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BAE Systems and EADS

Volume 739: debated on Wednesday 10 October 2012


Asked by

To ask Her Majesty’s Government what is their policy on the proposed merger between BAE Systems and EADS.

My Lords, earlier today the Government were advised by BAE Systems and EADS that they have decided not to proceed with the proposed merger. The two companies will remain as independent companies, each with a significant presence in the UK. The Government were clear that the merger would only ever work if it met the interests of all the parties involved. Today the two companies decided that a merger cannot be concluded.

My Lords, many of us will be disappointed at today’s breakdown in merger talks and the lost opportunity to create a unique, major, pan-European group across the defence and civil aviation sectors. Given the pressures on defence spend on both sides of the Atlantic and the move to UAVs—drones—away from more labour-intensive fighter aircraft, has not BAE Systems serious problems to face over the medium to longer term as a stand-alone plc? Does my noble friend know whether BAE Systems has a plan B? Sadly, are not further job losses inevitable?

It is important that BAE Systems, as an independent organisation, now delivers a strategy and business plan to satisfy its shareholders in terms of its future. As a Government, we will be looking very closely at that because we are obviously highly dependent on the company for our defence support. However, this is a terrific British business. It is not a business that we should question. It turns over £19 billion and is therefore of significant value to the economy. It makes £1.6 billion profit, which is of significant value to the taxpayers, and employs some 35,000 people. We look to hear from BAE on this matter, but I thank the noble Lord for this very topical Question at a very apposite time.

The Government have been totally clear all along. It is up to the two companies—and countries, for that matter—to decide whether this is a suitable engagement. We also have to remember that EADS is a big employer in this country. It is responsible for the Eurocopter, which is very important to our defence needs. It employs 17,000 people and is therefore a significant independent company.

My Lords, my noble friend said that this was entirely a matter for the company. Does that indicate that the Government would not ever in future use the golden share, which, when British Aerospace was privatised, it was decided that the Government should have because there are national interests that rate above the narrow interests of the company?

Indeed, the national interests are absolutely fundamental and, of course, my noble friend was in Cabinet when those decisions were made. They were made to protect the national interest. However, the Government have not had to make a decision on that issue. The two companies have decided among themselves that they are not going to merge, and we are therefore in the fortunate position of allowing them to make that decision without us intervening.

Did the Minister hear the reports at lunchtime which said that one of the major reasons for the breakdown in negotiations was the insistence of Angela Merkel and the German Government on greater control over the combined company? Is this so? If it is, is it not good that they did break down?

I am not going to respond to the media interpretation of this breakdown. For those who wish to look at the official announcement, it related to the legal structure between the two entities, whether they would operate in the countries and how they would share the workload. Those were fundamental reasons for the breakdown. Of course the German Government will have views on this merger, as do indeed our Government and the French. It would be, as my noble friend Lord Tebbit said, totally appropriate that we should. It is important in all our national interests.

Will my noble friend advise the House, because although shareholder, investor and stock exchange issues were obviously primordial in this matter, and the apparent breakdown happened for those reasons, there must also have been some discord between the three Governments he referred to—ourselves, France and Germany? Will he take steps to rectify that in future to make sure that we have a more common position on defence requirements in Europe?

The noble Lord should not suggest that there was discord between the three nations. There was discord at a company level, where it was decided that a number of the dynamics would not operate together. There is no discord between France, Germany and the UK in this matter. In fact, we have very positive relationships.

My Lords, Germany and France pursue their national interests vigorously through EADS. Will the British Government pursue the interests of the British worker and British strategic interests through BAE Systems?

Indeed. It was noticeable that the previous Government did not pursue BAE’s interests with the vigour that we are doing as a Government. The Prime Minister has been on many visits supporting our defence industry. I, too, took every chief executive of our cyber companies around the Middle East, selling our incredible cyberspace technology and gaining orders as we went. I think you will find—and we do not need to dwell on it for too long—that we are promoting extensively our defence industry, which is huge. It won orders worth £5.4 billion last year, which is no small figure.