City: Airbus fall-out

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The Independent Online
WILL the bad news ever end for British Aerospace? After all the body blows of the past year, it was hard to believe there could possibly be anything left to shock BAe's long-suffering shareholders. But no. Last week, it was the turn of the European Airbus consortium, in which BAe has a 20 per cent stake, to take a serious hit. Northwest Airlines of the US announced it was cancelling one of the consortium's largest contracts, a pounds 2.2bn order for 74 aircraft.

The situation is actually not quite as bad as it seems. Airbus may be able to extract some heavy penalty payments from Northwest and the loss probably won't require widespread redundancies either at BAe or elsewhere in the consortium; for the time being, other orders are sufficient to take up the slack.

But it is bad enough. With orders from other financially troubled airlines also under threat and the future of GPA, Airbus's largest customer, still in the balance, there is plenty of scope for what at this stage looks like a bad setback to turn into a rout.

For BAe alone, that would be serious stuff, coming on top of all its other problems. But there are also dozens of British companies that have come to depend heavily on the continued vitality of Airbus (in all, 30,000 British jobs depend on it). Prime among these is TI Group. It is already apparent that TI will not be able to meet the two pledges it made at the time of the Dowty acquisition earlier this year: that by the end of 1993 it would have cleared itself of debt, and that there would be no earnings dilution resulting from the takeover. The situation at Airbus, for which Dowty manufactures landing gear, could make TI's embarrassment very much worse.

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