View from City Road: Rover is no longer

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The Independent Online
the pariah of BAe British Aerospace, whose management used to be regarded as missing, presumed lost in action, has done itself no harm at all with the successful sale of its corporate jets business to Raytheon.

For a subsidiary with peak operating profits of pounds 20m, a payment of pounds 250m in cash is impressive in the current state of aerospace, even for a part of the industry that has been relatively stable.

The fact that a deal has been achieved at all speaks well of the new management team led by John Cahill, chairman, and Richard Lapthorne, finance director. Last autumn talks with Raytheon fell through because the US airmen did not want BAe's production facilities in the UK.

BAe has had to endure more than its fair share of redundancies and found Raytheon's conditions unacceptable. Months later Raytheon has returned to agree terms more to the British company's liking.

The deal has some other less obvious implications for BAe. Raytheon has agreed to take airframe components, currently worth pounds 30m a year, from BAe's Airbus production facility at Chester, for at least three years. This will provide a useful cushion for Chester when Airbus reins back production for a year or so, as seems inevitable given the low demand from airlines.

At the same time, production of BAe 125 components at Hatfield could be wound up, allowing the company to transform the site into an airport and business park.

The Raytheon deal is not the final step on BAe's road to rehabilitation. The second phase of the Al Yamamah contract has underwritten prospects for the highly secretive but vital defence division. Taiwan's joint venture in regional jets will limit losses from that source.

But smaller turbo-props - the ATP/Jetstream 61- have still to be sorted out. Fortunately the pounds 1bn provision in 1992 will leave more than enough to cover the costs of rationalisation around BAe's facilities at Prestwick without scarring the company's profit and loss account.

Rover, once the pariah division, is the one area of BAe needing no further spade-work. In the first quarter of 1993 its sales grew twice as fast as the UK market on the back of well- received new product launches. Market share rose from 12 per cent to 13.1 per cent. A minuscule exposure to Germany will be a benefit.

With rehabilitation almost complete, BAe shares at 355p, up 16p yesterday, against a low of 113p last September, will be driven by Rover for the next year or so - executive cars, rather than jets.

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