Wall Street Journal (09/13/12) Daniel Michaels; Dana Cimilluca

Airbus parent company European Aeronautic Defence & Space Co. and BAE Systems are in merger talks to create the world’s largest aerospace company. The two European defense giants say a deal makes financial sense because of their synergy and collaboration on a broad array of projects. The potential merger would have wide-sweeping effects across the defense industry, especially for such larger defense contractors as Lockheed Martin Corp. and Northrop Grumman Corp., as BAE and EADS have divisions in the U.S. and often vie for U.S. defense work. In the days to come, the Pentagon will definitely be weighing the benefits of an enlarged global rival to a shrinking pool of domestic contractors with the national security issues that arise when overseas companies attempt to expand in the world’s biggest military market. For jet maker Boeing Co., meanwhile, the threat of the parent of rival Airbus bulking up raises the question of whether it might restart talks with BAE Systems or expand its own defense business via a long-rumored tie with Northrop Grumman.