's aerospace and defense sector in more than a decade, Britain's BAE Systems and Airbus-owner EADS said they are in advanced talks to create an industry giant that would overtake rival Boeing in sales and contend with defense cutbacks in Europe and the United States.

The proposed deal, the biggest since a 2000 pan-European merger created EADS under joint French and German control, could kick-start a wave of consolidation in the sector, as companies vie for shrinking defense budgets.

Linda Hudson, chief executive of the U.S. arm of BAE Systems, said the deal made sense given the downturn in U.S. and European defense spending, but would also insulate the combined company against the inevitable cycles of the aerospace sector.

β€œIt's a win-win proposition for both companies in this environment,” Hudson told Reuters after a speech at Johns Hopkins University in Washington on Wednesday evening.

Boeing CEO Jim McNerney said the Chicago-based aerospace leader was not threatened by such a merger, which he predicted would mark the start of global consolidation in the industry.

β€œI don't see this as something that is going to threaten us fundamentally,” McNerney told Reuters after a speech to the Council on Foreign Relations in Washington.

Executives at Lockheed Martin Corp declined comment.

An EADS-BAE merger would create an entity with more balanced commercial and military operations, a model that Boeing has followed for some time, McNerney added.

While the complex deal faces obstacles, U.S. government officials were not likely to block it, according to multiple sources close to the matter who were not authorized to speak publicly.

These sources said the companies have already held direct discussions with U.S. officials, though no formal proposal has been put forward yet.

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This combo photo shows the European Aeronautic Defense and Space company (EADS) logo, top, and the British Union Jack flag flying alongside the BAE flag in East Yorkshire, England. British arms manufacturer BAE Systems and European aircraft manufacturer EADS are holding talks over a possible merger, the pair announced on Wednesday, Sept. 12.(AFP)

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