Concern over sale of BAE’s stake in Airbus

In April 2006, BAE Systems, the British aerospace company, announced its intention to sell its 20% stake in Airbus. Following a wave of takeovers of major British companies by foreign multinationals, the sale has provoked some unease about the long-term implications for the security of employment in the UK division of Airbus.

Growing number of takeovers

In the second half of 2005 and the first half of 2006, several British companies have been taken over by foreign multinationals. For example, the mobile telecoms company O2 was taken over by Telefonica of Spain; the chemicals company BOC was acquired by Linde of Germany; and airports operator BAA looks set to be taken over by the Spanish company Ferrovial. These deals have prompted fresh concerns about the implications of increasing foreign ownership for the UK economy in general and for the quality of employment in particular. This unease has grown in recent months with the announcement by BAE Systems in early April 2006 that it plans to sell its stake in Airbus.

Airbus shareholding

Airbus is currently 80% owned by the European Aeronautic Defence and Space Company (EADS) – which was created by the consolidation of the French, Spanish and German partners in the initial project – and is 20% owned by BAE. The British company has two sites in the UK that are part of Airbus – one in Broughton in North Wales and the other in Bristol in southwest England. Together, these employ about 13,000 people and some estimates suggest that a further 135,000 jobs in supplier companies are dependent on them. It has been apparent for some time that BAE was anxious to free itself of these operations, partly in order to finance acquisitions in the defence sector in the US. This was confirmed when the intention to sell its stake was announced. Mike Turner, BAE Chief Executive, stated: ‘We believe that now is the right time for us to divest our Airbus shareholding to allow us to concentrate on our core transatlantic defence and aerospace strategy.’

Reactions to sale

Trade unions have objected to the proposed sale. Ian Waddell, the National Officer responsible for aerospace at Amicus, claimed that there were ‘tens of thousands of worried people’. He stated: ‘We want to find out if production will remain in the UK or whether it will be shifted to the countries where the new buyers will be based.’ Paul Kenny, Acting General Secretary of Britain’s General Union (GMB), also voiced his doubts: ‘GMB wants the government to quickly and decisively step in to protect the aviation industry in the UK.’

Political reaction to the sale has been mixed. The government has been keen to play down any fears that the proposed sale has generated. Alan Johnson, former Secretary of State for Trade and Industry, argued that the British government had invested large sums in Airbus and indicated its continuing commitment to the project. However, the House of Commons Defence Committee does not appear as confident of the eventual outcome. In a report in early May, the committee stated that the sale left them ‘uncertain of where it leaves [BAE’s] commitment to the UK’.

When the intention to sell was announced by BAE, it was not certain who the buyer would be, although EADS was thought to be the most likely contender. By early June, it had become somewhat clearer how the issue would be resolved when BAE announced that it was exercising its ‘put option’ – a formal mechanism that allows the parties to extricate themselves from the partnership and that stipulates the procedure for price negotiations between the parties. It is thought that the sale price will be in the region of €3.5 to €4 billion.

Commentary

There appears to be a consensus among those directly involved in BAE’s decision and outside observers that there is little danger of the British sites being rationalised or closed in the short term. However, there are differences of opinion over the long-term implications. One view is that the ownership of companies operating in Britain makes little difference to whether or not those operations are secure, with the performance of UK plants in relation to alternative sites being more important. A different view is that a decline in British ownership has been associated with a drift of key strategic functions – such as research and development (R&D) – away from the UK towards the national centre of the acquiring company, leading to a loss of high-skill jobs. The experience of the British Airbus sites over the next few years will be a key test of these prognoses.

Tony Edwards, King’s College London