UK's Cameron speaks to Merkel, Hollande on BAE-EADS

European aerospace group EADS (EAD.PA) and British defense contractor BAE (BAES.L) announced this month that they were in advanced talks over a merger to create an industry giant.

BAE's UK workforce stands at 35,000, while EADS has about 15,000 employees in the country.

"Given the nature of the companies' activities the government will clearly have some involvement and we need to ensure that the UK's public interest is properly protected," Cameron's spokesman told reporters at a briefing on Monday.

"We are talking to the companies to ensure that that is the case," the spokesman said. "The prime minister spoke to Chancellor (Angela) Merkel on Friday night and has spoken to President (Francois) Hollande this morning."

Cameron's spokesman gave no further details about the talks but added that the prime minister had yet to raise the issue with U.S. President Barack Obama.

BAE, which has 40,000 staff in the United States, has a Special Security Arrangement with the Pentagon that allows it to work as a subcontractor on classified contracts.

Britain's cross-party parliamentary defense committee on Monday launched an inquiry into the possible merger, which would be the biggest shake-up in Europe's aerospace and defense sector in more than a decade.

The influential committee said it would take evidence during October and November to establish the impact any merger would have on the protection of British sovereign capabilities, defense exports, Britain's relationship with the U.S. and European allies, and jobs and trade.

The two companies' manufacturing sites in Britain include BAE's shipyards in Scotland and EADS' Airbus wing factory in north Wales.

"BAE are leading talks with the British government but EADS are very much involved - they (the government) are seeking assurances on jobs from the Airbus side as much as the BAE side," said a source close to BAE.

BAE received a fresh boost to its plans to merge with EADS when former British Defense Secretary Liam Fox told the country's Sunday Telegraph newspaper that he backed the deal as long as important hurdles could be overcome.

"Liam Fox's support for the deal is especially significant given his Atlanticist leanings. He is one of the key people of the traditional (Conservative) right and without his support it would be more complicated," said a UK defense industry official who asked not to be named.

(Editing by Guy Faulconbridge and Pravin Char)