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Boeing Could Make Run at Buying BAE Systems

Such a deal would face regulatory and legal obstacles. CEO Condit says the U.S. aerospace company is looking for acquisitions in Europe.

March 08, 2003|James F. Peltz | Times Staff Writer

Boeing Co.'s chief executive said Friday that the aerospace giant was continuing to look at potential acquisitions in Europe, including the defense contractor that owns a stake in Boeing rival Airbus.

Any effort to buy BAE Systems, formerly British Aerospace, would receive tough scrutiny on antitrust grounds and face other regulatory obstacles, in part because BAE owns 20% of Airbus, Boeing's only major competitor in the market for commercial jetliners.

But Boeing Chairman and CEO Phil Condit said at a news conference in Brussels that BAE "could be a possibility -- we are looking at it."

"We are open to mergers and acquisitions," Condit said after meeting with Mario Monti, the antitrust chief for the European Union. Condit cautioned, however, that "there is nothing in the offing here shortly." He also declined to name other potential European acquisition candidates.

A Boeing-BAE deal, something the industry has buzzed about for years, would create an aerospace and defense behemoth. Chicago-based Boeing, one of Southern California's largest employers with 36,000 workers in the region, had sales last year of $54 billion. BAE's sales totaled $19 billion.

British regulations bar a foreign company from owning more than 15% of BAE's stock. Given that, "an outright merger is a remote possibility," said Peter Arment, vice president of JSA Research Inc., an aerospace consulting firm in Newport, R.I.

But Boeing might be thinking about buying pieces of the British company, he said. There is widespread speculation that BAE could be broken up soon.

Analysts said it was unclear what effect, if any, a BAE buy would have on Boeing's California operations, including its Long Beach plant, which turns out the 717 commercial jetliner.

BAE already has about 2,500 employees working on various programs in California, including 800 in Santa Monica, Westlake Village and Ontario who make airplane avionics equipment. Some 1,400 BAE workers in San Diego are involved with imaging and mapping technologies.

Talk about a sale of any or all of BAE is "purely speculative," said John Measell, a spokesman for BAE's North American unit in Arlington, Va. "We do not discuss these issues publicly."

In Brussels, Condit said Boeing wants to expand its European presence. BAE -- already a major supplier to Boeing and other U.S. defense contractors -- has made no secret of its desire to expand in the United States. BAE builds wing components for Boeing jetliners, among other U.S. programs.

Last year, BAE made a bid to buy the defense assets of TRW Inc. but lost out to Northrop Grumman Corp., the Century City-based defense concern. BAE also is building part of the planned Joint Strike Fighter, the next-generation U.S. warplane. BAE on its own makes military aircraft, along with submarines and other naval vessels.

BAE's market value has plunged 72% since July to about $5.7 billion because of weakness in the commercial aerospace market, cost overruns on some BAE programs and restructuring charges.

That has led to suggestions that the company might be broken up, in the hope that BAE's parts would be worth more when divided than kept together. Measell called that "speculative."

Boeing got a strong taste of European antitrust scrutiny six years ago when it wanted to buy rival U.S. aerospace manufacturer McDonnell Douglas Corp. The deal faced fierce opposition from EU officials and nearly sparked a transatlantic trade war, until Boeing finally was allowed to proceed after agreeing to certain contract changes.

On Friday, Boeing's stock hit a 52-week low of $25.40, before closing at $25.84, down 32 cents for the day on the New York Stock Exchange. The shares have tumbled 47% in the last 12 months.

Times wire services were used in compiling this report.

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