BRITISH DEFENSE MERGER SET AT $12.7 BILLION; COMBINED FIRM WOULD HAVE ASSETS IN ANTELOPE VALLEY.

Byline: Daily News Staff and Wire Services

British Aerospace PLC is buying Marconi Electronics for $12.7 billion, the companies announced Tuesday, creating a defense manufacturer that could rival industry leaders Boeing Co. and Lockheed Martin Corp.

The deal, creating the world's third-largest defense company, was poorly received by European defense contractors. The industry has been reorganizing itself in hopes of launching its own defense giant to take on Lockheed and Boeing.

Marconi's holdings include two former Tracor Flight Systems plants in the Antelope Valley, purchased in June 1998. In Palmdale the company assembles wings for Boeing's 717 airliner, and in Mojave it turns Vietnam-era F-4 fighter jets into remote-controlled target drones.

The new company is expected to challenge Boeing and Lockheed's dominance in defense contracting for aircraft, satellites, missiles and other weapons systems.

British Aerospace and Marconi - together employing some 130,000 people worldwide, more than 18,000 of them in the United States - said most jobs would be safeguarded. But restructuring could result in a small number of jobs being lost.

Company officials could not be reached Tuesday for comment on the deal's possible effects on the Antelope Valley jobs.

Germany's DaimlerChrysler Aerospace, or DASA, which until recently had been expected to merge with British Aerospace, said the deal could make other defense mergers difficult and ``create an obstacle to European integration.''

Former Marconi suitor Thomson-CSF of France agreed that ``it is hard to see how that (merger) fits into a wider European picture.''

Defense contractors as well as governments on the European continent had favored a cross-border merger in order to create a more international company, rather than a combination of two British ones.

Shareholders also expressed disapproval with the deal, which must be approved by British antitrust authorities, by selling off shares of British Aerospace as well as those of General Electric Co. PLC, Marconi's parent company. GEC, as it is commonly known, is unrelated to U.S. industrial giant General Electric Co.

Investors, believing that British Aerospace was paying too much for Marconi, pushed shares in British Aerospace down 14 percent on the London Stock Exchange. GEC shares fell 5 percent.

British Aerospace, which manufactures civil and military aircraft, guided weapons, ordnance and electronics equipment, insisted that the deal will help, rather than hinder, the creation of a pan-European defense group.

``The reality is that Europe can actually afford only one major aerospace entity. We absolutely have to move European consolidation forward,'' said Sir Richard Evans, company chairman, at a news conference in London.

Industry insiders fear that unless Europe's defense manufacturers pool their skills, finances and research, they will be picked off one by one by U.S. companies looking to expand into European markets.

Lord Simpson, chief executive of GEC, said the growing demand for Marconi's advanced avionics, radar and defense systems had made it the ``pretty girl of the defense consolidation dance.'' He said the deal was ``very much a win-win situation.''