Chris Jasper/LONDON Andy Nativi/ROME

The establishment of EADS creates an aerospace giant that bears a striking resemblance to the European Aerospace and Defence Company envisaged since December 1997 - with the significant absence of British Aerospace. The UK giant rejected Dasa as a suitor and pursued consolidation along national lines with the purchase of Marconi Electronic Systems, but must now decide whether to return to the European fold or press on with its transatlantic ambitions.

Shares in BAe fell sharply on news of the Dasa/AM deal, despite the company having publicly welcomed the tie-up. Analyst Kevin Lynch of aerospace consultants IPG says the UK firm will not be surprised or threatened by the merger, but suggests it must now decide where its priorities lie. BAe sources says the company has noted EADS' dualism with interest, and that it is likely to raise "some interesting issues of corporate governance".

On the US front, BAe has several options. Boeing is only now recovering from recent traumas, while Lockheed Martin is still deeply mired. Raytheon this week announced a profits warning. Moreover, with BAe's market capitalisation now greater than that of Raytheon and slightly more than Lockheed Martin's, any deal with either of the US giants would be very much a merger of equals. Washington's merger policy, which blocked the Lockheed Martin/Northrop Grumman tie-up, will appear even more questionable to US manufacturers.

Several loose ends remain. Italian sources say the EADS deal came as a blow to Finmeccanica/Alenia, which had hoped to craft its own alliance with Dasa/CASA. A deal with BAe which will see Finmeccanica retain a 50% share in Alenia Marconi Systems after the Marconi merger remains on course, and joint ventures in missiles and space are also pending - but in aerospace, Italian options now appear limited.

Source: Flight International