Warning over BAE Systems merger

The proposed merger between BAE Systems and European aircraft manufacturer EADS could cost UK jobs and upset Britain's defence relationship with the United States, a Conservative MP has warned.

Ben Wallace called for caution over the deal, warning that EADS, which is part-owned by the French and German states, may be making a "grab" for BAE's multi-billion pound American business while planning to make any cuts to the merged company's workforce in Britain.

But former Defence Secretary Lord Reid said that the mooted deal appeared commercially appealing, and urged the Government to make efforts over the coming weeks to see whether political and diplomatic obstacles can be overcome.

The talks between BAE and EADS, disclosed on Wednesday, could create the world's biggest aerospace company, with a market value of around 50 billion US dollars (£31 billion).

But Mr Wallace, whose Wyre and Preston North constituency in Lancashire is home to many workers at BAE's nearby Warton base, told BBC Radio 4's Today programme: "We call it a merger, but it looks like a takeover.

"EADS has two big government stakes in it - France and Germany - and BAE does not. It is important that we get to the bottom of what safeguards the UK will seek, and indeed whether our very important defence relationship with the US is threatened or strengthened by this merger.

"France and Germany have different employment laws and different employment protections... (and) French unemployment is reaching 13%.

"When they start identifying overlaps, what I don't want to see is the French sweeping in and saying we will just get rid of the British workforce - such as my constituents - because it is easier to do or because we are the dominant partner in this relationship and therefore we choose to have it in Toulouse or Germany."

But Lord Reid warned that BAE could face job cuts even if the merger collapses, due to the shrinking of the defence market worldwide.

The former Labour Cabinet minister told Today: "In commercial terms it appears to make sense, but there are a large number of complexities and obstacles and difficulties to be overcome, not least on the political side."