The European Aeronautic Defence and Space company, owner of 80% of Airbus, is threatening to exercise its right to take away lucrative work on wings for the Airbus fleet from BAE Systems, its partner, senior Eads executives made plain over the weekend.
Rainer Hertrich, Eads co-chief executive, said at a series of briefings in Oxford the majority shareholder in Airbus could transfer production of wings for the entire range of aircraft, up to the planned $10.7bn A3XX superjumbo, and restructure BAE's activities in the UK under last month's deal to create Airbus Integrated Company.
Two large UK factories would be hit. BAE's operations at Filton, near Bristol, and at Broughton in North Wales make wings for the Airbus aircraft and would be devastated by any switch in production.
The threat to use its effective veto, agreed in talks with the Department of Trade and Industry, will overshadow this week's Farnborough Air Show where Airbus is to announce multi-billion orders for the A3XX and the A400M military transporter and step up its fight for supremacy with Boeing.
It illustrates continuing corporate and personal conflicts between Eads and BAE since the UK group opted early last year for a merger with GEC's Marconi defence arm rather than with DaimlerChrysler Aerospace (Dasa), the German arm of what is now Eads - despite public and private protestations of a thaw in top-level relations between the two.
BAE has privately cast doubt on the wisdom of setting up Eads, formed from the merger of Dasa, Aerospatiale Matra and Spain's Casa, and the Eads share price has stuck below the €19 offer price in the part-float two weeks ago. But Eads executives insisted at the weekend the group would be fully integrated by 2002.
Mr Hertrich, continually asserting Eads control over AIC, said: "We have full freedom to change anything in the UK but only if it is for the benefit of the shareholders. As long as wing development in the UK is profitable there's no need to change anything."
Andreas Sperl, AIC's chief financial officer, pointed out that if AIC took away BAE's agreed workshare on wings and built them elsewhere in the group - probably in Hamburg - it would spell the end of the partnership.
But the Eads executives made clear their determination to run AIC against BAE's assertion it is a stand-alone company. BAE gave up several key veto rights under the deal to set up Airbus as a fully-fledged plc but the UK company can still block the business plan, any new partners (such as Italy's Alenia) and any change of name.
BAE, which has the right to exit AIC after three years, has said its share of AIC's pro forma operating profits in 1999 of €1.033bn would have been €207m for its 20% stake. It expects bigger earnings from the plans to save €350m from Airbus annual costs by 2004.
Airbus, which aims to capture at least 50% of the global market for bigger jetliners and shove Boeing into second place after decades as world leader, is to announce at Farnborough firm orders for its planned superjumbo from Emirates, the Middle East airline, and possibly Singapore International Airlines in deals worth up to £3.9bn. Emirates is set to take 10 A3XXs and SIA a further 10, with six options.
Dr Sperl, confirming that AIC has so far 50 orders and 20 options for the A3XX, said Airbus needed to sell 230 to make the two-tier superjumbo profitable and expects to sell 780 by 2021. The first flight is due in 2004 and it enters service in October 2005.
The $10.7bn development cost, he said, covers four versions of the A3XX, including a 656-seater and a freighter. Governments will give a third of the cost in repayable launch aid, with a further 20% coming from "risk-sharing" partners such as Saab and around $1bn from suppliers. The two AIC partners will contribute around 40% while Boeing is thought ready to spend up to $5bn on its stretched jumbo, the 747X.
Adolfo Revuelta, Eads programme chief, said the A400M would enter service at the end of March next year. Orders for 220 versions of the European rival to Boeing's C17 and Lockheed Martin's C130J are due to be confirmed this week from seven governments.1919