BAE investors set for windfall from Airbus sale

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Shareholders in BAE Systems are in line for a multibillion-pound payout following confirmation yesterday that the UK defence group is to sell its 20 per cent stake in Airbus, the world's biggest manufacturer of airliners.

The sale of the stake to EADS, the Franco-German company which owns the remaining 80 per cent of Airbus, is expected to raise between £3bn and £4bn for BAE and could be completed in a matter of weeks.

Part of the proceeds is likely to be used by BAE to help finance future defence acquisitions in the US but a big chunk of the money will be earmarked for return to investors.

BAE and the UK Government went out of their way yesterday to reassure Airbus workers that the sale of the company's shareholding would not represent a threat to British jobs or production facilities. Airbus employs 13,000 people directly at factories in Broughton, north Wales, and Filton, near Bristol, where the wings are made, but a further 125,000 jobs in supplier companies are dependent on Airbus's UK activities.

It emerged yesterday that a legally binding "safeguard mechanism", put in place by BAE and EADS when Airbus was converted into a single corporate entity in 2001, requires wing production to remain in the UK indefinitely. In the event that BAE sells its shareholding, those safeguards transfer to the UK Government.

Following a meeting yesterday between the Secretary of State for Trade and Industry, Alan Johnson, and the chief executive of BAE, Mike Turner, the DTI issued a statement saying that the sale of the Airbus stake was a commercial decision for the company.

However, it also pointed out that the Government had invested £1.2bn in Airbus over the past 20 years and stressed that EADS was fully aware of the UK's contribution to Airbus and its strategic value.

The UK has provided £530m of launch aid for the Airbus A380 super-jumbo, which enters service next year, and has agreed in principle to provide a further £379m for the new Airbus A350, which has an advanced composite wing built in the UK.

The Toulouse-based Airbus, meanwhile, pledged that the change of ownership would have no impact on the UK. "Whatever the outcome of discussions with BAE, Airbus is in the UK for the long term and the UK will remain a fundamental part of the Airbus business," it said.

The shareholder agreement between BAE and EADS entitles BAE to exercise a "put" option requiring the other shareholder to buy it out at a fair market price - a long-winded process requiring the two sides to appoint four sets of investment bankers to come up with a valuation.

BAE and EADS have decided to short-circuit this by negotiating an agreement between themselves, meaning that a deal could be reached quite quickly. EADS said last month that it estimated the value of BAE's 20 per cent holding at €3.5bn (£2.8bn). However, BAE sources say they expect EADS to pay nearer £4bn.

Mr Turner said that Airbus had been "an excellent investment" for BAE but now was the right time to sell the shareholding so the company could concentrate on its "core transatlantic defence and aerospace strategy".

Airbus generated £273m in profits before interest, tax, depreciation and amortisation for BAE last year - nearly a quarter of the total - and £3bn of sales. However, BAE believes that with its rival manufacturer Boeing resurgent in the aircraft market and the aerospace sector near to the top of the cycle, the value of Airbus could fall if it delayed a sale.

BAE again denied yesterday that it was selling its Airbus stake so that it could launch a bid for L3, a US defence electronics company. "L3 is not a target, we are quite clear on that," said a spokesman.