France and Germany have collided over the location of the headquarters for a new aerospace giant to be formed from a planned merger of Europe's EADS and Britain's BAE Systems, sources familiar with the matter said on Tuesday. France wants the group's headquarters to be based in Toulouse, its south-western aerospace capital where the Airbus planemaking subsidiary of EADS is based, but Germany is pressing for the group to be headquartered outside Munich, they said.
The apparently incompatible demands constitute one of the hurdles that must be addressed in tough negotiations now getting under way in private, after a very public war of words about the creation of a new global defence group broke out on Monday. Shareholders, executives and politicians have clashed over the 60:40 merger ratio in favour of EADS, state participation and now a behind-the-scenes battle over the headquarters as talks go down to the wire ahead of an October 10 deadline.
"This is just the start; everyone pitches for the maximum they can get and then you have negotiations," said a source close to talks between firms, governments and key shareholders. UK arms firm BAE Systems and EADS, controlled by public and private interests in France and Germany with Spain as a junior partner, are in talks to create Europe's answer to US aerospace giant Boeing with a value of $45 billion.
The squabbling over headquarters - echoing lobbying between countries for the right to host international organisations - has emerged as a sensitive issue of national pride as Germany fights to retain its standing in one of its flagship projects. EADS was created from a merger in 2000 and quickly became a further symbol of Franco-German integration alongside the euro, but within half a decade it had become the focus of industrial tensions between the two main euro zone economies.
Now analysts say Germany fears being left as a junior partner in a company steered mainly by French and British interests, starving it of future investment and aligning Europe's defence industry with its two largest military powers. While a consensus has taken hold that the combined defence operations of the new group would be in London and its commercial aerospace heart would remain in Toulouse, the prestigious headquarters are seen as a prize worth fighting for.
Berlin has presented a demand that the group headquarters should be in Germany to preserve a balance of interests between the three main host nations, the sources said. Chancellor Angela Merkel's Bavarian CSU partners specifically want the corporate base to be placed in Ottobrunn near Munich, though they remain minority coalition members. Sources close to the talks said earlier France was backing Toulouse as part of its conditions for agreeing to the deal.
The German request is likely to be opposed by EADS, whose chief executive Tom Enders established the de facto headquarters in Toulouse on taking office just three months ago. EADS and BAE also want to minimise outside interference in decisions they regard as a matter for the new company's board. EADS and BAE shares rose 2-3 percent on Tuesday, clawing back a small proportion of losses since talks became public.
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