BAe and Dasa merger due this month

BRITISH AEROSPACE and DaimlerChrsyler Aerospace are set to announce their pounds 14bn merger before Christmas in a move which will dramatically reshape Europe's defence and aircraft industries.

Industry sources said yesterday that many of the hurdles to a BAe-Dasa merger had been overcome in the last fortnight, making an early announcement more likely.

The combined business would have sales of pounds 15bn and produce everthing from fighter aircraft and guided weapons to helicopters and commercial jets.

A merger could also accelerate the consolidation of Europe's defence and aerospace industries, while creating a business able to compete on an equal footing with the likes of Lockheed Martin and Boeing of the US.

BAe and Dasa are partners in both the Eurofighter programme and Airbus Industrie, and have been talking seriously about a merger for the last six months.

Based on market capitalisations, BAe would probably hold about two-thirds of the combined group. The remaining shares would be held by Dasa's parent company, DaimlerChrysler, itself the result of a merger earlier this year between Daimler Benz and the US carmaker Chrysler.

The enlarged group would be run by Sir Dick Evans and John Weston, chairman and chief executive of BAe, although Manfred Bischoff, Dasa's chairman, would have a senior role, possibly as deputy chairman.

BAe already has a 35 per cent stake in Saab, the Swedish military aircraft manufacturer and is planning to take a stake of up to 40 per cent in Casa of Spain when the business is privatised. Casa is another of the Airbus partners.

A merger with Dasa will put increased pressure on the French to press ahead with the privatisation of Aerospatiale, their leading defence and aerospace company and an industrial partner in Airbus.

France has opposed a BAe-Dasa link up, fearful that it will leave Aerospatiale isolated both within Airbus and in the wider consolidation of Europe's defence and aerospace industries.

Last Friday Aerospatiale again threatened to block the transition of Airbus into a single commercial entity unless its shareholder structure was altered. At present the French and Germans each have stakes of 37.9 per cent in Airbus while BAe has 20 per cent and Casa the remaining 4.2 per cent.

A BAe-Dasa merger would give the enlarged company a combined share of more than 50 per cent. However, industry sources said it would still not enable them to dictate to the French, given the size of Aerospatiale's stake.