UPDATE 1-Boeing defense CEO says BAE-EADS merger needs scrutiny

Thu Sep 20, 2012 3:39am IST

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* Boeing: review must address security, industrial questions

* US deputy defense sec: each case reviewed individually

By Andrea Shalal-Esa

WASHINGTON, Sept 19 (Reuters) - A merger of Europe's EADS and Britain's BAE Systems Plc would raise national security and industrial questions and should be reviewed carefully by government regulators, the head of Boeing Co's defense operations said on Wednesday.

"We would expect that to be subjected to all the normal regulatory scrutiny," Dennis Muilenburg told Reuters at the annual Air Force Association conference. "There are ... national security questions, industrial questions, and those will have to be dealt with."

"This is a serious matter that needs to be scrutinized," Muilenburg said, adding that it was difficult to comment further until the two companies released details of the proposed structure of the combined company.

EADS and BAE said last week they were in advanced talks about a possible $48 billion merger, which would create a global aerospace and defense giant.

Boeing Chief Executive Jim McNerney last week said his company was not threatened by the discussions, but the talks reflected the start of global consolidation in the defense industry. At the time, he declined to comment further, saying he had not studied the issue.

Deputy Defense Secretary Ashton Carter told the conference earlier on Wednesday that the Pentagon had been told informally about the possible merger, but would wait to carry out a formal review until it received a proposal from the companies.

He said the department's industrial policy was aimed at allowing companies to make individual business decisions about mergers that allowed them to be financially successful, with each proposed merger to be reviewed on a case-by-case basis, taking competition and security factors into consideration.

"We understand that our industry needs to be technologically successful. It needs to be dynamic. It has to be financially successful because it has to exist in the capital markets," Carter said.

"What is economically sensible for them is going to deliver good value and productivity growth for the department," Carter said, adding that the BAE-EADS deal was just one of many transactions under consideration by the industry.

U.S. companies are evaluating whether the possible merger would affect their close ties with BAE, which is a key supplier for many other companies in both the commercial and defense sectors. EADS also has partnerships with many U.S. companies.

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