EADS-BAE merger faces major hurdles

During times of economic hardship, mergers between major companies are often motivated by a desire to cut costs.

Not so the proposed merger between European aerospace firm EADS and UK defence contractor BAE Systems.

Both firms are anchored firmly in Europe's industrial landscape, where between them they employ some 220,000 people, often in highly skilled jobs.

Hence, their roles as economic contributors and drivers of technological innovation are often hailed by politicians.

Safeguarding jobs

The fact there are relatively few overlaps between the two companies should make a merger palatable for voters, and thus to politicians scrutinising the implications.

Industry analysts say rather than posing a major threat to European jobs and investment, a merger would have the potential to safeguard many jobs

At a time when the defence industry is coming under increasing pressure, as ever more countries cut their defence budgets, the boom in commercial aviation enjoyed by EADS's dominant Airbus division could help balance the business.

As such, a combined EADS-BAE would tower over the competition as the world's largest aerospace and defence company, carefully balanced with one leg in each cyclical sector.

"A merger would allow EADS to achieve its aim of balancing civil aerospace... with non-Airbus activities," according to Citigroup analysts.

US market access

In a similar balancing act, a return to civil aviation might be an appealing prospect for BAE.

But for EADS, there is an even more persuasive reason why a tie-up could prove advantageous.

As the world's fourth largest defence firm, BAE has built up a notable presence in the US in recent years, much of it through the acquisition of smaller US defence firms, though it has also used the so-called "special relationship" between the US and the UK to full effect.

Efforts by EADS to do the same have come to little, so a deal with BAE could offer instant access to the US market for defence spending