BAe at war with French over European defence restructuring

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An Anglo-French stand-off between British Aerospace and the state- owned Aerospatiale is threatening to scupper plans due to be unveiled next month for the grand restructuring of Europe's defence and aerospace industries.

BAe warned yesterday that there were a number of "major hurdles" in the way of consolidation. The major obstacle was a French "state owned entity totally dominated by government departments", it said.

The warning follows an unprecedented trilateral declaration last December by the governments of Britain, France and Germany calling on their aerospace and defence electronics industries to "consolidate or die" and giving them until 31 March to produce a clear plan and timetable for action.

Unveiling a one-third increase in pre-tax profits before exceptional items last year to pounds 596m, Sir Dick Evans, BAe's chief executive, warned that it would not sign up to any restructuring deal which disadvantaged its shareholders. Richard Lapthorne, the company's finance director, added: "We have a position to defend and we are not going to play cricket. We have to be very careful we do not compromise for the sake of doing a deal."

Mr Lapthorne, added that if the restructuring plan succeeded it could involve the merger of the entire company with its counterparts in France and Germany. For that reason, BAe is keen to enter negotiations from a position of strength and maximum size, suggesting it has no short-term plans to dispose of its 21 per cent stake in Orange, currently worth pounds 865m. Aerospatiale countered yesterday with a corporate reorganisation under which its defence and civil businesses are being spun off in readiness for European link-ups.

Daimler Benz of Germany, one of BAe's partners on the Airbus and Eurofighter programmes, is thought to be broadly supportive of the British position. However, it is lukewarm to BAe's vision of a European-wide defence and aerospace holding company, dubbed Euro Co.

Sir Dick said that Airbus was considering raising production to 300 a year by 1999 compared with 182 last year. Repayment of launch aid on the A320 and A330/A340 programmes will meanwhile rise from pounds 66m last year to pounds 140m this year and pounds 170m in 1999.

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