BAE nets £633m from sale of European avionics arm

BAE Systems is to raise up to £633m from the sale of its European avionics interests to the Italian defence group Finmeccanica under a final agreement signed by the two companies yesterday.

BAE Systems is to raise up to £633m from the sale of its European avionics interests to the Italian defence group Finmeccanica under a final agreement signed by the two companies yesterday.

Finmeccanica, which already owns the helicopter manufacturer Agusta Westland, has agreed to pay BAE an initial £379m for a 75 per cent stake in their jointly owned avionics business and a further £269m when it buys the remaining 25 per cent.

In a separate deal, BAE will pay Finmeccanica £50.5m for full control of the UK part of their jointly owned systems integration and command and control business. Finmeccanica will take over the Italian part of the joint venture.

The Italian company will also take 100 per cent control of two other joint ventures with BAE specialising in air traffic control, defence communications and battlefield systems.

The series of deals, known as the EuroSystems transaction, has taken BAE and Finmeccanica nearly two years to complete. BAE was advised by Dresdner Kleinwort Wasserstein and NM Rothschild.

BAE said it would use the proceeds to pay down debt, which stood at £1.1bn at the end of June, 2004. The combined value of the businesses being divided up between BAE and Finmeccanica is £1.7bn.

The signing of the agreement came as Agusta Westland waited to hear whether it has won a $1.6bn (£850m) contract to replace the US presidential helicopter fleet. The order for 23 helicopters was due to be announced late last night by the US government. The company has teamed up with the American defence contractors Lockheed and Bell to bid for the prestige contract and pledged that two-thirds of the work will be carried out within the US.

Agusta Westland is up against Sikorsky, the helicopter division of United Technologies (UTC), which has built and maintained the familiar green and white Marine One presidential fleet for more than 50 years. Agusta Westland is offering a version of its EH101 helicopter in competition with the Sikorsky VH-92.

The contract is the first to be put out to open tender since the 1970s. Awarding it to a non-US company would be a stunning move. UTC's chief executive George David said that the order was "win or drop dead as far as we are concerned" following the cancellation of the Comanche helicopter programme between Sikorsky and Boeing.

The company chosen is likely to be favourite to win an order worth about $6bn to supply the US Air Force with 200 combat search and rescue helicopters.