Germany 'blocks giant aerospace merger'

The two groups issued a statement announcing the failure, and quickly reticence from Berlin was seen as the deciding factor.

"Im ready to admit that we never expected to face such opposition against the deal, in particular not in Berlin," EADS chief executive Tom Enders said in a letter to employees.

Enders noted however the "strong efforts by the French and UK governments" to overcome what proved in the end to be "insurmountable" hurdles facing a tie-up that would have created a €35 billion aerospace giant.

It had looked late on Tuesday as if France had opened the way for an extension of the talks, with sources saying Paris had agreed to limit its shareholding.

But observers said Germany torpedoed the deal to create a global giant, because the power behind the civilian arm of the new group would shift completely to Toulouse in southern France where airliner maker Airbus is based.

Berlin was also said to reject that the group's military operations would be run from London where BAE Systems is based leaving Germany empty-handed.

Asked whether BAE Systems had found more agreement with France than with Germany in the tie-up talks, BAE chief executive Ian King told reporters: "That would be an accurate representation."

But German Defence Minister Thomas de Maiziere, on a visit to Brussels, said he had taken note of opinion pointing a finger at Germany and was "not totally surprised," but added he "did not share" that point of view.

"It's an entrepreneurial decision," Maiziere said. In Berlin, government spokesman Steffen Seibert said it "was now crucial that EADS grow on its own."

"For the German government, the priority now is that EADS continues to develop positively in all its business activities."

French President Francois Hollande also said the decision to call off the merger stood with the firms. He said his government had explained to the company directors "what we could accept and what we could not allow."

"All these elements were given to the companies. After that it is their choice," Hollande said, underlining that the breakdown in the merger talks was "neither a cause for regret nor a reason to rejoice."

Under British financial market regulations, EADS and BAE Systems were bound to say by Wednesday evening in London whether they planned to pursue a merger.

With the companies now going their own way, BAE Systems is seen as a potential target for being taken over or being broken up.

The two groups insisted that the deal had been based on "sound industrial logic" which "represented a unique opportunity to create a combination from two strong and successful companies greater than the sum of the parts."

Shares in EADS leapt higher in Paris on the news, while those in BAE Systems fell in London.

The groups had aimed to form a company bigger than US rival Boeing across the civil and defence fields. The main sticking point was initially believed to have been reluctance by France to meet demands by Britain.

Germany was always watchful meanwhile that it obtained as many votes in the company as France.

In London, shares in BAE ended the day 1.38 percent lower to 320.9 pence, while EADS shares leapt by 5.29 percent to 27.48 euros in Paris.

EADS wanted to expand in the United States and gain better access to a civil aviation market which is forecast to grow in coming years, to reinforce its defence activities, and to broaden its cost base from euros into dollars, the currency of aviation sales.

But US authorities were also following the merger talks closely because BAE Systems is a supplier to US defence industries, and the United States is wary of state interference in the management of its defence contractors.

BAE employs 83,600 people, mainly in Australia, Britain, India, Saudi Arabia and the United States, and reported sales last year of 19.154 billion pounds (23.83 billion euros, $30.67 billion).

EADS employs about 133,000 people at more than 170 sites worldwide, and posted 2011 sales of 49.1 billion euros.

AFP/jcw