French plane maker Dassault Aviation SA has agreed to merge with state-controlled Aerospatiale SA, the government said Monday, creating one of Europe’s largest aerospace groups.

Details of the merger, part of efforts to streamline France’s bloated defense industry, will be worked out before Jan. 1, 1997, Prime Minister Alain Juppe’s office said in a statement.

The new company, which will pool Aerospatiale’s civilian aircraft and missiles production with Dassault’s military expertise, predicts annual sales of 60 billion francs ($12 billion).

In February, French President Jacques Chirac said he wanted to merge the two aviation companies as a part of the broad consolidation of the defense industry.