Financing for BAe's Taiwan deal is agreed: Chairman flies home after week of talks in Far East clears 'main hurdle'

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The Independent Online
British Aerospace has at last agreed on financing for its pounds 250m joint venture with Taiwan Aerospace Corporation for the manufacture of regional jets. The deal, conditionally signed in January, has been under threat because of disagreement with the group of Taiwanese banks providing loans for the joint company, Avro.

BAe yesterday declined to comment on details of the agreement. But it is thought that Taiwanese banks will lend dollars 400m to TAC for sales finance and BAe will provide a further dollars 400m. The finance is a facility to be drawn down to enable sales and leasing to customers who cannot pay outright for the aircraft.

John Cahill, BAe's chairman, was flying home last night after spending a week in Taipei trying to resolve the unexpected obstacles to the joint venture. The state-owned Chiao Tung Bank, which is leading the banking consortium, had been concerned over the issue of security for the loans.

There was speculation in Taiwan that the government had dipped into its foreign reserves to help provide the bank loans. The negotiations were also hampered by the banks' unfamiliarity with the aircraft leasing business.

A spokesman for BAe said there were still details to be sorted out and yesterday's breakthrough did not mean that the deal was finalised. 'There is still work to be done but this (financial structure) is the main hurdle,' he said.

Avro is to manufacture BAe's RJ regional jetliners partly in Britain and partly in Taiwan. Some of the banks involved in the deal have been concerned about the extent to which manufacturing technology and technical skills will be transferred to Taiwan.

The partners will meet in Britain next month to discuss a range of outstanding issues including technology and the potential development of the RJ-X, a new 120-seat jet version of the RJ. The original agreement allowed for a joint study on the RJ-X but the Taiwanese may seek a stronger commitment from BAe on development and manufacture.

BAe's shares rose by 3p to 450p yesterday after a week of speculation on whether the joint venture would survive the negotiations with the banks. Failure to resolve the financing problem would have been a severe blow to BAe, as Avro is seen as the key to turning the loss-making regional jet business round.

The venture will enhance BAe's access to fast-growing markets in China and South-east Asia. There has been concern that other companies would try to cash in on BAe's difficulties in securing agreement. The Taiwanese government is keen to find a fast track into the aerospace sector and has no shortage of potential partners, including Dassault.