September 14, 2012
Credit: Credit: BAE Systems
Around the United States, Britain’s BAE Systems (BAES.L) is widely seen as just another powerful U.S. defense contractor, unlike European aerospace group EADS (EAD.PA), which is always firmly identified by its French, German and Spanish roots.
With nearly 40,000 employees in states like Virginia, Texas, Pennsylvania and New Hampshire; outreach programs at myriad U.S. universities, and its own savvy lobbyists, BAE’s British origins seldom merits a mention.
Now that the two companies want to tie the knot, the question is, whether BAE will be able to extend its hard-earned reputation to EADS, or whether the relationship with EADS could complicate its own business relationships in the United States.
Analysts and industry executives said BAE, which announced on Wednesday that it was in advanced merger talks with EADS, has firmly established itself in the U.S. defense industry landscape over the past decade through a series of strategic acquisitions and rigid adherence to tough security procedures.
Thousands of its employees hold government security clearances and BAE is a member of the Aerospace Industries Association, the U.S. aerospace and defense industry’s largest trade group, which has steadfastly refused to admit EADS because its shareholders include foreign governments.
Linda Hudson, chief executive of BAE’s U.S. unit and a member of the parent company’s board, said her company had a unique special security agreement that allowed the U.S. unit to work on the highest level U.S. national security programs.
“It creates a very interesting and complicated dynamic because in essence, our parent can’t tell us what to do,” she said, adding that the security agreement limits the amount and type of information that the British parent can get about the U.S. unit’s work.
Details of the proposed merger are still being worked out, but BAE’s statement on Wednesday made clear that it intends to continue the special security agreement and extend it to include EADS. EADS also has a special security agreement, but does not work on similarly sensitive programs, analysts and industry executives said.