Deadline Looms On £28bn BAE Merger
Bosses at BAE Systems and French firm EADS are due to reveal whether they will seek an extension to a negotiating deadline over a potential £28bn merger.
With a deadline looming of 5pm UK time, both companies' boards have been discussing whether to request around two weeks extra to complete their talks.
EADS said there would be no statement ahead of that deadline but it was clear there were significant differences remaining.
Defence Secretary Philip Hammond said the groups now had a clear idea of government "red lines" for the complex and sensitive deal.
Politics has been at the heart of the difficult merger negotiations. Britain wants to ensure that the French and German governments do not have a combined stake in the new company of more than 18%.
Germany and France had sought a combined stake of 27% but German Chancellor Angela Merkel is reportedly against the deal.
"Our position is that they (France and Germany) will have to make a considerable reduction in their stake," Mr Hammond said at the weekend.
"It has to be below a certain level, putting them on a par with big institutional investors who will also own significant single-digit percentage stakes in the merged group."
The British Government's preferred outcome in any merged company would see the three governments receive a 'special share' in the company.
Each government would be able to block another from owning more than 15% of the merged entity.
UK-owned BAE Systems is one of the world's largest defence manufacturers.
It is the favoured supplier to the British Ministry of Defence and has orders and operations in countries around the world, including a significant presence in the United States. It has 95,000 employees worldwide, 35,000 of whom are in the UK.
EADS is a pan-European aerospace manufacturer. The governments of France, Germany and Spain all have a stake in the company, which incorporates civilian airline maker Airbus.
Guy Anderson, of defence analysts IHS Janes, told Sky News: "This (proposed merger) is huge.
"It would create the world's largest defence and aerospace organisation, arguably pushing Lockheed Martin and Boeing into second place in the defence and commercial aerospace markets respectively.
"The offices of BAE and EADS will stretch from Australia to the west of the United States, and from Helsinki to South America. The sun will never set on a BAE/EADS bureau."
The rationale behind the proposed merger is this: The defence industry in Europe and the US is in decline. IHS Jane's forecasts a military procurement spending decline of $20bn (£12bn) over the next four years.
But conversely, demand and orders for civilian aircraft is, at the moment, on the up.
BAE wants to protect its exposure to a problematic defence market while at the same time opening up new opportunities in the civilian aircraft market and EADS wants greater access to the defence world - and the US market - through BAE.
Mr Anderson said: "The aim is to find a sustainable strategy that will keep the business running through a difficult period.
"BAE Systems is highly exposed to the US Department of Defence and the UK MoD; customers who have cut their spending by a combined $33bn (£21bn) since 2009."
Dr Robin Niblett, director of the London-based Independent Policy Institute Chatham House, says the idea is to even out ebbs and flows in both the civilian and defence markets.
"Right now, civilian aircraft demand is up and defence, reflected in the BAE share price to a certain extent, is down," he said.
"But if you look 10 years ahead, civilian aircraft (demand) might hit a bump and defence will be up, so in a way, each company is trying to even out the ebbs and flows of their business."
BAE Systems employs 35,000 people in the UK. In some towns, like Barrow-in-Furness, much of the population works for or relies on the firm either directly or indirectly.
The company has already axed thousands of jobs over the past 18 months and there are concerns a merged company could result in more job losses.
But Mr Anderson does not believe further large scale job losses are likely.
"BAE's workforce will only really be as big as the opportunities available in the UK," he said.
"The overlap between EADS and BAE Systems in the UK is minimal. There is a possibility of cuts to shared service functions - think back-office support - plus the rationalisation of lower-tier supply chains.
"The reality is that lower government spending means fewer defence sector jobs; a reality that will apply regardless of this merger."
Mr Anderson said he did not expect a merger would result in the closure of BAE plants in the UK. As much as possible, the companies would mesh together rather than overlap.
BAE Systems' largest shareholder is Invesco Perpetual. On Monday they expressed "significant reservations" over the proposed merger.
The investment firm, which has a 13% stake in BAE, outlined its concerns about the structure of the new company and the impact on its shareholder value.
"Invesco are worried that the deal will affect BAE's access to the US market," Dr Robin Niblett, from Chatham House, said.
"If there is a large French and German government shareholding then Boeing and other rivals of BAE will be able to undercut their position."