Shares of Boeing were wavering Thursday on news that EADS, the parent company of European plane maker Airbus, and Britain’s BAE Systems are planning a tie-up that would create the world's biggest defense and aerospace group.
The union, if consummated, would represent the biggest shake-up of the European aerospace and defense sector in a decade and would likely accelerate the push by defense companies to offset shrinking national military budgets by seeking more revenue from the commercial sector.
The potential tie-up also represents a threat to Boeing, Airbus’ rival in the civilian jet business. The combined company could also have a market valuation of nearly $50 billion and revenue of about $90 billion, according to The Wall Street Journal. Boeing’s revenue last year was almost $70 billion.
The thinking behind the proposed deal is that the combined company would be more diverse and have a better mix of products than either EADS or BAE. It would also be better-positioned to handle the defense cuts expected in European militaries, and also to profit from growth opportunities in the developing world.
In a statement the two companies said their potential combination “offers the opportunity of greater innovation, long term financial stability, and an extended market presence, which will enable them to compete even more effectively on the world stage.”
Both EADS and BAE Systems stressed that there are a number of hurdles to overcome before any deal is set, noting that their combination would require approval by the boards of both companies, regulators and shareholders.
Shares of Boeing sank in morning trading, but perked up later in the day as the rest of the market rallied strongly.
Shares in EADS tumbled as much as 11 percent on Thursday, adding to the previous day's fall and erasing more than half of the gains made this year, as investors questioned the rationale of a tie-up with BAE Systems. Shares in BAE fell 6.4 percent in European trading Thursday.
Reuters contributed to this report.
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