BAe merger causes jitters

British Aerospace shares tumbled to 396.5p last week despite full-year results showing a record £28.1bn order book and a 17% rise in underlying profits to £685m. The fall from a 441p high for the week reflected concerns about BAe’s Al-Yamamah arms-for-oil deal with Saudi Arabia, following the collapse in oil prices. There were also jitters […]

British Aerospace shares tumbled to 396.5p last week despite full-year results showing a record £28.1bn order book and a 17% rise in underlying profits to £685m.

The fall from a 441p high for the week reflected concerns about BAe’s Al-Yamamah arms-for-oil deal with Saudi Arabia, following the collapse in oil prices. There were also jitters over the group’s £7.7bn takeover of GEC’s Marconi defence business.

BAe went to great lengths to reassure the City about the future of its work in Saudi Arabia, saying that as in the past when oil prices had fallen it had received a cash top-up from the Saudi government, worth about £1bn.

British Aerospace also revealed that its share of the Airbus Industrie consortium operating loss amounted to £25m last year. The hit was caused by severe price competition with Boeing in the short-haul aircraft market.

This figure compares with an annual £200m profit from its work as wing-supplier to the Airbus consortium.

Chief executive John Weston said he hoped differences with DaimlerChrysler Aerospace (Dasa) about BAe’s decision to merge first with Marconi could be overcome to achieve pan-European consolidation. ‘There is an enormous amount of industrial logic and financial benefit underpinning the potential of BAe-Marconi and Dasa,’ he said.

BAe is also in talks to acquire the Spanish state-owned civil and defence aviation group Casa.