Michael Harrison's Outlook: Balls to America could become the motif of the Brown years

Airbus: No regrets at BAE Systems; Severn's swings and roundabouts
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The Government has seen how the long arm of American law has reached across the Atlantic and grabbed at British business interests in quite unexpected ways. The NatWest Three have been yanked off to the US to spend a year preparing their defence for a trial which might see them sent down. Two directors of British online gaming companies find themselves under arrest and facing possible trial in the US. Even the likes of BP and British Airways have been forced to come to terms with the prospect that executives over here may not be immune to prosecution over there for what happens on US soil and in US airspace. If all this has not yet poisoned the special relationship, then at the very least it has made British companies deeply wary of doing business in the United States and with American firms.

At last the UK government has acted. It has decided that the promises given by the American authorities not to intervene in the regulation of the London Stock Exchange should it be taken over by a US rival may not be worth the paper they are written on. The same goes for the independent foundations with separate boards and ring-fencing arrangements suggested as a means of protecting the LSE and the companies which list on it from the draconian provisions of Sarbanes-Oxley, the law rushed in to prevent a repeat of the Enron and WorldCom scandals.

Legislation enacted in haste invariably turns into bad legislation and so it has proved with SOX. Fewer companies are listing in New York, fewer trades are being executed there. And New York's loss has been London's gain. To ensure that remains the case, new and specific powers are to be given to the Financial Services Authority to veto any rule changes from abroad that might undermine the light-touch regulation that underpins the London market. Perhaps it was no accident that the initiative was announced by the Economic Secretary to the Treasury, Ed Balls, the government minister who is closest to Britain's Prime Minister-in-waiting, Gordon Brown. Mr Brown, it must be added, is an Atlanticist down to his core and an enormous fan of the American economic model. Yet, as Tony Blair enters the twilight of his premiership, perhaps this one small example of the way Britain intends to protect its own interests is a window on how our relations with the US may change in future.

Airbus: No regrets at BAE Systems

Je ne regrette rien. With these words, or at least their Anglo-Saxon equivalent, BAE's chief pilot Mike Turner has pressed the ejector button and baled out of Airbus. In return, he is receiving £1.9bn from the majority shareholder EADS. This is about half the amount BAE had hoped to get for its 20 per cent stake and a far cry from what EADS would have gladly paid even six months ago, before the sky fell in on Airbus.

Mr Turner has developed a smart line in ex post facto rationalisation, however. Far from being forced to accept a derisory sum for its stake in the business, he argues that BAE has escaped a horrifying plane crash by the skin of its teeth and shareholders should jolly well be grateful.

This line of persuasion seems to have worked with the big institutions even though Mr Turner knows he will get the ritual kebabing from small shareholders when they turn up to vote on the deal next month.

So was it a near-miss for BAE's investors or is Airbus actually in rather better shape than Mr Turner would have us believe? It is obviously in BAE's interests to give as black an assessment as possible of Airbus's prospects and yesterday it was laying it on with a trowel. The A380 super jumbo, Airbus's biggest headache at the moment, is likely to be even further delayed than it has so far admitted. Not only that, Airbus's shareholders will have to dig into their own pockets to help fund the next two planes on the runway, the A350 and the successor to the A320. At least the A380 was bankrolled from internal cash flows.

As if that was not enough, Airbus's flagship military plane, the A400M, is looking dodgy as well. It is a fixed-price contract, and BAE knows all about those, having lost its shirt on Nimrod and countless other such programmes in the past.

To cap it all, Airbus has to contend with a ruinously weak dollar - the currency in which it unfortunately sells rather than makes airliners - and a dangerously resurgent Boeing, which is about to overtake Airbus in terms of orders for the first time in six years.

We will have to wait until next month to see how bad things really are for Airbus when Christian Streiff, the new man at the joystick, completes his review of the business. If the outlook is as grim as BAE suggests, then it is not just EADS and its shareholders who will feel the pain. The UK taxpayer has £520m of refundable launch aid riding on the A380, a plane which is beginning to resemble a white elephant the more time goes by. The Government is also still waiting for payback on the earlier A330 and A340 programmes at precisely the time it will be expected to dig deep for the A350 or risk seeing the work drift abroad. BAE may soon cease to be a shareholder in Airbus, but the plane maker continues to provide 14,000 jobs here and a not inconsiderable boost to the UK's balance of payments. Nor is a weakened Airbus in the interests of the airline market which relies upon two vibrant suppliers for healthy competition. Mr Turner ought to know what he is talking about because he sits on the Airbus shareholder committee. Let's hope his alarming prognosis is more for effect.

Severn's swings and roundabouts

There's nothing like bribing shareholders with their own money. That's more or less what Severn Trent is doing with the £576m "special dividend" which will accompany the demerger of its waste business, Biffa.

In order to finance the payout, Severn Trent is gearing up its core water business by taking on more debt. That is normally the type of behaviour which gets the water regulator in a lather. So to keep Ofwat sweet, Severn Trent is first taking debt out of the regulated business and dumping it on Biffa before gearing up again.

The result is that Biffa will start life as an independent company with £400m of debt, which reduces the value of the new shares by a corresponding amount. What shareholders gain on the swings, they lose on the roundabouts.

Under its old management, Severn Trent got a reputation for financial jiggery-pokery, hence the ongoing Serious Fraud Office investigation. The new management, led by chief executive Colin Matthews, seems more interested in financial engineering. Well, it's more fun than running a utility.

m.harrison@independent.co.uk

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