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BAE, EADS confirm merger talks

European Aeronautic, Defence & Space Co.(EADS) and BAE Systems leaders have confirmed they are hammering out a merger deal that could link two of the Europe's largest civilian and military aerospace companies.

The agreement under discussion would provide a 40 percent share to BAE with EADS holding a 60 percent majority stake, according to a BAE statement.

“This potential combination would be implemented through the creation of a dual listed company structure under which both companies would operate as one group by means of equalisation and other agreements but would be separately listed on their existing exchanges” said the BAE statement.

An EADS and BAE Systems merger would result in the world's largest aerospace company. It wouldn't necessarily take over as the largest defense company as Lockheed Martin would continue to be the largest supplier to the U.S. military.

EADS is best known for producing it's civilian Airbus airliner.

EADS and BAE Systems have worked together with Alenia Aeronautica to builds the Eurofighter Typhoon. Australia, Britain, Spain, Germany, Italy and Saudi Arabia have all added the fighter jets to their fleets.

A merger between EADS and BAE Systems would have serious repercussions on the European defense industry. European militaries are suffering through even more drastic budget cuts than the U.S. military. Defense contracts are few meaning the competition is fierce.

EADS and BAE Systems forsee savings in consolidating overhead and supply agreements, although defense analysts Byron Callan and Russell Taylor with Capital Alpha warn those savings might not be immediately seen.

Callan and Taylor suggested the Airbus A400M cargo aircraft program would receive a boost from a merger. EADS pushed the A400M hard at the Farnborough International Airshow as an alternative to the C-130 or the larger C-17.

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