EADS, the Airbus and Eurocopter parent, is in talks with defence manufacturer BAE Systems over a possible merger that would create the world's largest aerospace and defence company with an annual turnover of almost $100 billion.

In a joint statement released to the London Stock Exchange, BAE confirmed that discussions between the two manufacturers were under way.

If the merger goes ahead, the firms' combined annual turnover would be $95.8 billion, based on their 2011 figures, with around $74 billion generated by aerospace operations. This would dwarf EADS's chief rival Boeing, which recorded turnover of $68.7 billion in 2011.

The merger would give EADS a long-sought foothold in the US defence market. Since beginning to shift the centre of gravity of its business stateside in the 2000s, BAE has become one of the Pentagon’s biggest contractors.

It would also give EADS access to Europe’s biggest defence market, the UK. While EADS has a large business in the UK, including manufacturing Airbus wings and space equipment, the country stayed out of the Franco-German-Spanish merger that created EADS in 2000.

"BAE Systems and EADS have a long history of collaboration and are currently partners in a number of important projects, including the Eurofighter and MBDA joint ventures," the statement reads. BAE previously held a 20% stake in Airbus, although it disposed of this shareholding to EADS in 2006.

The statement adds: "The potential combination would create a world-class international aerospace, defence and security group with substantial centres of manufacturing and technology excellence in France, Germany, Spain, the UK and the USA."

BAE says the partners would look to create a "dual-listed company structure", under which both companies would operate as one group "by means of equalisation and other agreements but would be separately listed on their existing exchanges". BAE Systems shareholders would own 40% and EADS shareholders 60% of the enlarged group, it says. "In addition, subject to receiving appropriate shareholder approvals, the parties envisage issuing special shares in BAE Systems and EADS to each of the French, German and UK governments to replace the existing UK government share in BAE Systems and the stakeholder concert party arrangements in EADS."

The parties have also been in talks with a number of governments about the implications of the transaction to "secure and sensitive defence businesses".

The UK Takeover Panel requires one or both parties to announce their intentions by 10 October, although BAE says it intends to request an extension to the deadline if it and EADS are still in discussions at that time.

Source: Flight International