BAe heads for Indonesian plane and car ventures: Preliminary agreements signed as EuroAir sues over alleged defects

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BRITISH AEROSPACE has entered preliminary agreements with Indonesia to set up joint venture companies to build turboprop aircraft and cars.

The defence, aircraft and Rover car group disclosed yesterday that it signed two agreements in London on Tuesday with the Indonesian government covering production of both a new regional turboprop aircraft and a small Metro-class car.

The turboprop agreement, if it leads to the creation of a joint manufacturing venture, could provide the answer to the acute problems facing BAe's loss-making Jetstream division in Prestwick, Scotland.

BAe has been searching for nearly a year for a partner to take a half share in the Jetstream business and help to launch a new series of 50- to 72-seat turboprops. Two months ago BAe warned that it could be forced to close the business with 2,500 job losses unless the search was successful.

There was less welcome news for Jetstream yesterday, however, with the announcement that the Portuguese airline EuroAir is suing BAe for dollars 70m in damages for alleged defects on three Advanced Turbo Prop aircraft bought in 1988.

In a High Court writ served yesterday, EuroAir, formerly the domestic regional subsidiary of Portugal's state-owned carrier, TAP, claims that the aircraft repeatedly broke down from the time they entered service, forcing it to cancel flights, and were not fit for commercial use.

EuroAir also alleges that it was persuaded to buy the aircraft by the 'negligent misrepresentations' of BAe. CIBC, the lease financier of the three aircraft, is also named in the writ.

BAe has been strengthening its links with Indonesia for several years and earlier this year sold 24 Hawk fighter-trainer aircraft to Indonesia in a deal worth pounds 500m.

Dick Evans, BAe's chief executive, said: 'These agreements further confirm a well-founded relationship between Indonesia's strategic industries and British Aerospace, and we are now working towards extensive industrial collaboration.' A BAe spokesman added, however, that there remained a long way to go before the agreements, signed between Mr Evans and Dr Ing BJ Habibie, Indonesia's Minister for Research and Technology, translated into firm manufacturing accords.

Nor does the turboprop agreement with Indonesia prevent BAe talking to other potential partners. Discussions are taking place with Saab of Sweden and ATR, a French-Italian-Spanish consortium.

Fifty ATPs have been bought by 10 airlines, including British Airways, Loganair and Manx Airlines. But in the past year BAe has taken only three new ATP orders while the order book for its turboprop range stands at just 21 aircraft. In the first half-year Jetstream lost pounds 60m. Last month it announced 630 job losses.

The Metro-class car that BAe may help Indonesia to produce would be funded, developed and built in Indonesia initially for the home market.