BAE,EADS BOTH GOT HIGH MARKS FOR U.S. SECURITY

Both BAE and EADS get high marks from the Pentagon for compliance with their existing special security agreements. Details of the agreements are classified and closely guarded, but such deals include specific procedures that prevent the foreign entity from controlling the U.S. company’s operations.

In BAE’s case, only two non-Americans -- Chief Executive Ian King and the parent company’s finance director -- serve on the board of BAE Systems Inc, which has nine independent, Pentagon-approved directors, versus just five inside company officials.

The board is chaired by Michael Chertoff, the former U.S. Homeland Security secretary and includes a Who’s Who of former senior U.S. military and intelligence officials, including Richard Kerr, the former deputy director of the CIA.

Among other measures, special security pacts require all communications with the parent company to be logged, and visits by officials from the parent company to be approved in advance.

If BAE and EADS are able to work out a deal with European governments, they will initiate what could be weeks of detailed talks with the Pentagon about expanding BAE’s current security deal and whether it needs to be modified.

Once those details were largely agreed, the companies would ask for a CFIUS review, a 30-day process that can be extended for 45 days if required.

Ivan Schlager, who heads the CFIUS practice of Skadden, Arps, Slate, Meagher & Flohm, said other U.S. defense firms were watching the process closely since it would give a firm that gets big government subsidies easier access to the U.S. market.

Schlager said the Pentagon was in listening mode now, but there was a chance that concerns about French and German government interests could cause it to insist on an even more restrictive proxy agreement for certain BAE businesses.