BAE Systems, the defence giant, announced yesterday that it is in talks with EADS, the parent company of Airbus, in an attempt to create a vast aerospace company: the largest in the world, which would change the face of the global defence industry.

EADS shareholders would control 60 per cent of the new group, and the merger will be the culmination of over a decade of talks about creating a competitor to Boeing, currently the largest US aerospace company.

The deal will also have widespread repercussions in the sector, and could cause a mass of new mergers, as companies vie for dwindling defence budgets.

But as Allister Heath notes in City AM, defence companies can't be separated from government, which makes this much more that an ordinary business deal - the real decision makers behind it are not business men, but politicians, most of whom are in the US. As a consequence, there have been worries over ensuring Britain retains its level of military independence. Heath writes: "this deal is far more sensitive than it may look at first glance".