Britain's BAE poised to sell stake in Airbus to EADS

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The Independent Online

BAE Systems is to sell its 20 per cent stake in Airbus to EADS, the majority shareholder in the European aircraft manufacturer, for about £3bn.

The long-anticipated deal will end BAE's 27-year relationship with Airbus but also places a question mark over the long-term security of the tens of thousands of British jobs that rely on the Airbus programme.

The sale will also fuel speculation that BAE, Britain's biggest defence company, is poised to make a major acquisition in the US, funded by the proceeds from its Airbus stake.

Mike Turner, the chief executive of BAE, is due to meet Alan Johnson, the Secretary of State for Trade and Industry, this morning to inform him of the company's decision. The BAE board is understood to have met on Wednesday to approve the sale of the Airbus stake.

Trade unions expressed fears last night that EADS, which is largely owned by the French and Germans, would use the purchase of BAE's minority stake in Airbus to export jobs abroad. Airbus employs 12,000 to 13,000 people directly in the UK at production sites in Broughton, north Wales and Filton near Bristol, where the Airbus wings are made. But a further 125,000 jobs in UK supply companies are estimated to be dependent on the Airbus programme.

BAE has a "put option" entitling it to sell its 20 per cent Airbus shareholding to EADS. Under the terms of the agreement, the two companies will appoint a committee of four banks to establish the value of the stake. EADS said last month that it estimated the worth of BAE's stake at £3bn. In the event that BAE were to merge with Boeing, Airbus's US rival in the large jet market, then EADS has a "call option" giving it the right to buy BAE's minority stake.

The sale of the BAE stake comes as Airbus enjoys increased success in the civil jet market. It has overtaken Boeing as the world's biggest aircraft manufacturer, both by orders and deliveries, and has an orders backlog for 2,173 jets worth £220bn. Last years it sold 1,111 aircraft and delivered 378 jets.

Airbus is soon to take a further lead over Boeing by introducing its 555-seater Airbus A380 super-jumbo into commercial service. The two rivals are also developing competing aircraft for the mid-range sector of the market in the shape of the Airbus A350 and the Boeing 787 Dreamliner.

Five years ago Airbus was converted into a standalone business and BAE ceased to be an industrial partner in the consortium, becoming instead purely a shareholder. Since then, BAE has made no secret of its willingness to sell the stake should a better use be found for the money - in particular to fund further expansion into the US defence market, which now accounts for a third of the company's total sales. Last year, BAE bought United Defense Industries, the US maker of the Bradley armoured vehicle, for £2.4bn.

Last month BAE denied reports that it was planning to buy the US defence electronics company L3 and earlier this week it also rejected reports that it was about to dispose of its Airbus stake. In the past, BAE has examined a possible merger with Boeing and also held talks with General Dynamics, the US tank manufacturer, but could not reach agreement on valuations.

Analysts believe that if BAE was going to sell its Airbus stake, now was the best time to do so with a willing buyer in the shape of EADS and the aerospace market close to the top of its cycle. If BAE were to retain the shareholding then it would face heavy expenditure on the A400M military transporter and the new 250-seater A350 which Airbus is building.

No one from BAE or EADS was available for comment last night.

Ian Waddell, the Amicus union's national officer for aerospace and shipbuilding, said: "There will be tens of thousands of worried people. Broughton is a hugely important employer for that part of Wales and Merseyside, it doesn't bear thinking about if the future of that site is under threat."

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