Alarm at Boeing merger talks

Europe's aircraft industry is on alert after reports that America's Boeing and McDonnell Douglas are in merger talks that would create the world's largest aerospace group and force thousands of job losses.

A merger, combining Boeing's dominance of commercial aircraft with MD's military expertise, would spark a fresh round of consolidation among Europe's struggling aerospace companies.

Attempts to create a single US aircraft maker would face anti-trust hurdles and intense political opposition in Washington, and analysts believe an asset swap is more likely than a full-blown merger. But European aerospace companies said that rationalisation of the two US giants would put pressure on them to follow suit.

Airbus, in which British Aerospace is a partner, said a deal would intensify global competition and underline the need for further cost savings at Europe's aerospace companies. The four Airbus partners are talking about how the group can be restructured from a collaborative partnership to an integrated corporation. A spokesman said a merger of Boeing and MD would give a new urgency to the talks.

A spokesman for Matra Defense, the French company that wants to merge its missiles business with BAe, said: "We need more concentration and more mergers in Europe to be able to counter such measures in the US. If we do not do that, our defence industries will disappear."

Neither Boeing nor McDonnell Douglas would comment yesterday on reports in the Wall Street Journal that the companies were negotiating a deal, which would create a combined company worth $35bn with a 70 per cent global market share.

Boeing, headed by Frank Shrontz, is the world's largest commercial aircraft company, but like its rivals has struggled as airlines delayed orders during the recession. MD's smaller commercial division has teetered on the edge of collapse for many years and the company has been sustained by its military aircraft sales.

Nick Cunningham, analyst at BZW, believes anti-trust problems may prevent a merger of the civil businesses, though not the military operations. "I guess it is a matter of what the Department of Defense thinks," he said. "I'm sure they're talking to each other, as everybody is, because there's clearly further rationalisation to go in the US defence industry as there is in Europe."

The Pentagon has traditionally encouraged its military suppliers to merge, and gave its blessing to last year's $10bn deal which brought together Lockheed and Martin Marietta. Lockheed Martin has already cut thousands of jobs.

Airbus has been gaining market share on Boeing for several years, and last year overtook its rival. But this week's news that the US company had won a huge order from Singapore Airlines came as a blow.

Both Airbus and Boeing have forecast that airlines will need to order 13,000 to 15,000 new aircraft worth over $1,000bn in the next 20 years to replace ageing fleets.

Last year Airbus won firm orders for 125 new aircraft worth $9.1bn while Boeing announced sales of 120 worth $7.7bn. In contrast Boeing has already announced sales this year of over 300 aircraft, including the Singapore deal, while Airbus has just 82 orders.