Proposals to merge EADS and BAE Systems would create an aerospace giant larger than Boeing, with revenues exceeding €70 billion ($90 billion).

EADS has formally confirmed the discussions over a tie-up between the two companies but has refrained from further comment beyond the details disclosed by BAE, owing to the fact that the two sides are in a pre-announcement phase.

The proposed merger, in which EADS would hold 60% of an enlarged company, would create a company employing 220,000 personnel.

BAE had been in defence merger talks with European counterparts before EADS was created, notably with Germany's DASA in 1998.

While it is unclear precisely when the discussions began, sources close to the matter indicate that the talks have been continuing for some time - although it has not been confirmed whether they began before or after Tom Enders' mid-year accession to the top post at EADS. The talks are at a level where new branding for the proposed combined company has been discussed.

There are no immediate competition ramifications, the sources suggest, and no evidence that operations within the Airbus business will be affected.

The rationale behind the merger appears to be a desire by EADS to strengthen further its defence business, reducing its strong dependence on Airbus, diversifying the operation and providing resilience and stability against fluctuations in regional markets.

EADS is attracted to BAE's presence in the USA but, although a merger would result in a radically-changed ownership structure in Europe, early indications suggest there would not be a similar level of change to EADS's specific North American businesses.

BAE's statement says that any resulting company would be dual-listed on their current exchanges with the two companies operating as a single group.

Airbus had been 20%-owned by BAE before EADS acquired the UK company's share in 2006.

Source: Air Transport Intelligence news