The tiny Persian Gulf state of Qatar, which sits on the world's third largest natural gas reserves, is seeking to buy a 7.5 percent stake in Europe's largest aerospace group EADS, which would give the gulf state a foothold in Europe's defense industry.

German newsmagazine Der Spiegel reports that talks between the state-owned Qatar Investment Authority, which has assets of $40 billion, are under way in Berlin with the German government to acquire the stake that automaker Daimler, EADS' biggest German shareholder, is shedding.

The aerospace giant, which builds the Airbus passenger jet and its military tanker spinoff as well as missiles and space rockets, is primarily a joint undertaking by Germany and France, with Spain a junior partner. France and Germany held equal shares of around 30 percent.

Daimler announced several months ago that it wanted to divest itself of its 22.5 percent stake in EADs. It holds 15 percent directly, with 7.5 percent parked in banks.

The planned selloff alarmed the German government, which feared that it might have to buy the Daimler stake to avoid the French, the Germans' traditional rival in Europe, snapping it up to give them greater control over EADS.

Maintaining a power balance in EADS between France and Germany has been a touchy issue since the group was established in July 2000 by DaimlerChrysler of Germany, Aerospatiale-Matra of France and Spain's Construcciones Aeronauticas.

"Berlin had hoped to keep the investment within Germany, fearing an upset in the delicate balance of power" between Germany and France," Der Spiegel observed.

But no German buyers could be found, raising fears in the government that it would have to acquire Daimler's stake to prevent the French boosting their holdings in EADS.

Despite concerns that Germany would oppose a non-European investor moving in, Der Spiegel reported that in early September Qatari officials met Economy Minister Phillip Rosler "who, contrary to Berlin's former position, reportedly has no objection to having shares held abroad."

But Der Spiegel quoted Economy Ministry officials as saying "any potential purchase of a stake by a sovereign fund would have to be examined very critically because of the company's strategic importance."

Qatar already has investments in Germany. It bought a 9.1 percent stake in Hochtief, the country's biggest construction group, in 2010 and a 10 percent stake in Porsche Automobil Holding for $9.9 billion in 2009.

A stake in EADS would be a major boost for Airbus as it grapples with promoting its A350 program against rival Boeing's 787 Dreamliner. State-owned Qatar Airways has ordered four of the giant A350s.

The New York Times reported the airline has "pledged to buy 60 A350s but has held back from making its commitment into a form order."

Qatar has a defense budget estimated at $2.6 billion for its military forces, which are small compared to those of Saudi Arabia, the United Arab Emirates and Iran.

Much of its military equipment is French, including Dassault Aviation Mirage M-2000 combat jets and Combattante III naval missile craft.

Qatar hosts a major U.S. air base at Al-Udeid, west of Doha. That's the forward headquarters of the U.S. Central Command and its air force component.

The emirate has gas reserves of 896 trillion cubic feet, 14 percent of the world's known reserves and the third largest after Russia and Iran.

Although the Persian Gulf monarchies are major arms buyers, they have rarely ventured into investing in U.S. or European defense companies. The United Arab Emirates has, however, helped fund specific weapons programs developed by Western firms for its expanding military.

Germany has in recent months become a key arms supplier in the Middle East despite stringent export controls that have inhibited weapon sales in the past.

It's providing 200 Leopard 2A7+ main battle tanks built by Munich-based Krauss-Maffei Wegmann and Rheinmetall to Saudi Arabia as well as Dolphin class submarines produced by Howaldtswerke Deutsche Werft of Kiel, owned by ThyssenKrupp, to Israel.

And now Israel and Germany are jointly developing the Pilium smart air-to-ground missiles to be sold with the Eurofighter jet now in service with Saudi Arabia and other countries.

The Eurofighter, also known as the Typhoon, is produced by a consortium of British, German, Italian and Spanish companies.

Related Links
The Military Industrial Complex at SpaceWar.com
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