BAe could look to US for defence partnerships

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The Independent Online
British Aerospace hinted yesterday that it would seek to strengthen its ties with the giant defence groups emerging in the US unless the pace of consolidation of the European aerospace industry speeded up.

Sir Dick Evans, BAe chief executive, said progress towards rationalisation among Europe's leading defence companies was proving painfully slow and was dogged by political complications and practicalities.

"My own view is that if the US groups begin to have ambitions on a global scale, then that provides opportunities for us. Europe has to be in a position where we can look in transatlantic terms."

Sir Dick pointed out that BAe already had strong links with the two big US defence and aerospace groups - Lockheed Martin and Boeing-McDonnell Douglas. BAe has joined Lockheed Martin on the Joint Strike Fighter Project - the biggest procurement programme in military history with a potential value of $160bn (pounds 100bn). It also has links with Boeing-McDonnell Douglas on the Nimrod 2000 programme, the Harrier AV8B and the T45.

However, industry observers suggested that BAe might be trying to play its European and US counterparts off against one another. BAe's preferred solution remains a regrouping of Europe's defence industry along the lines of the successful civil aircraft consortium Airbus Industrie in which BAe has a 20 per cent stake.

Airbus's contribution to BAe's results was graphically demonstrated yesterday as it emerged that it is making annual profits of about pounds 130m from the manufacture of Airbus wings.

Profits from Airbus are set to rise further over the next few years due to increasing aircraft production and efficiency improvements. Deliveries are projected to rise from 126 last year to 180 this year and 230 next.

BAe submitted an application last month to the DTI for about pounds 165m in launch aid to develop a stretched version of the long-range Airbus A340. The 375-seat jet will cost $2.5bn to develop and will, for the first time, give Airbus a product that can compete directly with the Boeing 747.

Meanwhile repayment of launch aid for earlier Airbus programmes is also set to rise from pounds 60m this year to pounds 140m in 1998 and pounds 160m the year after that. BAe has now repaid all the launch aid received for early Airbus programmes and is starting to pay back rolled-up interest. It believes this will strengthen its case, not just for launch aid on the stretched A340 but for backing for the much bigger A3XX project which will involve aid of pounds 1.9bn from the four Airbus governments.

The launch of the A3XX is conditional on Airbus converting into a single commercial entity by 1999.

BAe made a pre-tax loss of pounds 70m in the first half of the year after incurring pounds 348m of exceptional charges to cover its withdrawal from turboprop manufacture. Excluding exceptional items, profits rose by 29 per cent to pounds 278m on sales of pounds 3.87bn. The order book stands at a record pounds 19.5bn.

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