BERLIN/LONDON (Reuters) - France and Germany have collided over the location of the headquarters for a new aerospace giant to be formed from a planned merger of Europe's EADS and Britain's BAE Systems , sources familiar with the matter said on Tuesday.
France wants the group's headquarters to be based in Toulouse, its southwestern aerospace capital where the Airbus planemaking subsidiary of EADS is based, but Germany is pressing for the group to be headquartered outside Munich, they said.
The apparently
incompatible demands constitute one of the hurdles that must be
addressed in tough negotiations now getting under way in private, after a
very public war of words about the creation of a new global defense
group broke out on Monday.
Shareholders,
executives and politicians have clashed over the 60:40 merger ratio in
favor of EADS, state participation and now a behind-the-scenes battle
over the headquarters as talks go down to the wire ahead of an October
10 deadline.
"This is just the
start; everyone pitches for the maximum they can get and then you have
negotiations," said a source close to talks between firms, governments
and key shareholders.
UK arms firm BAE Systems and EADS, controlled by public and private interests in France and Germany with Spain as a junior partner, are in talks to create Europe's answer to U.S. aerospace giant Boeing with a value of $45 billion.
The squabbling over headquarters - echoing lobbying
between countries for the right to host international organizations -
has emerged as a sensitive issue of national pride as Germany fights to
retain its standing in one of its flagship projects.
EADS was created from a merger in 2000 and quickly
became a further symbol of Franco-German integration alongside the euro,
but within half a decade it had become the focus of industrial tensions
between the two main euro zone economies.
BALANCE OF INTERESTS
Now analysts say
Germany fears being left as a junior partner in a company steered mainly
by French and British interests, starving it of future investment and
aligning Europe's defense industry with its two largest military powers.
While a consensus
has taken hold that the combined defense operations of the new group
would be in London and its commercial aerospace heart would remain in
Toulouse, the prestigious headquarters are seen as a prize worth
fighting for.
Berlin has
presented a demand that the group headquarters should be in Germany to
preserve a balance of interests between the three main host nations, the
sources said.
Chancellor Angela
Merkel's Bavarian CSU partners specifically want the corporate base to
be placed in Ottobrunn near Munich, though they remain minority
coalition members.
Sources close to
the talks said earlier France was backing Toulouse as part of its
conditions for agreeing to the deal.
The German request
is likely to be opposed by EADS, whose chief executive Tom Enders
established the de facto headquarters in Toulouse on taking office just
three months ago.
EADS and BAE also
want to minimize outside interference in decisions they regard as a
matter for the new company's board.
EADS declined to comment.
The impasse stems
from government concerns over retaining jobs during hard times for
Europe's economy as well as coveted technology needed to drive growth.
INVESTOR CONCERNS
The moves also
threaten efforts to remove duplication from legacy EADS operations and
are likely to draw protest from investors concerned about scant
cost-savings offered by the merger.
Until June this
year, EADS had its headquarters in both Paris and Munich as a result of
power-sharing agreements put in place when EADS was set up. Staff in
Munich are said to be particularly concerned about jobs as a result of
the merger.
With a deadline of
October 10 for a deal approaching, EADS and BAE are also trying to reach
agreement with European governments on jobs and research investment
while trying to woo skeptical investors.
In remarks to an
audience of engineers in London on Monday, Enders said job cuts were not
the main purpose of the merger, which was based on expectations of
growth.
"This will not go down in history as the deal with the most cost synergies," he said.
He said if people are wondering whether the deal would involve "slashing" jobs, he said: "That's not the purpose."
The merger plan,
affecting jobs, security and prestige in Europe's most powerful
industrial economies, has spawned negative leaks and rhetoric from all
sides.
Germany's defense
minister warned on Monday that the war of words could kill the proposal,
which has also been greeted skeptically by financial markets.
EADS and BAE shares
rose 2-3 percent on Tuesday, clawing back a small proportion of losses
since talks became public.
The merger plan,
however, won a vote of confidence from one of the industry's harshest
critics, the chief executive of Qatar Airways who has frequently berated
Airbus and Boeing over development delays and design decisions.
Noting that the merger would re-unite Airbus and BAE, Akbar Al Baker said: "It will make them strong".
BAE sold a 20 percent stake in Airbus in 2006. Since
then commercial jet sales have soared and defense has stagnated.
"They're coming
back together because staying apart was not in their best interest. They
can provide better products and customer service together," Al Baker
told reporters in Doha.
