Super Jumbo funding in doubt as Blair opens £350m Airbus plant

Michael Harrison
Saturday 05 July 2003 00:00 BST

Airbus Industrie, the European plane-maker, may have to go back to its shareholders or the capital markets for help in financing the $12bn A380 Super Jumbo programme if the downturn in the civil aircraft marked deepens.

Executives at the company, in which BAE Systems has a 20 per cent stake, said yesterday it would be difficult to finance the programme from its cash resources if aircraft deliveries fell by more than 10 percent from present levels. Airbus has 129 orders for the A380, which enters service in 2006.

The company is confident of hitting its delivery target of 300 aircraft this year but has not given a forecast for how many it expects to deliver next year, although Noel Forgeard, chief executive of Airbus said yesterday it would be "in the same ball park"'.

When the A380 programme was launched in 2001 Airbus had assumed it would be delivering 400 to 450 aircraft to customers next year and the year after.

Half the cost of the programme is being met by Airbus, the other half coming from the governments of the UK, France, Germany and Spain and risk-sharing partners.

The $6bn Airbus is contributing is to come from operating cash from aircraft sales. If deliveries fall, Airbus will have insufficient cash to finance its share of the programme, meaning it could be forced to tap the debt markets or raise new capital from shareholders. The other shareholder in Airbus is EADS, the Franco-German Aerospace and Defence Company which owns an 80 percent stake.

Mr Forgeard said yesterday that if deliveries dropped by 10 percent or more then "Part of our investment in the A380 might have to be funded in other ways than from cash flow. "I do not think it will be the case but I do not know," he added. The Airbus chief executive said the company was aiming to increase its cash resources by cutting €1.5bn from its costs over three years.

Yesterday Tony Blair officially opened a huge £350m facility in Broughton, North Wales where the wings of the A380 will be built. Overall, Airbus UK is investing £2bn on the 555-seater aircraft.

The opening of the factory, the biggest to be built in the UK since the Japanese car plant investments of the 1980s and 1990s, will create 1,200 jobs. Airbus calculates the A380 will create an additional 40,000 direct and indirect jobs in this country, taking the total number of British jobs generated by the Airbus programme to more than 100,000.

Mr Forgeard made a direct plea to the Prime Minister to take Britain into the euro saying: "Such an adjustment with the rest of Europe would certainly be beneficial for Airbus as a whole."

He said that if the pound remained outside the single currency it would not affect future investment decisions but it would be an additional "co-efficient of risk" that Airbus would have to take into account. Mr Forgeard also said that he hoped BAE would remain an Airbus shareholder for a very long time.

BAE would have to sell its 20 percent stake to EADS if it went ahead with a merger with Boeing of the US. But under the terms of BAE's agreement with EADS when Airbus became an integrated company the British firm could keep its shareholding if it merged with any other US aerospace or defence manufacturer.

BAE is understood to have begun preliminary work to value Airbus. Mike Turner, Chief Executive of BAE said he believed it was worth US30billion. This would make BAE's 20 percent stake worth £3.6bn - equivalent to more than 80 percent of its current market capitalisation.

Mr Blair said the new Broughton factory was "the most extraordinary and fantastic facility"' he had seen anywhere in the world. He also predicted that the £530m of government launch-aid Airbus UK had received for the A380 would "pay huge dividends not just for the company but for the whole of Britain".

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