British Aerospace strikes deal with Boeing and eyes up Daimler takeover

British Aerospace, one of the four partners in Airbus Industrie, will this week announce a manufacturing deal with Boeing of the US to make parts for its 737 jets. Meanwhile there is speculation that BAe is eyeing up a pounds 2bn takeover of Daimler-Benz's Deut
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Boeing and BAe are about to conclude an agreement worth hundreds of millions of dollars that will see the UK group producing parts of the wing for the next generation of Boeing 737 aircraft. The work will be carried out at BAe's Chadderton factory near Manchester, one of the sites BAe uses to manufacture wings for the Airbus programme.

Deals whereby rival aircraft manufacturers subcontract to one another are not unknown but, because of European sensitivities, BAe has tended not to manufacture parts for Boeing's civilian aircraft.

Boeing has run into production problems at its Seattle manufacturing plants, expected to cost it $2.6bn in one-off charges, because of the sheer volume of orders it is receiving and needs surplus capacity.

Competition in the airline market has rarely been more intense between Airbus and Boeing. Last week the European consortium beat Boeing to a $1.5bn order for narrow-bodied jets from Sabena of Belgium.

And the two manufacturers are in fierce competition to win customers with rival wide-bodied long-range jets, the new Airbus A340-500 and 600 series and the Boeing 777-200/300X.

BAe expects to hear this week whether it has persuaded the Government to change its mind and provide launch investment for the new A340 jet. BAe is seeking pounds 120m in support. One option might be to allow BAe to defer repayment of earlier launch aid.

Meanwhile there is speculation that BAe might strike a deal with Daimler to take over its military aerospace and defence business. A combination of the two would create a grouping with defence sales of $12bn, 90,000 employees and an orders backlog of $16bn.

In a recent research note, Nick Cunningham, aerospace analyst at Salomon Brothers, said BAe could take a 49 per cent stake in Dasa initially and move later to majority control. He also speculated that parts of GEC Marconi, Matra and Saab could be brought into the group, creating a pan-European defence business with sales of $20bn and an orders backlog of $35bn.

Mr Cunningham assumed that the commercial aircraft business would be kept in Airbus when it converted to a single corporate entity in 1999 while Daimler would retain its MTU engines business and space division, neither of which BAe is interested in. This would leave the defence electronics and aircraft businesses which Salomons values at pounds 1.82bn.

BAe and Dasa know each other well, being partners on both the Airbus programme and the Eurofighter. They also mounted a successful joint pounds 390m bid recently for Siemens Defence Electronics.