Synergy between EADs & BAE (Research Paper Sample)

NAME COURSE TUTOR DATE INTRODUCTION Synergy refers to the interaction of elements that when combined produce a whole greater than what the parts contribute individually i.e. a whole created which is bigger than the sum of the parts combined. (Ray French, et a 2008). The EADS Company N.V. (European Aeronautic Defence and Space) is a pan European aerospace as well as Defence corporation which operates globally. British Aerospace plc (BAe) was a British aircraft, munitions and defence-systems manufacturer In 1999 it purchased Marconi Electronic Systems, the naval shipbuilding subsidiary with operations in the General Electric Company Plc. They merged therefore to form one BAE Systems. In the 90s, the European governments had a dream of coming up with a genuine defence aerospace industrial champion which were cut short. The merger which had been proposed between the two giants BAE systems and EADS though facing hurdles would have led to the achievement of this objective. This could be a reaction in a natural manner to the prospects of defense equipment markets shrinking. BAE Systems and EADS believed that the merger was based on sound industrial logic and represented a unique opportunity to create a combination from two strong and successful companies greater than the sum of the parts."(Mark Stone) “These two companies i.e. BAE Systems and EADS managed highly capable as well as sensitive businesses around defence. The operations are held in majority of the countries which include UK, USA and Spain, France, Germany, Spain among others. The merger which could occur between the two large defence contractors would have a significant as well as strategic impact on their relationships with UK, US and European Governments. ( The International Institute For Strategic Studies ,2013) A combined group would have helped deal with market pressures .indeed the companies should have been efficient in pursuing export revenues. The Eurofighter typhoon is manufactured by BAE and EADS together with Finmeccanica (Italy). In the past year, efforts were led by Germany to try to win a sale of the Typhoon in India as well as a similar pitch to sell in Japan both failed. Furthermore it is argued that the merger would make the groups combined effort cope with the declining market. Presently, both the companies possess busy factories. The world’s largest civil aircraft builder, EADS had a large order of over €500 billion at the end of June with military sales in excess of €50 billion. BAE concentrated on defence was about €50 billion. Both companies have significant businesses in other departments of defence. BAE has been building ships for war in the UK and contains a huge land systems business which serves the UK, US and other countries. At present, both firms possess international interests in the missiles, electronics as well as equipment support. EADS possesses helicopter and satellite subsidiaries. The consolidated business portfolios of both companies would still possess some thin areas in defence electronics. It would also afford EADS immediate access to the US defence market through BAES North America, although as we will discuss below, this would be subject to very stringent conditions. Nevertheless, it would complement EADS recent decision to locate an Airbus factory in Alabama and strengthen Airbus Military’s position in future competitions for Pentagon contracts. Merging of EADS and BAE Systems would have enhanced coordination between government on procurement and technological research. Governments have frequently Tried amongst themselves to harmonise equipment requirements so that industry can generate economies of scale. However in practice, this has become a great challenge very difficult to achieve. A resultant effect of mergers and acquisitons is that companies are taken ahead of their customers. E.g. after the significant parts of the French, German and Spanish defence industries were brought together by EADS, it found that it would need to deal with its government customers separately. This brought about limitations to the efficiencies to be gained through consolidation. It required a set up of complex management structures so that the national needs can be met. The linkage proposed between EADS and BAE elevates the possibility of Germany needing to be added to the arrangements. Lack of closer co-ordination between defence ministries in Europe, manufacturers are left to struggle in order to reap the benefits as well as savings anticipated in a merger. The merger of BAE with EADS would help EADS to meet a long-standing strategic goal increasing its participation in the US. The US is pitted as a declining market but remains relatively huge. In 2011, the defence expenditure stood at 45.7% of the world total. (IISS Military Balance 2012) The potential combination between BAE Systems and EADS will offer significant benefits for all stakeholders according to the management. This will be above the individual business strategies executed by both businesses. What is believed is that, the combination of the two businesses brings about the opportunity of greater innovation, long term financial stability, and an extended market presence, which enhance effective competition in world market ( /news/business-19585064 ) With a merger the national security inertest served by BAE and EADS would be better protected by the combined group. The group will help accord critical security for independent and allied states. Due to this, the interests (security) of the individual as well as collective nation states remain well protected. Particularly in the US, the companies do support sensitive as well as classified programs in the DoD (Department of Defense - EADS North America) In the group huge savings in research and development would be made possible with duplication eliminated. BAE stands to benefit fully from the huge EU Framework Programmes for aeronautics and the technology developed through large French and German nation programmes, where there has been much greater investment than in the UK. The proposed merger between BAE SYSTEMS and EADS would have benefited both companies, for the UK and for Europe. Despite BAE remaining a successful it faces shrinking defense market. A significant stake in the civil aircraft market could boost the company in a major way. The current time is very ripe for re entry into the civil market as a boom starts to unfold. In terms of balance, EADS has sought to be less dependent on the civil aviation sector in order to enhance the defence portfolio by being a very credible supplier to the U.S. market. These two companies have huge synergies in terms of scope and scale economies follow suit in the merger. EADS offers considerable expertise in the UAV (Unmanned Aerial Vehicles) field through the production of unmanned military aircraft which include the Barracuda and Talarion vehicles currently in development. The merger between EADS and BAE could try and feasibly move the competition which brings in EADS expertise to try and produce a single vehicle which caters for not just the Anglo French cooperative but the European Market in general. The merger was essential in order to smooth out the inconsistenci...