What the BAE merger says about UK relations with the US and Europe

The merger of British BAE Systems with French giant EADS finds the government at a tricky crossroads for the future of the UK’s defence industry. Although merging with EADS threatens to rip the heart out of Britain’s largest defence firm, BAE has little choice. The firm has suffered from spending cuts on both sides of the Atlantic — 98 per cent of BAE’s business originates from the defence market and orders are in decline. Therefore a merger appears to be the obvious solution, allowing BAE to diversify and secure its future. But as the world’s third largest defence contractor, any kind of dilution of BAE has security and strategic implications.

Although in some respects merging with EADS is a regular business transaction, the importance of the deal means that Westminster will make the final decision. The government’s ‘golden share’ in BAE means they can nail the deal at any stage if they decide to.