Chris Jasper/LONDON Julian Moxon/PARIS Andrew Doyle/MUNICH

Aerospatiale Matra and DaimlerChrysler Aerospace (Dasa) are to merge in a move that will create the world's third-largest aerospace company.

The merger seems likely to accelerate the transformation of Airbus Industrie into a single corporate entity. The deal raises questions about the future role of British Aerospace in civil aircraft manufacture and complicates European fighter development.

The merger agreement was signed in Strasbourg on 14 October by French prime minister Lionel Jospin, German president Gerhard Schroeder, Lagarderé president Jean-Luc Lagarderé and Dasa president Jurgen Schrempp. The merged entity, with a turnover of $21.8 billion, based on 1998 sales, including Spain's CASA, is to be known as the European Aeronautic, Defense and Space Company (EADS).

Two-fifths of EADS is to be floated on the Paris and Frankfurt exchanges in two phases. A primary offering of shares worth c2 billion ($2.12 billion) will achieve a capital increase by the second half of next year, while a secondary offering will let the French Government reduce its overall stake to 15%. The move overcomes German concerns about state involvement in the running of the company, although French finance minister Dominique Strass-Kahn says that even if other companies join EADS, France's stake "will remain secure".

Lagarderé will hold around 11% of shares and French financial institutions 4%, with the remaining 30% to be controlled by Dasa parent DaimlerChrysler, which also retains its MTU engine concern and c3.4 billion in cash. Dasa says all parties have committed to retaining the initial ownership structure for at least three years, and says DaimlerChrysler has "a long-term" commitment to aerospace.

CASA agreed to merge with Dasa in June, but the latter has not yet finalised terms with Spanish holding company, SEPI. This is understood to have been invited to take a share in EADS via the 40% stock market offering.

The EADS presidency will be held jointly by Bischoff and Lagarderé, while ex-Lagarderé co-director Phillippe Camus, who has been running Aerospatiale Matra with ex-Aerospatiale chief Yves Michot since the pair's merger, becomes one of two operations directors. His German counterpart has not been named. Michot's role is unclear.

The retention of MTU as a direct subsidiary of DaimlerChrysler reflects its status as an engine manufacturer, but will inevitably fuel speculation about its possible disposal - although the company says "there are no plans for a different future for MTU other than within our group".

MTU, a major participant in Pratt & Whitney's civil engine programmes and the Eurojet military consortium, has previously been a takeover target for German rival BMW Rolls-Royce.

Source: Flight International