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.

France wants the group’s headquarters to be based in Toulouse, its southwestern aerospace capital where the Airbus aircraft-making subsidiary of EADS is based, but Germany is pressing for the group to be headquartered outside Munich, sources say.

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 near an October 10th deadline.

British 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 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 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. – (Reuters)