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BAE agrees to sell Airbus stake

Political implications of a deal would include how to keep that technology as well as some 13,000 Airbus jobs in the UK.

india Updated: Apr 07, 2006 10:14 IST

Europe's biggest defence firm, BAE Systems Plc, is poised to sell its stake in planemaker Airbus, freeing up to 3 billion pounds ($5.26 billion) to spend on boosting its US business, the BBC reported late on Thursday.

BAE declined to comment on the report, which said BAE's board had met and agreed to sell the 20 per cent stake, likely to Franco-German-Spanish firm EADS, which owns the remaining 80 per cent.

An EADS spokesman also declined to comment on the story, which was based on unnamed sources.

BAE in recent years has focused much of its growth on the US defence market, by far the world's largest.

It paid about $4 billion for Bradley fighting vehicle maker United Defense Industries in a move which underscored the importance of the US market to BAE's future.

Sector analysts have said BAE was expected to sell civilian airliner maker Airbus at some stage, though most had expected the firm to have lined up another investment target first, most likely another US defence contractor.

Last month, a BAE spokesman denied a British newspaper report which said it was planning to sell the Airbus stake to fund a bid for US defence firm L-3 Communications Holdings Inc.

A UK or European acquisition is also not out of the question, as the company last month acknowledged discussions with fellow UK firm VT Group regarding a possible joint bid for smaller support services firm Babcock International Group.

Meeting Friday

BAE Chief Executive Mike Turner is due to meet the head of Britain's Department of Trade and Industry on Friday morning regarding the Airbus stake sale, the BBC reported.

"There has been no announcement and therefore it would be inappropriate to comment," a ministry spokeswoman told Reuters.

An industry source told Reuters the final value of any sale would be determined based on independent bank valuations which would take into account the share prices of EADS and BAE, both currently trading near life highs, boosting the money BAE will receive.

A deal would reshape the earnings model for BAE, while posing a hurdle to EADS' plans to raise the proportion of its earnings from defence versus those from Airbus' hot-selling airliners.

Airbus has been a major earnings driver for BAE and is coming off a record year for new orders, meaning hefty revenues as those planes are delivered in coming years.

But the planemaker also faces challenges, including delivery of the overdue, over-budget mammoth A380 doubledecker.

Analysts say questions over the design of its proposed mid-sized A350 and slow sales of the four-engined A340 model also could mean Airbus faces higher-than-expected research and development costs, putting margins under pressure.

British Prime Minister Tony Blair has publicly lauded Airbus as an example of successful pan-European cooperation and cited its wing-making operations in Wales as a prized UK centre of manufacturing technology.

Political implications of a deal would include how to keep that technology as well as some 13,000 Airbus jobs in the UK.