September 18, 2012 / 12:03 AM / in 5 years

UPDATE 1-Pentagon needs more details to evaluate BAE-EADS merger -Donley

By Andrea Shalal-Esa

WASHINGTON, Sept 17 (Reuters) - The U.S. Defense Department needs more details to be able to assess the security implications of a possible merger of BAE Systems and EADS, U.S. Air Force Secretary Michael Donley said on Monday.

Donley said the U.S. government had successfully concluded special security agreements with foreign-owned companies in the past that allowed them to work on sensitive military and intelligence contracts, but each of those deals was “very individual and very specific.”

Both BAE and EADS have such agreements in force currently, but a merger would require negotiation and approval by the U.S. government.

Sources close to the companies have said that they do not expect the U.S. government to block a merger on security or antitrust grounds, citing the existing security agreements and preliminary discussions with senior Pentagon officials.

Donley said he spoke with Pentagon acquisition chief Frank Kendall about the issue last week, after news leaked that BAE and EADS were in advanced talks about a merger, but said it was premature to say more until those talks were finalized.

“I don’t think we know the BAE-EADS final configuration,” Donley told reporters at the annual meeting of the Air Force Association, a booster group that includes current and retired service members and industry executives.

“We just have to wait until they’re done, until the Department of Defense can assess what the conditions (or) the governance for such a merger would be,” Donley said.

Air Force Major General Christopher Bogdan told reporters at the conference that he did not anticipate major concerns about the impact of a BAE-EADS merger on the F-35 Joint Strike Fighter program.

Lockheed Martin Corp is the prime contractor on the program, but Northrop Grumman Corp and BAE Systems are key suppliers.

“I just sense that it would be a low threat to us,” Bogdan said. “From what I have seen from what the (subcontractors) do on the program, I‘m ... not all that concerned,” Bogdan said.

BAE Systems on Friday said it had no plans to divest any U.S. business units as a result of the proposed merger, and that the new combined company would be subject to the same security requirements as it is today.

Some European analysts have said the deal would have negative U.S. security implications, suggesting that U.S. officials could order BAE to divest some business units that do sensitive work for the U.S. military or intelligence agencies.

But sources close to the matter have said there is little overlap in the U.S. work of BAE and EADS and both companies already have existing security deals that prevent their foreign-based parent companies from influencing their work on sensitive U.S. government programs.

BAE’s U.S. unit has long worked on sensitive programs for the U.S. military and intelligence community, but the U.S. unit of EADS was also viewed as “a trusted agent” of the U.S. government, even though its parent company is partially owned by the French and German government, said the source, who was not authorized to speak publicly.

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