Sorry, here it goes:
Copyright: The Sunday Times
BAE weighs up £20bn merger with Boeing
BAE SYSTEMS has held exploratory talks with Boeing, the American aerospace giant, about the possibility of merging to create a £20 billion transatlantic defence group.
Senior bankers held talks on behalf of the two companies in the autumn, before BAE’s shock December profit warning. It is understood the talks have been put on hold, but sources close to BAE said both sides remain eager to cement a deal if possible.
News of the discussions will spice up BAE’s negotiations with the UK government over a £10 billion contract to build two aircraft carriers. It will also fan rancorous arguments over how cost overruns of up to £1 billion on earlier contracts should be apportioned.
A decision on the carriers — the most powerful warships ever built for the Royal Navy — is expected at the end of the month. BAE is vying with Thales, the French defence group, for the contract. Comments last week by Geoff Hoon, the defence secretary, that BAE is no longer a British company, have fuelled industry suspicions that Thales is favourite for the job. If Thales were selected, it is likely that ministers would attempt to mollify BAE with the promise of a significant slice of work.
Some industry executives believe BAE remains favourite. “Can you really imagine a minister standing up in parliament to say our new aircraft carriers are going to be made by the French?” one executive asked.
BAE yesterday declined to comment on its relationship with Boeing, but said it had made no secret of its long-term ambition to increase its exposure to the Americans.
A senior investment-banking source said the disclosure of the talks might be designed to help BAE in its various negotiations with the Ministry of Defence. “It’s a handy way of saying, if you don’t treat us right, we’re off.”
It is understood that negotiators envisaged BAE selling its 20% stake in Airbus, the European aircraft manufacturer. Sir Dick Evans, BAE’s chairman, would have retained a senior role at the merged group.
Defence industry sources said that while a merger between Boeing and BAE was likely in the long term, there were several obstacles to a speedy deal. BAE’s depressed share price — down from a 52-week high of 393p to 126p — would be unlikely to give it the proportion of the merged company its shareholders would require to back the deal.
It was also not clear whether the British government would give its blessing. “There is no clear view of the defence industry within Whitehall,” one senior industry executive said yesterday. “Some departments see defence as an absolutely strategic industry that must be preserved, some don’t, and there is a range of views in between.”
A merger would create an aerospace and defence behemoth with a market value of more than £20 billion, annual sales of £45 billion and nearly 300,000 employees. The combined group would control not only half of the world’s civil aerospace market through Boeing’s commercial aircraft group, but would also have a hand in virtually every major western defence project, from the “son of Star Wars” missile-defence programme to the provision of rifles for the British Army.
A deal would have significant political ramifications, and be interpreted by many as Britain turning its back on Europe.
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Goodbye SR-LX MD-11 / 6th of March 1991 to the 31st of October 2004