Airlines review A380 orders as BAE sell-off slated
A string of customers for the A380 superjumbo said yesterday they were reviewing their options after the latest delays on the troubled programme, helping send shares lower in EADS, the Franco-German parent company of Airbus.
Malaysian Airlines, Virgin Atlantic, Qantas and Korean Airlines all said they were examining the position following the announcement of a further one-year delay in deliveries of the 555-seater jet, increasing fears that some carriers may decide to cancel orders altogether.
Shares in EADS fell 5 per cent after Tuesday night's warning that production delays on the A380 superjumbo would cost Airbus €4.8bn (£3.2m) over the next four years - more than double the initial estimate.
Meanwhile, the French government was sucked into the controversy amid fears that the cost-cutting plan unveiled by EADS would involve jobs cuts in France ahead of next spring's presidential elections. The French Prime Minister, Domnique de Villepin, promised "vigilance" over jobs, although French unions called on the government to intervene directly.
But small shareholders in BAE Systems accused the defence giant of "killing off" the golden goose by agreeing to sell its 20 per cent stake in Airbus prematurely. BAE shareholders approved the sale of the Airbus shareholding to EADS for €2.75bn at an extraordinary meeting, with 99.85 per cent of the votes cast in favour.
But not before the company had been taken to task for turning its back on the UK civil aviation industry. One small shareholder, John Simpson, told the meeting that although Airbus was suffering a lot of short-term pain, "in the long-term, you are killing the goose that may lay a massive golden egg in the future".
Another investor, Geoff Burn, said civil and defence businesses were complementary and that it would have been better for BAE to keep its Airbus stake to offset any downturn in military markets. However, other shareholders criticised the BAE board for not selling the stake quickly enough and losing out on the chance to gain a higher price. One investor said Airbus should have been sold one or even two years ago.
BAE decided to sell the shareholding in April but was not able to agree a price with EADS. An independent investment bank Rothschilds was then appointed to come up with a valuation. But in June, EADS stunned the markets by warning that delays on the A380 superjumbo programme would cost it €2bn in lost profits.
The warning, coupled with a doubling in the cost of developing A350 mid-range aircraft to €8bn had the effect of dramatically reducing the value of Airbus.
Dick Olver, the BAE chairman, said the company had decided to sell the stake because it was a "portfolio asset" which gave BAE no influence over the running of Airbus and did not fit with its strategy of moving further into defence markets, particularly in the US.
He said BAE had chosen not to sell the stake earlier because Airbus was making good money for BAE, contributing £316m in profits in the past three years.
Asked about the timing of BAE's decision, Mr Olver said: "It was just a moment in history when we decided to move. I suspect subsequent events have shown us to be right."
BAE has said that up to £500m of the £1.3bn in net proceeds will be returned to shareholders, with the rest used either to help plug the deficit in its pension fund or finance acquisitions. However, some shareholders argued that the entire amount should have been put into the pension fund.
Mr Olver said no bonuses would be paid to directors as a result of the sale. He also told one shareholder worried that BAE would be tempted "by having money jingling in your pocket" into overpaying that the company would be careful with any takeovers it pursued.
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