BAe's Taiwan talks drag into third day

BRITISH AEROSPACE has entered a third day of negotiation in its attempt to rescue a planned pounds 250m regional jet venture with the Taiwan Aerospace Corporation. The project, conditionally agreed in January, has run into problems with the group of banks providing loans to the new joint company, Avro. John Cahill, BAe's chairman, is in Taipei this week labouring to secure the deal.

It is understood that the government of Taiwan may be willing to underwrite the bank loan if other options come to nothing. British Aerospace refuses to comment on the detail of what is being discussed.

The group of banks is led by the state-owned Chaio Tung Bank, which would have a significant stake in Avro. This is thought to be one source of contention, as Taiwanese banking law prevents a bank from making unsecured loans to firms in which it has more than a 3 per cent stake.

Some banks are thought to have expressed concern about the extent to which skills and technology will be transferred to Taiwan. Under the January agreement, Avro will manufacture jetliners based on BAe's RJ aircraft, which is a follow-on from the 146, and may develop and manufacture a new model, the RJ-X. Manufacturing will take place partly in the UK and partly in Taiwan and some parties want clarification on the technological benefits that will accrue to Taiwan.

The deal is vitally important to British Aerospace, as Avro is regarded as key in returning the loss-making regional jets business to profit.