View Full Version : BAE agrees to £1.8bn Airbus sale
fly_high
6th Sep 2006, 18:51
From this BBC article (http://news.bbc.co.uk/1/hi/business/5321626.stm).
"UK-based defence firm BAE Systems has agreed to sell its 20% stake in plane maker Airbus to EADS for 2.75bn euros (£1.87bn; $3.53bn).
BAE estimates that the sale will generate about £1.2bn, allowing it to return about £500m to shareholders."
Does this mark the end for UK involvement in the global aircraft marketplace?
54.98N
7th Sep 2006, 08:25
Very much a fire sale - BAE will regret this long term.
fimbles
7th Sep 2006, 08:39
Umhh lets see......
Option 1 - Stay a risk sharing partner in a company who's flagship a/c is well behind it's into service date and costing millions in penalties, it's long haul family A340/330 is being ripped apart by the competition and as yet no sign of a replacement for its successful backbone the A320 family....?
Option 2 - Sell your share and just make the wings on contract?
Not so much of a fire sale me thinks!!
54.98N
7th Sep 2006, 08:40
I dont disagree with them selling it - just the value they got for it. Wasnt it valued at £3bn not long ago?
Andy_S
7th Sep 2006, 10:01
It's certainly not a fire sale - that would imply BAe were a financially distressed company who had to sell assets at any price. That's clearly not the case. They've made a strategic decision to exit Airbus at what they think is an appropriate time and invest elsewhere,and only time will tell if that was a good or bad decision.
As to the value they got for it, this was ultimately agreed by audit. If memory serves me well, BAe were originally looking for about £3.4bn but EADS only offered £3bn. BAe weren't happy with this, so they exercised a 'put option' which enabled them to sell to EADS at a price to be settled by arbitration. Unfortunately, the s*** hit the fan shortly afterwards and the price of BAe's stake headed south. They were basically screwed by their own machinations.
BAE Systems do NOT make the wings for Airbus. They are made by Airbus UK in Filton and Chester. These plants moved to 100% Airbus control over 4 and a half years ago and all the investment in recent years has been made by EADS-controlled Airbus. BAE have only been a shareholder all that time.
What is so different today?
possel
7th Sep 2006, 11:21
BAe Systems have basically destroyed all of the country's civil aircraft programmes by bad management - and I could not believe it when they sold off the 125 line. They clearly had no interest in developing anything for the civil market, and it will be more than ironic if the military market collapses, bearing in mind that much of the future threat is from terrorists.
Like Tony Blair, they have a lot more faith than most of us in the US govt!
Groundloop
7th Sep 2006, 12:30
What I find amazing about this sale (apart from the usual BAE mantra of not wanting to actually build anything - we are now a "systems" company) is that BAE wanted to raise cash quickly so that they could go on a buying spree in the States. And now I read that, not only are they getting £1bn less than they originally expected - but they are giving £500m of it to the shareholders!
What could they buy for that £500m?
"UK-based defence firm BAE Systems has agreed to sell its 20% stake in plane maker Airbus to EADS for 2.75bn euros (£1.87bn; $3.53bn).
BAE estimates that the sale will generate about £1.2bn, allowing it to return about £500m to shareholders."
Where is the other £0.67 bn (£1.87 bn - £1.2 bn), more than one third of the proceeds, going then. Doubtless to "fees to advisers" :(
Reminds me of the conversation between two men in a train.
"I'm an investment banker".
"Oh, how fortunate, I've just won £10m on the lottery. Tell me what would you do with it ?"
"Well I would put £8m into a venture capital fund".
"Ah, OK then. And what about the other £2m ?".
"Oh, that's my fee for the advice".
tilewood
7th Sep 2006, 16:37
I know the price is far short of the figure BAe had hoped to obtain,
but perhaps once the auditors had looked in the abyss of the Airbus' books BAe realised this was the best they could expect, and that if they waited any longer the price might be far far less.
An ageing A320 design, the A340 proving less than a roaring success,
the A380 late and perhaps too big and overtaken by world economics, and the
A350.......well what can one say about the A350?!!
Unfortunately Airbus is a political construction rather than a true commercial
company. Produced so that France can stick two fingers up to the US,
like so much that is decided in the Elysee it's hubris is beginning to blight
it's future. Biggest is not always best.
Cut your losses BAe, wash your hands, and start all over again.
Sorry tilewood, methinks you live in a different world.
Go to Filton or Chester, Hamburg or Bremen, Getafe or Seville and see Europe working together to better the lot of many people throughout Europe - and btw, that includes the UK now - and in many other countries around the globe.
Try walking into any of those design offices or workshops and say its a French company.
I hope you can run fast!!!
grand slam
8th Sep 2006, 19:51
Don't make me laugh, Saman. Sclerotic Europe, locked into a bureaucratic EU,is going nowhere fast. All talk and no action. Remind me of the progress on the Lisbon Agenda; zero. Compare its growth rates with Asia or the US. Sickly, like a weak child. The good news is that increasing numbers of Brits are coming to realise that Britains future does not lie within the EU. Bae are slightly ahead of the curve; but only just. Better plan for Britain outside of the EU. "Better Off Out" is a campaign that is gaining ground. Check out the website.
Sorry GS, I am certainly not one the world's greatest fans of the over-burocratic EU. But why link industry to politics? I don't like Blair but I do like Great Britain and much of its industry. By your logic, if you don't like the system you don't like the industry.
But I do believe that working together in industry we can do a hell of lot better than any one country on their own. In today's climate, where would UK civil aviation be without Airbus? And don't be mislead, Airbus UK is British, Britain is part of Airbus, not some small subsidiary.
Concorde, all the Airbus types, Eurofighter, Tornado, Gazelle, Lynx, Puma, Harrier(GR7), Goshawk, Transall, ATR, C27 - even the Caravelle with its Comet nose and systems... all products of co-operation.
Wake up and smell the coffee. We need to co-operate. Last year, just last year, 918 A320 Family aircraft were sold - with their British wings and undercarriages and partly Brit engines and seats and galleys and systems and... That is more than the total of all the Caravelles, 1-11, Tridents, VC10, Fokker 70, Concordes, Mercures and VFW 614 throughout their entire production runs. Go figure, co-operation works.
Treetopflyer
9th Sep 2006, 12:54
So old Europe may be sclerotic, over-bureaucratic, and not have the best growth rate around... But European civil aviation certainly has never been as successful as in the past decade...
And so Airbus is going through tough times; which company hasn't? Too bad the Brits are leaving it now... Why sell on the downturn at an inferior price?
topoftheloop
9th Sep 2006, 15:10
GS, you might be right, the UK is a half-hearted partner of the EU anyway. So if you don't want to stay, diy, join the US, or whatever is best for your own interest. Have to agree that there are a lot of crooks in the EU. But for the sake of old Europe, make up your mind !
TOTL, I think GS has made up his mind. He posts from Hong Kong. Not much aircraft design & manufacturing there then!
backseatjock
9th Sep 2006, 18:57
Treetopflyer: Problem as BAE sees it is that the deep troubles at Airbus are happening at a time when the commercial aircraft industry is nearing the top of a cycle.
These problems, by EADS's own admission will take some considerable time to resolve. Fixing them will take significant capital investment and much management time and resource. As a minority shareholder in the business, BAE had no day-to-day involvement in management decisions but would have been expected to contribute towards the capital investment needed to resolve problems with new products, fix current production and delivery issues and develop new, future programmes.
A strong and resurgent Boeing, likely to be the case for some time to come, and an increasing problem with the low dollar/euro rate (specific issue with the way Airbus buys components and sells the aircraft) simply compound the concerns. Add to this the fact that the cycle will at some point turn down and, as with all recovery plans, there are risks that things might not go to plan and you can maybe appreciate why BAE felt justified in proposing a sale of its 20% shareholding, even at the low price of Euro 2.75bn.
All this was backed up by a PwC audit into the business difficulties facing Airbus, in order to understand the reasons for the low valuation which took the whole market by surprise.
Sticking with it would have potentially seen the value of its shareholding drop further, forcing BAE to stick with it for some time, potentially through another downturn the inherent associated with that.
Be sure there are no anti-European sentiments in this posting - but it is a harsh reality of life that any business owned by shareholders has to keep delivering value to those shareholders. In BAE's case, its Board clearly felt shareholder value will best be delivered by using its investment funds in other ways. Ultimately, it will be those same shareholders who decide whether to accept or reject that view.
Assuming the sale goes ahead the future for Airbus, freed of a minority shareholder, will look brighter. Under the full ownership of one Company, decision making will be less complicated and investment decisions less difficult.
As for Airbus workers in the UK, I think they can rest easy. Filton and Broughton are world centres of excellence for the design, development and manufacture of wings. To up sticks and move at any time in the future will be a costly and a high risk option, a complication Airbus does not need. Closure of its UK operations would also cut an important stream of potential repayable launch investment!
Go to Filton or Chester, Hamburg or Bremen, Getafe or Seville and see Europe working together ..... Try walking into any of those design offices or workshops and say its a French company.
Quite so. But notably you didn't quote Toulouse or Chateauroux. Go there and say that Airbus is not a French company and you will be met with amazement.
An interesting comment I heard earlier today. "Why does the French economy appear to be a basketcase but still rolls on well from generation to generation ?"
Answer : "Well, the typical Frenchman, at the end of his 35-hour week and before his long summer holiday gets into his French car, fills it with French goods, and drives down to his villa in the south of France. The equivalent Brit, at the end of his 45-hour week and before his 5-day short break, drives his German car to the now Spanish-owned airport, gets onto an Irish airline and flies to his villa in Portugal. That's where the money goes".
saman
11th Sep 2006, 21:45
WHBM, I ain't going to disagree too violently, but in the HQ in Toulouse, trust me, it's pretty international but in Airbus France I hope they think it is a French company, just like Airbus Germany is German, Airbus Spain is Spanish. Those in Airbus UK that I know, and I am a long term Brit in TLS, are pretty proud of the UK part and trust me, defend their corner 'Jolly well.'
Vis a vis, your comments on the 'Frenchness' of the French - pourquoi pas?
But I'm a Brit so have a German car!