BAE warns of fresh Airbus setback

BAE Systems warned yesterday of further delays and cost overruns on two of Airbus's flagship programmes - the A380 super jumbo and the A400M military transporter jet - and insisted it had no regrets about baling out of the European aircraft manufacturer.

Mike Turner, the chief executive of BAE, said that had the company held on to its 20 per cent shareholding, then it could have been faced with a "significant cash call" to fund its share of the Airbus programme.

He also said BAE's reputation in the US defence market could have been compromised if Airbus wins the highly politicised battle with Boeing for a $100bn (£53bn) tanker refuelling contract from the Pentagon.

BAE has agreed to sell its Airbus stake to the majority shareholder EADS for €2.75bn (£1.9bn) - a surprisingly low valuation arrived at by the investment bank Rothschild after the two sides could not agree a price. The valuation came after a shock profits warning from EADS over production delays on the A380 and is less than Airbus was valued at in EADS's own books.

But Mr Turner said BAE had "no regrets" about not selling the stake earlier and insisted: "We are happy with the number €2.75bn. Thank you very much." He said the deal would be approved by investors at an extraordinary meeting next month but admitted that small shareholders would give the board "a hard time".

The €10.7bn A380 programme has already been delayed by seven months and EADS calculates that the cost overruns could cost it €2bn in lost profits. But Mr Turner indicated there could be worse to come when the new Airbus chief executive completes his review of the business next month. He said BAE had known about the delay in A380 deliveries for 15 months but what had come as a complete surprise were the cost overruns on the 555-seater aircraft which BAE is still considering whether to take legal action over.

As well as fresh delays on the A380, BAE highlighted its growing concerns about the €20bn A400M programme to build military transporter aircraft for the UK and six other nations. "It is a good old-fashioned fixed-price design, development and production contract. We don't like them, we don't take them. There are big risks there."

The Airbus sale will net BAE £1.2bn - a large chunk of which is likely to be spent increasing the company's presence in the US, which already accounts for 35-40 per cent of sales. Mr Turner said BAE could afford to spend "several billions" on a US acquisition if it wanted to while George Rose, the finance director, went further saying there was "virtually unlimited finance availability" for the right deal.

Mr Turner added that BAE was looking at one or two possible purchases.

BAE reported a 15 per cent rise in pre-tax profits to £491m for the first half of the year, boosted by £85m in operating profits from United Defense Industries, the US maker of the Bradley fighting vehicle bought in June last year.