European missile giant formed

MBDA will make the Meteor to arm the Eurofighter

Defence group BAE Systems and EADS of France have joined with Italy's Finmeccanica to create the world's second largest missile-making business.

The combined missile subsidiaries of the three companies are expected to match the clout of US-based market leader Raytheon.

"If Europe is going to compete, it needs to be on a similar scale to Raytheon," a BAESystems spokesman said.

The new missile group, to be called MBDA, will have sales of more than 2bn euros (£1.26bn) and six years of order book worth 13bn euros (£8.17bn).

Raytheon, which merged with Hughes Electronics in 1997, reported annual sales of $16.9bn last year and has been further boosted by President Bush's plans to step up national security spending.

Eurofighter aircraft will be used by NATO countries

Take-off

The joint venture comes after mergers in the United States increased Raytheon's position in the market.

MBDA, which will rank ahead of the missile businesses of Lockheed Martin and Boeing, should be operational later this year and will offer more than 40 missiles and missile systems.

EADS and BAE Systems will each own 37.5% of the new company, while Finmeccanica will hold the remaining 25%.

The group will employ 10,000 people, including about 3,500 people at the Matra BAE Dynamics plants in Stevenage, Bristol and Bolton.

The parent companies indicated before the deal was completed that there could be up to 1,000 job cuts by 2003 though BAE has said its workers' jobs are secure.

Shares in all three firms were little changed on news of the deal but analysts welcomed the consolidation move.

European defence

Matra BAE Dynamics won a key £1.5bn contract last year when the British government chose its proposed Meteor air-to-air missile over a derivative of Raytheon's proven AMRAAM missile to arm the Eurofighter.

The merger deal is one of the final pieces in the consolidation of the European aerospace and defence industries which has transformed it to compete with large rivals across the Atlantic.

MBDA also fulfils European Union objectives to create weapons manufacturers to supply a European military force with an "independent and credible defensive capability".

The UK, French and Italian Governments have told the European Commission the deal is exempted from investigation for anti-competitive reason to "protect the essential security interests" of these countries.