MPs to hold public inquiry into merger of BAE and Airbus owner EADS

Defence select committee to focus on impact on UK jobs and exports as well as Britain's independent defence capabilities
BAE Systems merger
A merged BAE Systems and EADS would be a European rival to America's Boeing. Photograph: Chris Ison/PA

MPs are to hold a public inquiry into the proposed €35bn (£27.9bn) merger of UK defence contractor BAE Systems and its continental European rival EADS.

The inquiry will focus on the likely impact of such a combination on British jobs and exports as well as the UK's independent defence capabilities.

"The merger of two such large defence contractors would have a significant and strategic impact on their relationships with UK, US and European governments," the defence select committee said in a statement. "It could also radically alter the defence industrial base in these countries."

Scrutiny from MPs on the committee, which is chaired by Tory James Arbuthnot, underlines the increasingly politicised debate about the merits of a combination between the two groups, which would create a European rival to America's Boeing. The two groups confirmed this month that they had entered formal discussions, though no proposal had yet been agreed.

MPs will be taking oral evidence on the possible merger in October and November. It is highly unusual for parliament to conduct a review of a proposed takeover of a stock market-listed business but the presence of a government-owned "golden share" has meant MPs feel they are entitled to intervene.

Earlier on Monday, a spokesman for David Cameron confirmed that the prime minister had spoken to his French and German counterparts about the proposed deal.

"Given the nature of the companies' activities the government will clearly have some involvement and we need to ensure that the UK's public interest is properly protected," the spokesman said.

"We are talking to the companies to ensure that that is the case. The prime minister spoke to Chancellor [Angela] Merkel on Friday night and has spoken to President [François] Hollande this morning."

Cameron has not yet discussed the matter with Barack Obama. There was some speculation that the US president could be the least enthusiastic stakeholder, and would need to be won round with assurances that the enlarged group would not compromise BAE's close work on sensitive US defence projects.

Among the areas British MPs are expected to concentrate on as they examine the merits of the potential deal include: the likely impact on the relationship between BAE and the Ministry of Defence; the effect on UK and joint venture exports; the relationship with Washington and the Pentagon, specifically in relation to the development of the joint strike fighter.

MPs will also be looking for assurances about the impact on UK jobs – not just at existing BAE sites but at the many smaller firms that are part of the defence group's supply chain.

In addition, they will want assurances that spending research and development work undertaken by BAE and related companies does not drain away from the UK.

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