Boeing chief dashes BAE hopes of merger deal

The transatlantic ambitions of BAE Systems were dealt a severe blow yesterday when the new chief executive of Boeing emphatically ruled out a merger of the aerospace and defence companies.

Harry Stonecipher, who was parachuted into Boeing following the ousting of Phil Condit last December, said BAE's strategy and its product line-up did not attract him. "I can cut to the chase fast, we have no interest in buying BAE Systems," he said. "I am not interested in being in submarines or shipbuilding and BAE has also vertically integrated to the point where it is contrary to what we want to do. We like the company, it is just not at attractive target for us."

Mr Stonecipher will convey the message personally to BAE's chairman Sir Dick Evans during a two-day visit to the UK. Sir Dick and BAE's chief executive, Mike Turner, have made no secret of their desire to pull off a transforming transatlantic merger to create the world's biggest defence group, even if it meant the British company being subsumed by a bigger US rival.

Boeing's lack of interest in becoming a marriage partner is a serious setback to that ambition, particularly as Mr Condit had pursued a deliberate policy of keeping the door open to a merger.

Boeing is the second US defence company to turn its back on BAE. Last year General Dynamics pulled out of merger talks with the UK company after failing to agree on price of who would run the merged group.

This leaves just Lockheed Martin or potentially Northrop Grumman as possible partners for BAE, unless it chooses to continue building its US presence through smaller incremental acquisitions of second-tier defence companies.

The rebuff from Boeing also highlights what some see as BAE's high-risk strategy in pinning all its hopes on a transatlantic merger. Paulo Scaroni, one of BAE's non-executive directors, recently announced his departure from the board after voicing his opposition to this strategy.

BAE is still seeking a new chairman to succeed Sir Dick who retires in the middle of the year. A lifelong BAE man, he has been more closely associated with the search for a transatlantic partner than any other director.

Mr Stonecipher said it would take a year for Boeing to recover from the ethics scandals thatled to the resignation of Mr Condit. But he rejected suggestions that the boardroom turmoil had played any part in the Ministry of Defence's decision not to award a BAE/Boeing consortium the £13bn tanker re-fuelling contract.

Mr Stonecipher saw the Defence Secretary Geoff Hoon for a brief meeting yesterday in a bid to restore Boeing's credentials. He is also due to visit British Airways and Virgin Atlantic to promote Boeing's latest aircraft, the 250-seat Dreamliner.

The Boeing chief executive said it was likely that the aircraft would be offered with a choice of engines from Rolls-Royce and the US manufacturers General Electric and Pratt & Whitney. A final decision will be taken before the end of April.