Outlook: Foreign ownership of Rolls and BAe

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A classic piece of Whitehall fudge was served up yesterday in the shape of the raised ceilings on foreign shareholdings in British Aerospace and Rolls Royce. Having accepted the argument that the current 29.5 per cent limit was artificially distorting the market in the two shares, the logical course of action would have been to abolish the restrictions altogether.

This was BAe's preferred option. However, Rolls, for all its muscular declarations of independence, went weak at the knees at the thought of Johnnie Foreigner acquiring a sizeable individual stake. It therefore stuck out for a lower limit on single foreign shareholdings.

The upshot is that while the ceiling on overall foreign shareholdings has been raised to 49.5 per cent, a new 15 per cent limit has been introduced for individual holdings. The limits are there to keep the two companies and their strategic defence technologies in British hands. Anyone who thinks it ought to be otherwise will be met by Margaret Beckett waving here Special Share.

Do Rolls and BAe need such protection when neither GEC nor Vickers can resort to the same defence mechanism? BAe and Rolls might make and power the Tornado but half the fighting kit in the land is armed by GEC, while Vickers is the country's biggest, no its only, manufacturer of battle tanks.

Probably not, but then BAe and Rolls were once owned by the Government and, as is so often the case, ministers cannot quite let go altogether.

Even so, as time goes by it could prove a more and more awkward corner to fight. Protecting BAe from takeover, even from its European allies, at the same time as trying to engineer a consolidation of Europe's defence and aerospace industries looks like wanting to have your Eurofighter and eat it.

If either Rolls or BAe were ever to be taken over, then the bidder is much more likely to come from these shores. But never say never. Jaguar thought it was inviolate until Ford came along waving a fat cheque book and discovered that the then goverment's golden share was made of a baser metal altogether.