UK defence contractor BAE Systems and EADS (European Aeronautic, Defence & Space Co) announced on Wednesday that they are in talks to combine their businesses.
BAE and EADS confirmed discussions in a statement to the London Stock Exchange, saying that under the proposed merger, BAE Systems shareholders would own 40 per cent and EADS shareholders 60 per cent of the enlarged group.
The joint venture is clearly aimed at defence rather than civilian aircraft. Analysts see it as a clear shot at catching up with Boeing of the US in the defence business.
The two European companies have been mulling joining forces for about 10 years now, in a venture that would balance civil and defence operations in an era of shrinking military budgets.
Apart from the popular Airbus, EADS also controls helicopter maker Eurocopter, satellite builder Astrium and defence electronics contractor Cassidian.
Boeing is clearly ahead in the race so far - it even went to court over a huge contract to build new aerial refuelling tankers for the US Air Force. Boeing finally won the contract.
Defence revenue at EADS is about half of Boeing's. But by adding BAE, the combined company would have a defence business significantly bigger than Boeing's.
The deal would unite the companies' boards and management but they would continue to be listed separately on stock exchanges, the statement to the London stock exchange said.
BAE and EADS pointed to a ''long history of collaboration'' on projects such as the Eurofighter Typhoon jet, which is partly assembled in Britain and then built by EADS elsewhere in Europe.
BAE and Netherlands-based EADS acknowledged the sensitive nature of their global businesses and said they had initiated discussions with ''a range of governments'' about the implications of a merger.
EADS chief executive Tom Enders, who took over in June, has been revamping senior management positions and switched the leader of the Cassidian defence business this month. A German reserve army officer, Enders previously ran the Airbus business, which is EADS's biggest sales contributor and the world's largest maker of civil aircraft - ahead of Boeing.
EADS and BEA already collaborate on the Eurofighter warplane.
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