The announcement said that the new group, to be called EADS, would be world's third-biggest in the sector, after Boeing and Lockheed-Martin.

The merger marks a huge step in the restructuring of Europe's aerospace industry, brings German interests into key parts of the French economy and has implications for a streamlining of Airbus.

It pushed up the price of stock in the two groups. Shares in British Aerospace (BAe) fell, but analysts said that this was because US group Raytheon had reported disappointing results.

At the beginning of the year BAe angered French and German interests by turning away from a scheme for a pan-European alliance in favour of a merger with British group Marconi Electronic Systems owned by GEC.

"DaimlerChrysler, the French Lagardere Group and the French government announced today that they have agreed to merge their respective aerospace and defense activities into a new company which will be the world's third largest aerospace company," DaimlerChrysler said.

"The Franco-German corporation, to be called European Aeronautic, Defense and Space Company (EADS), will be created through the combination of Aerospatiale Matra and DaimlerChrysler Aerospace (DASA) and will be Europe's biggest aerospace company," the statement said.

DASA is already in the process of merging with Spanish group CASA, which would also be included in EADS "in the near future", so that the new grouping "will be the first truly international aerospace company in Europe."

DaimlerChrysler chairman Juergen Schrempp described the merger as a "ground-breaking contribution" to the integration of the aerospace industry in Europe and would enable DaimlerChrysler to achieve profitable growth by being "the driving force in the aerospace sector just as we are in the automotive industry".

The combined unit would be the second-biggest maker of civilian aircraft in the world via Airbus, the European consortium in which DASA/CASA holds some 42 percent, Aerospatiale 37.9 percent and British Aerospace 20 percent.

In fact, "the creation of EADS is a vital pre-condition to the establishment of Airbus as a truly integrated commercial enterprise," DaimlerChrysler said.

EADS would also be the market leader in helicopters via Eurocopter, in which Aerospatiale-Matra holds 70 percent and DASA 30 percent; a world leader in satellite launching systems via Ariane; and a leading provider of satellites, military aircraft and defense systems, DaimlerChrysler continued.

"Both companies are ideal partners," said DASA chief Manfred Bischoff.

"DASA and Aerospatiale-Matra have been working together in a wide range of European programmes for years."

Analysts were also positive.

"It will mean that DaimlerChrysler can concentrate on cars and DASA and Aerospatiale can work together in EADS," said Deutsche Bank Research analyst Christian Breitsprecher.

The merger would also speed up the process of converting Airbus into a fully-fledged private company, analysts said.

And EADS might eventually take over the 20-percent stake in Airbus held by British Aerospace, said Merck Finck analyst Pia Christine Schulze.

EADS will have sales of about 21 billion euros (22.5 billion dollars) and employ more than 89,000 people. It will start operations in the first half of 2000, pending the approval of the regulatory authorities.

The new company will be 60-percent controlled by a joint holding company made up of DaimlerChrysler on the one side and its French partners -- Lagardere, French financial institutions and the French government -- on the other. The other 40 percent will be listed on the stock exchange.

The 40 percent float-off was to dilute what would otherwise been an over-riding German interest in the new company.

Analysts recalled that one of the reasons why BAe had turned away from a pan-European plan at the beginning of the year was a perception that France had expected too much influence in relation to its contribution.

The French government will reduce its stake in EADS to 15 percent via a secondary offering of shares.

But analysts warned that while the deal made sense on paper, problems could arise from cultural differences on the French and German sides.

One analyst, who declined to be named, said: "This could be very problematic. But otherwise, it's a very positive step."

But investors were enthusiastic. In Frankfurt the price of stock in DaimlerChrsyler rose by 4.5 percent. In Paris Aerospatiale-Matra stock showed a gain of 7.8 percent to 22.50 euros after the announcement and a suspension of trading.

Stock in Lagardere rose by 9.75 percent to 43.90 euros.

Copyright 1999 AFP. All rights reserved. The material on this page is provided by AFP and may not be published, broadcast, rewritten or redistributed.

MILSPACE
Eurofighter Driving Aerospace Industry Consolidation
London (AFP) September 19, 1999 - British Aerospace is expected to unveil next week a plan to create a European missile giant that will rival. The plan is merge the missile operations of Alenia Marconi Systems -- held by Italian group Finmeccanica and BAe -- with the French-British Matra BAe Dynamics, the Sunday Business reported.