BAE/EADS merger would test the Pentagon, says US defence executive

The chief executive of US defence group Lockheed Martin, Robert Stevens, has said he expects a "very public review" of the possible merger of rivals EADS and BAE Systems. As the bosses of the European aerospace group and Britain's arms manufacturer held conference calls with investors to reassure them over the planned $48bn (£30bn) merger, the Lockheed chief said the proposed deal could test the Pentagon's position against further consolidation at the top tier of the weapons industry. "It might be an early test of whether the unfavourability of consolidation at that tier would in fact be changing or evolving and, of course, the industry will be watching that," Stevens told a Morgan Stanley investor conference in New York. "Right now, by policy, I don't see the prospects for any consolidation opportunities at the top tier but if the future were to suggest demand were declining I'd certainly think that would be revisited," Stevens said. The combination of EADS and BAE faces political scrutiny on both sides of the Atlantic. In Europe the merger would be the biggest defence deal in a decade and would need to clear hurdles in France, Germany and Britain, where the business secretary, Vince Cable, would be responsible for any decision to refer the deal to the UK competition authorities. Analysts have cheered the move but remain cautious about whether a deal can be done. In a note to investors, ratings agency Fitch said the tie-up had "sound industrial logic" but added: "Considering the complexity and security sensitivity of some defence contracts, this may prove to be a long and arduous process."