British arms maker BAE Systems was Wednesday forced to soldier on under the guidance of an embattled chief executive after the collapse of its proposed mega-merger with European aerospace giant EADS.

After ending tie-up talks owing to a lack of accord with "various" government stakeholders, BAE's immediate future was one of a company thrust back into an environment of falling defence spending by governments.

The London-listed firm insisted that it was not looking to merge with an alternative partner.

BAE chief executive Ian King said: "We believe the merger presented a unique opportunity for BAE Systems and EADS to combine two world class and complementary businesses to create a world leading aerospace, defence and security group.

"However, our business remains strong and financially robust. We continue to see opportunities across our platforms and services offerings and in the various international markets in which we operate. We remain committed to delivering total shareholder value and look to the future with confidence," he added.

Just this week, the biggest shareholder in BAE Systems, fund manager Invesco Perpetual, warned that it had "significant reservations" over the tie-up.

Invesco said it did not understand the strategic logic for a combination, adding that it would "jeopardize BAE's unique and privileged position in the United States defence market."

Joshua Raymond, chief market strategist at City Index trading group, said Wednesday that "the immediate focus now switches to the strength of the BAE Systems board and indeed of Ian King with major shareholder Invesco, who owns 13.3 percent of BAE, already voicing strong opposition to both the merger and the current strategy of the BAE board itself."

BAE's share price fell by 1.38 percent to close at 320.90 pence on London's FTSE 100 index of leading companies, which gave up 0.58 percent to 5,776.71 points.

BAE shares had traded for 328.70 pence a day before the merger talks announcement was made on September 12.

---- Defence sector under pressure from budget cutbacks ----

"BAE and its Western competitors still face the same challenges", noted Guy Anderson, senior analyst at defence industry consultants IHS Jane's.

"Defence spending in Europe and the US is on a downward trajectory. Companies with high exposure to defence markets, and with little exposure to the recovering commercial industrial and aerospace markets, will need to convince investors that they have viable survival plans.

"For BAE, the continued sale of businesses gathered during the heady acquisitions boom of the 2000s is probable."

British defence minister Philip Hammond agreed that the group was suffering from state cutbacks around the world.

BAE Systems "has a great future as a defence and technology company but of course it operates in a world where many defence budgets are being reduced," Hammond told the BBC.

"It's going to have to evolve its business model to be effective in a different climate in the future. That's the challenge for the management team," he added.

BAE Systems was created in November 1999 when British Aerospace bought Marconi Electronic Systems, the defence arm of GEC telecoms group, and relaunched itself under the new name.

The London-listed group has since rapidly expanded and is now an expert in the field of defence and security, whereas most of EADS's work is in the commercial sector with its Airbus jet division.

BAE was originally a member of the Airbus consortium, but sold its 20-percent stake back to EADS in 2006 and concentrated on defence.

The British group now manufactures a host of products ranging from military transporters to Bradley fighting vehicles, Challenger tanks and Queen Elizabeth aircraft carriers.

BAE is also part of the Eurofighter Typhoon consortium that includes the German and Spanish subsidiaries of EADS, as well as Italy's Finmeccanica.

In addition, BAE has ramped up its focus on the United States, with the acquistion of United Defense Industries for $4.192 billion in 2005, and Armor Holdings for $4.1 billion in 2007.

The US market now accounts for about half, or 45 percent, of BAE Systems' total group revenues, making it the biggest foreign supplier of military goods to the Pentagon.

The group has axed 22,000 jobs over the past three years in response to reduced military spending.

EADS, BAE Systems: how they measure up
Paris (AFP) Oct 10, 2012 - EADS and BAE Systems are two European Aerospace titans which tried and failed to overcome national politics to build a joint future.

They insisted after their proposed merger collapsed, that the marriage was conceived with industrial logic and destined to give birth to a formidable civil and military group.

The two firms now face a different future in the global aerospace industry where the main competitors today are in the United States and tomorrow possibly also in emerging countries such as China and Brazil.

EADS, based in Germany and France, does most of its business in the civil aviation sector which is expected to generate huge demand for airliners for decades.

BAE Systems of Britain specialises in defence equipment, a sector as vital to national security as it is clouded by pressures on national budgets.

Both companies are important as hubs of technological and industrial excellence, and employment, in economies suffering from a perception of industrial decline. And both are important to their national economies as big exporters.

EADS was worth 23.15 billion euros ($29.80 billion) before the announcement on September 12 that EADS and BAE Systems wanted to tie up.

BAE Systems was worth 11.81 billion pounds (14.7 billion euros, $18.92 billion). This gave a joint capitalisation of 37.85 billion euros at that time.

The two companies said that a merged entity would have been worth about $45 billion (35 billion euros).

Under the now-abandoned proposal, EADS and its shareholders would have accounted for 60 percent of the merged entity and BAE Systems shareholders 40 percent.

Analysts said that the deal fell through because Germany feared being sidelined, with civilian activities of the merged group being run from France and the military business from Britain.

EADS:

A central feature of the structure of the European Aeronautic Defence and Space Company (EADS) is that Germany and France have equal voting rights, each accounting for 22.35 percent of the total.

The French state owns about 15.0 percent and Lagardere about 7.5 percent, but Lagardere provides all the French directors for voting on behalf of this French holding.

The German industrial group Daimler owns 14.85 percent, having transferred an interest of 7.5 percent to a group of core investors including the KfW state bank, making a total of 22.35 percent, but Daimler votes on the board for the whole of this holding.

Spain owns 5.45 percent of EADS. The rest of the company is in private hands via the stock market.

EADS had emerged from a restructuring and merger of French, German and Spanish aerospace firms in 2000.

The deeper origins of its main business Airbus lay in a complex government structure which took account of French and German national interests.

Six years ago EADS ran into serious financial problems arising from delays to its programme for building the A380 superjumbo jet.

These delays revealed deep flaws in management and industrial procedures and the group launched a vast programme to cut costs, to restructure and to diversify its cost base away from dependence on the euro since most aerospace sales are made in dollars.

Airbus builds airliners and military transport aircraft. Its parent group EADS also builds satellites and rockets via Astrium, and helicopters via Eurocopter. EADS also has a defence arm called Cassidian.

EADS main competitor is Boeing of the United States.

EADS recently took a big step on Boeing's home ground, saying it would open an assembly plant costing $600 million in Alabama which will produce the first US-built Airbus aircraft by 2016.

The initiative came after Airbus lost a big US Air Force contract for military refuelling tanker aircraft. The contract was awarded to Boeing after a politically charged contest.

The EADS group employs about 133,000 people at more than 170 sites worldwide, and for 2011 reported sales of 49.1 billion euros and a net profit of 1.033 billion euros.

EADS shares were at 29.65 euros immediately before the announcement of talks, and closed on Tuesday at 26.10, a fall of 11.97 percent.

BAE SYSTEMS:

BAE Systems, based in London, is an independent quoted company. The biggest single shareholder is the Invesco Perpetual fund with 13.3 percent.

The British government has a golden share which can prevent any foreigner from holding more than 15 percent of the voting rights.

BAE Systems achieves about 45 percent of its sales in the US market. The group is involved in building missile systems, tanks, torpedoes, submarines and fighter aircraft, and provides equipment for security.

Until 2006, BAE Systems owned 20 percent of Airbus but withdrew to focus on the US market and against a background of long-standing unease at the structure for governance and political influence.

BAE Systems was born in 1999 when British Aerospace bought the British General Electric company.

Its main competitors are the US firms Lockheed Martin, Northrop Grumman and Raytheon.

In the United States, the group is a key supplier for the F-35 Joint Strike Fighter and is also responsible for the Trident nuclear submarine programme.

BAE Systems employs 83,600 people, mainly in Australia, Britain, India, Saudi Arabia and the United States, and reported sales last year of 19.154 billion pounds. Net profit was 1.24 billion pounds.

Immediately before the deal was announced, shares in BAE Systems were being traded at 328.70 pence. At the close of business on Tuesday they stood at 325.40 pence, a decline of 1.0 percent.