BAE to give go-ahead to £1.9bn sale of Airbus stake

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The Independent Online

BAE Systems will give the go-ahead today to the sale of its 20 per cent stake in Airbus, marking the end of a British-owned civil aircraft industry.

A meeting of the BAE board is expected to approve the sale of the stake to the majority shareholder, the Franco-German aerospace giant EADS, despite the low valuation of £1.9bn put on the holding by the investment bank Rothschild. This is half the amount BAE had initially hoped to raise.

BAE's decision to bale out of Airbus will raise fears for the long-term security of the 14,000 UK jobs that depend on the Airbus programme. The wings for Airbus aircraft are made at sites in Broughton, north Wales, and Filton near Bristol, but the programme generates thousands more jobs in supply companies.

Despite the unexpectedly low valuation put on Airbus by Rothschild, which was called in as an independent arbiter after BAE and EADS failed to reach agreement on price, the UK defence contractor has decided it is better to proceed with the deal than retain ownership of a business which is no longer seen as core to its activities.

The profit on the sale of about £1bn is expected to be returned to BAE shareholders.

BAE directors are also concerned that if it retains the stake, the company and its shareholders will be exposed to significant costs in future to complete the A380 super-jumbo and develop the new wide-bodied XWB A350 aircraft which Airbus is building to compete with Boeing's new 787 Dreamliner. BAE would also have to help fund any successor to the workhorse of the Airbus fleet, the narrow-bodied A320, which will need to be replaced when Boeing launches a new aircraft in this segment of the market to succeed the 737.

There are further concerns about the weakness of the dollar, which has depressed the profitability of Airbus and raised the break-even point on new programmes.

The decision to sell the 20 per cent shareholding follows an audit of Airbus by the accountants PricewaterhouseCoopers. The audit was designed to understand the reasoning behind Rothschild's valuation of the company and to assess the prospects for Airbus.

In recent years it has overtaken Boeing in terms of sales and production but Boeing is set to turn the tables by winning a bigger market share than its European rival. Airbus has so far received just 159 orders for the A380 - fewer than half the number needed to break even - while Boeing's 787 is outselling the A350 by a margin of two to one.

In response to the crisis at Airbus, its new chief executive Christian Streiff is due to unveil a fresh cost-cutting initiative this autumn.

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