BAE plans swift decision on Airbus stake

LONDON - Britain's BAE Systems has said it expects to make a swift decision on whether to sell out of plane-maker Airbus but that no major acquisition hinged on selling the stake.

BAE, Europe's largest defence firm, had hoped to sell its 20 per cent of Airbus to 80-per cent owner EADS, but a lower-than-expected valuation on its stake could put the plan on hold.

BAE's board is set to decide whether to recommend to shareholders a €2.75-billion ($5.77bn) price for the stake put forth by investment bank Rothschild.

"We will have a board meeting soon, but I can't say it will be this week. We expect this to be a very timely process," a BAE spokeswoman said.

BAE will then have to hold an extraordinary meeting for shareholders to vote on whether to sell or hold the stake, with an outcome expected by early August at the latest.

Analysts expect US acquisitions to be high on the agenda if BAE does sell out of Airbus but the spokeswoman said no deal was imminent.

"No acquisition is directly linked to the Airbus stake. You are not going to see us sell Airbus on Day One and buy something else on Day Two," the BAE spokeswoman said. "There has been no decision on the use of the proceeds."

The price is well below analysts' estimates of as much as €5 billion and below the €3.5-billion fair value price the stake carries on EADS' consolidated balance sheet.

While valuation takes in many factors, based on Airbus' contribution to operating profit at EADS, for example, the €2.75-billion price is not out of line.

Other factors to look at include growth potential for Airbus and for the wider airliner sector, where it competes with US company Boeing Co..

The two plane makers saw record high new plane orders in 2005 which means fatter revenues as deliveries of those aircraft take place over the next few years.

The downside is that analysts believe the industry is at or near the peak of a cycle traditionally seen once a decade.

Airbus' own growth prospects hinge in part on finding buyers for the US$300 million ($493m) A380 superjumbo and on its success in launching a new mid-sized model.

The latter is expected to keep Airbus' research and development costs high for several years, which is another factor BAE must weigh up.

BAE holds a put option to sell its stake to EADS.

The Franco-German-Spanish firm has the right of first refusal but has said it is willing to buy, meaning BAE cannot sell the stake to someone else.

If BAE holds on, it cannot exercise the put option again until next May at the earliest, which is when an annual window next opens and lasts until October.

- REUTERS