2 European Defense Firms May Merge

British Aerospace confirmed it is in merger talks with Daimler-Benz Aerospace of Germany and other European airplane makers, angling to create a formidable competitor to U.S. defense contractors Boeing Co. and Lockheed Martin Corp.

In terms of size and ability to compete, the merger would put the Europeans “in the same ballpark” with the U.S. giants, said Nick Cunningham, an aerospace analyst for brokers Salomon Smith Barney in London.

In confirming the talks Monday, Daimler-Benz Aerospace spokesman Rainer Ohler said that while no deadline has been set, the negotiations, which also involve the French, are now “under great pressure.” British Aerospace said there were no assurances of a merger.

The talks were confirmed after a report in the Financial Times newspaper that British Aerospace and Daimler-Benz Aerospace, or Dasa, planned to merge early next year.

But after a year of negotiations involving the big airplane makers and governments in Britain, France, Germany, Sweden and Spain, a “big bang” merger of the British and German companies with French firm Aerospatiale/Matra now seems unlikely, the newspaper said.

The main obstacle, the report said, was that progress toward privatization of Aerospatiale, partly government-owned, has been slow.

The British and German companies oppose having a government as a stakeholder in the new giant company, the paper said.

British Aerospace and Dasa would merge initially, setting up a holding company probably registered in the Netherlands for tax reasons, the Financial Times said.

It reported that Aerospatiale would be invited to be on the company’s board as a signal of the French company’s intent to eventually be part of the group.