BAE surprised stock markets on September 12 with sudden announcement of a planned merger with its fellow European aerospace and defense group EADS, which confirmed a few hours later that the deal is being discussed. Under UK stock market rules, the merger would have to be agreed or abandoned by close-of-business on October 10. It would see EADS emerge as the senior partner with its shareholders holding 60 percent in the combined company and BAE accounting for the remaining 40 percent.

However, financial analysts have been quick to raise doubts as to whether European anti-trust regulators will permit the merger. EADS leadership clearly sees the move as a chance to boost its presence in the key U.S. defense market, in which UK-based BAE has made more significant in-roads. It could also dilute the political influence of the French and German governments, each of which holds a 22.5 percent stake in EADS. The British government retains a stake in BAE giving it veto rights over major strategic moves. The merger would have far greater significance on the defense side of the two groups' businesses since BAE has completely withdrawn from the civil aerospace sector, leaving EADS with complete control of airframer Airbus.